LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
-----------------------------------------------------------------------------------------------------
OBLIGOR # NOTE # AGREEMENT DATE
May 26, 1995
-----------------------------------------------------------------------------------------------------
CREDIT LIMIT INTEREST RATE B+1.75% OFFICER NO./INITIALS
$1,000,000.00 10.75% 48205 JOHN SUGG
-----------------------------------------------------------------------------------------------------
THIS AGREEMENT is entered into on May 26, 1995, between COMERICA BANK -
CALIFORNIA ("Bank") as secured party whose Headquarter Office is 333 West Santa
Clara Street, San Jose, CA and SONIC SYSTEMS ("Borrower"), a corporation whose
sole place of business (if it has only one), chief executive office (if it has
more than one place of business) or residence (if an individual) is located at
75 N. Pastoria, Suite 201, Sunnyvale, CA. The parties agree as follows:
1. DEFINITIONS
-----------
1.1 "Agreement" as used in this Agreement means and includes this
Loan & Security Agreement (Accounts and Inventory), any concurrent or
subsequent rider to this Loan & Security Agreement (Accounts and Inventory)
and any extensions, supplements or modifications to this Loan & Security
Agreement (Accounts and Inventory) and to any such rider.
1.2 "Bank Expense" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication
and search fees, appraiser fees, auditor fees and costs, and title
insurance premiums paid or incurred by Bank in collection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in
collecting the Receivables (with or without suit) to correct any default or
enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing
of, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated; costs and expenses of suit incurred by Bank
in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain
relief from any stay, restraining order, injunction or similar process
which prohibits Bank from exercising any of its rights or remedies; and
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Agreement, or any portion hereof or any agreement related
hereto, whether or not suit is brought. Bank Expenses shall include Bank's
in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes
all of the Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing
Borrower's assets, liabilities, Receivables,
1
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
business operations or financial condition, and all information relating
thereto, computer programs; computer disk or tape files; computer
printouts; computer runs; and other computer prepared information and
equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
eighty percent (80.00%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if any,
of the advances against inventory agreed to be made pursuant to any
Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be entered into
by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means for any applicable
period of determination, the Net Income (after deduction for income taxes
and other taxes of such person determined by reference to income or profits
of such person) for such period, plus, to the extent deducted in
computation of such Net Income, the amount of depreciation and amortization
expense and the amount of deferred tax liability during such period, all as
determined in accordance with GAAP. The applicable period of determination
will be ___________________, beginning with the period from _______________
to _______________.
1.7 "Collateral" as used in this Agreement means and includes each
and all of the following: the Receivables; the intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets
of Borrower in which Bank receives a security interest or which hereafter
come into the possession, custody or control of Bank; and the proceeds of
any of the foregoing, including, but not limited to, proceeds of insurance
covering the collateral and any and all Receivables, intangibles,
negotiable collateral, inventory, equipment, money, deposit accounts or
other tangible and intangible property of borrower resulting from the sale
or other disposition of the collateral, and the proceeds thereof.
Notwithstanding anything to the contrary contained herein, collateral shall
not include any waste or other materials which have been or may be
designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract,
instrument, note, or other separate agreement which, by its terms, provides
for a specified interest rate and term.
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer
receivables, United States government securities, claims against the United
States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (1) all liabilities of a person that
should be classified as current in accordance with GAAP, including without
limitation any portion of the principal of the indebtedness classified as
current, plus (2) to the extent not otherwise included, all liabilities of
the Borrower to any of its affiliates whether or not classified as current
in accordance with GAAP.
2
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a
given day, adding any new Credit advanced or incurred on such date, and
subtracting any payments or collections which are deemed to be paid and are
applied by Bank in reduction of the Credit on that date under the
provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within thirty (30)
days, or less, from the date of invoice, have been validly assigned to Bank
and strictly comply with all of Borrower's warranties and representations
to Bank; but Eligible Accounts shall not include the following: (a)
accounts with respect to which the account debtor is an officer, employee,
partner, joint venturer or agent of Borrower; (b) accounts with respect to
which goods are placed on consignment, guaranteed sale or other terms by
reason of which the payment by the account debtor may be conditional; (c)
accounts with respect to which the account debtor is not a resident of the
United States; (d) accounts with respect to which the account debtor is the
United States or any department, agency or instrumentality of the United
States; (e) accounts with respect to which the account debtor is any State
of the United States or any city, county, town, municipality or division
thereof; (f) accounts with respect to which the account debtor is a
subsidiary of, related to, affiliated or has common shareholders, officers
or directors with Borrower; (g) accounts with respect to which Borrower is
or may become liable to the account debtor for goods sold or services
rendered by the account debtor to Borrower; (h) accounts not paid by an
account debtor within ninety (90) days from the date of the invoice; (i)
accounts with respect to which account debtors dispute liability or make
any claim, or have any defense, crossclaim, counterclaim, or offset; (j)
accounts with respect to which any insolvency proceeding is filed by or
against the account debtor, or if an account debtor becomes insolvent,
fails or goes out of business; and (k) accounts owed by any single account
debtor which exceed twenty percent (20%) of all of the Eligible Accounts;
and (l) accounts with a particular account debtor on which over twenty-five
percent (25%) of the aggregate amount owing is greater than ninety (90)
days from the date of the invoice. Allow for 40% concentration on Ingram
Micro. Allow for foreign receivables less than 60 days. Also fifty percent
(50%) of foreign accounts receivable aged less than 60 days NTE 200,000.00.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes for
any applicable period of determination, the sum, without duplication, of
(a) all interest paid or payable during such period by a person on debt of
such person, plus (b) all payments of principal or other sums paid or
payable during such period by such person with respect to debt of such
person having a final maturity more than one year from the date of creation
of such debt, plus (c) all debt discount and expense amortized or required
to be amortized during such period by such person, plus (d) the maximum
amount of all rents and other payments paid or required to be paid by such
person during such period under any lease or other contract or arrangement
providing for use of real or personal property in respect
3
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
of which such person is obligated as a lessee, use or obligor, plus (e) all
dividends and other distributions paid or payable by such person or otherwise
accumulating during such period on any capital stock of such person, plus (f)
all loans or other advances made by such person during such period to any
Affiliate of such person. The applicable period of determination will be
_________________N/A_________, beginning with period from ___________to
_______________________.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such
period
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or
any guarantor of Borrower's Obligations, or any of Borrower's account
debtors, under any provisions of the Bankruptcy Code, as amended, or any
other bankruptcy or insolvency law, including but not limited to
assignments for the benefit of creditors, formal or informal moratoriums,
composition or extensions with some or all creditors any proceeding seeking
a reorganization arrangement or any other relief under the Bankruptcy code,
as amended, or any other bankruptcy or insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all
of Borrower's present and future general intangibles and other personal
property (including , without limitation, any and all rights in any legal
proceedings, goodwill, patents, trade names, copyrights, trademarks,
blueprints, drawings, purchase orders, computer programs, computer disks,
computer tapes, literature, reports, catalogs and deposit accounts) other
than goods and Receivables, as well as Borrower's Books relating to any of
the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including,
but not limited to, goods held by Borrower for sale or lease or to be
furnished under a contract of service and all of Borrower's present and
future raw materials, work in process, finished goods, advertising
materials, and packing and shipping materials, wherever located and any
documents of title representing any of the above, and any equipment,
fixture or other property used in the storing, moving, preserving,
identifying, accounting for and shipping or preparing for the shipping of
inventory, and any and all other items hereafter acquired by Borrower by
way of substitution, replacement, return, repossession or otherwise, and
all additions and accessions thereto, and the resulting product or mass,
and any documents of title respecting any of the above.
1.19 "Net Income" as used in this agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
a. any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or
credits on account on any excluded losses; and
4
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
b. in the case of the Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall
have actually been received by Borrower in the form of cash
distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means
and includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties
like or similar to the powers and duties of trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any
and all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to
any agreement authorizing Bank to charge Borrower's account), obligations,
lease payments, guaranties, covenants and duties owing by Borrower to Bank
of any kind and description whether advanced pursuant to or evidenced by
this Agreement; by any note or other instrument; or by any other agreement
between Bank and Borrower and whether or not for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including, without limitation, any
debt, liability or obligation owing from Borrower to others which Bank may
have obtained by assignment, participation, purchase or otherwise, and
further including, without limitation, all interest not paid when due and
all Bank Expenses which Borrower is required to pay or reimburse by this
Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and
includes any individual, corporation, partnership, joint venture,
association, trust, unincorporated association, joint stock company,
government, municipality, political subdivision or agency or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all merchandise
returned to or reclaimed by Borrower and the Borrower's books (except
minute books) relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to N/A
-----------------------------------
subordinate to the Indebtedness.
1.26 "Tangible Effective Net Worth" as used in this Agreement means
net worth as determined in accordance with GAAP consistently applied,
increased by
5
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
subordinated debt if any, and decreased by the following: patents,
licenses, goodwill, subscription lists, organization expenses, trade
receivables converted to notes, and money due from affiliated (including
officers, directors, subsidiaries and commonly held companies).
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of:
a. the net book value of all assets of a person (other than patents,
patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill, and similar intangible assets) after all
appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), over
b. all total liabilities of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of
all items of Indebtedness, obligation or liability which, in accordance
with GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property owned or
acquired, whether or not the obligations secured thereby shall have been
assumed; (b) all obligations which are capitalized lease obligations; and
(c) all guaranties, endorsements or other contingent or surety obligations
with respect to the indebtedness of others, whether or not reflected on the
balance sheets of the Borrower, including any obligation to furnish funds,
directly or indirectly through the purchase of goods, supplies, services,
or by way of stock purchase, capital contribution, advance or loan or any
obligation to enter into a contract for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter
referred to as the "Code") as amended.
2. LOAN AND TERMS OF PAYMENT
-------------------------
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing
Base; provided, however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the Daily Balance
exceeds, at any time, either the Borrowing Base or the sum of One
6
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
Million and no/100 ($1,000,000.00), such amount being referred to herein as
"Overadvance".
2.2 Except as hereinbelow provided, the Credit shall bear interest on
the Daily Balance owing, at a rate of one and 750/1000 (1.750%) percentage
points per annum above the Base Rate (the "Rate"). The Credit shall bear
interest, from and after the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, on the Daily Balance
owing, at a rate three (3) percentage points per annum above the Rate. All
interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360)
day year for actual days elapsed.
The Base Rate as of the date of this Agreement is Nine and
no/1000 (9.000%) per annum. In the event that the Base Rate announced is,
from time to time hereafter, changed, adjustment in the Rate shall be made
and based on the Base Rate in effect on the date of such change. The Rate,
as adjusted, shall apply to the Credit until the Base Rate is adjusted
again. The minimum interest payable by the Borrower under this Agreement
shall in no event be less than N/A per month. All
---------------------
interest payable by Borrower under the Credit shall be due and payable on
the first day of each calendar month during the term of this Agreement and
Bank may, at its option, elect to treat such interest and any and all Bank
Expenses as advances under the Credit, which amounts shall thereupon
constitute Obligations and shall thereafter accrue interest at the rate
applicable to the Credit under the Terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvice in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to
N/A ( N/A %) percentage points per month in excess of
--------------------- --------
the interest rate set forth in Section 2.2, from the date incurred and for
each month thereafter, until repaid in full.
3. TERM
----
3.1 This Agreement shall remain in full force and effect until
terminated by notice, by either party. Notice of such termination shall be
effectuated by mailing of a registered or certified letter not less than
thirty (30) days prior to the effective date of such termination, addressed
to the other party at the address set forth herein and the termination
shall be effective as of the date so fixed in such notice. Notwithstanding
the foregoing, should Borrower be in default of one or more of the
provisions of this Agreement. Bank may terminate this Agreement at any time
without notice. Notwithstanding the foregoing, should either Bank or
Borrower become insolvent or unable to meet its debts as they mature, or
fall, suspend, or go out of business, the other party shall have the right
to terminate this Agreement at any time without notice. On the date of
termination all Obligations shall become immediately due and payable
without notice or demand; no notice of termination by Borrower shall be
effective until Borrower shall have paid all Obligations to Bank in full.
Notwithstanding termination, until all Obligations have been fully
satisfied, Bank shall retain its security interest in all existing
7
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
Collateral and Collateral arising thereafter, and Borrower shall continue
to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the
execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its
covenants and Obligations under this Agreement and otherwise created.
Bank's security interest in the Collateral shall attach to all Collateral
without further act on the part of Bank or Borrower. In the event that any
Collateral, including proceeds, is evidenced by or consists of a letter of
credit, advice of credit, instrument, money, negotiable documents, chattel
paper or similar property (collectively "Negotiable Collateral"), Borrower
shall, immediately upon receipt thereof, endorse and assign such Negotiable
Collateral over to Bank and deliver actual physical possession of the
Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon
request from Bank, Borrower shall provide Bank with schedules describing
all Receivables created or acquired by Borrower (including without
limitation agings listing the names and addresses of, and amounts owing by
date by account debtors), and shall execute and deliver written assignments
of all Receivables to Bank all in a form acceptable to Bank, provided,
however, Borrower's failure to execute and deliver such schedules and/or
assignments shall not affect or limit Bank's security interest and other
rights in and to the Receivables. Together with each schedule, Borrower
shall furnish Bank with copies of Borrower's customers' invoices or the
equivalent, and original shipping or delivery receipts for all merchandise
sold, and Borrower warrants the genuineness thereof. Bank of Bank's
designee may notify customers or account debtors of collection costs and
expenses in Borrower's account but, unless and until Bank does so or gives
Borrower other written instructions, Borrower shall collect all Receivables
for Bank, receive in trust all payments thereon as Bank's trustee, and, if
so requested to do so from Bank, Borrower shall immediately deliver said
payments to Bank in their original form as received from the account debtor
and all letters of credit, advices of credit, instruments, documents,
chattel paper or any similar property evidencing or constituting
Collateral. Notwithstanding anything to the contrary contained herein, if
sales of inventory are made for cash, Borrower shall immediately deliver to
Bank, in identical form, all such cash, checks, or other forms of payment
which Borrower receives. The receipt of any check or other item of payment
by Bank shall not be considered a payment on account until such check or
other item of payment is honored when presented for payment, in which
event, said check
8
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
or other item of payment shall be deemed to have been paid to Bank two (2)
calendar days after the date Bank actually receives such check or other
item of payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Upon Bank's
request Borrower will from time to time at Borrower's expense pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account or store the same in a
warehouse in Bank's name; or deliver to Bank documents of title
representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a default by Borrower under
this Agreement or any other Agreement between Borrower and Bank, Borrower
may, subject to the provisions hereof and consistent herewith, sell the
inventory, but only in the ordinary course of Borrower's business. A sale
of inventory in Borrower's ordinary course of business does not include an
exchange or a transfer in partial or total satisfaction of a debt owing by
Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter
at the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of
title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, in form
satisfactory to Bank, to perfect and maintain perfected Bank's security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement. Borrower hereby irrevocably
makes, constitutes and appoints Bank (and any of Bank's officers, employees
or agents designated by Bank) as Borrower's true and lawful attorney-in-
fact with power to sign the name of Borrower on any financing statements,
continuation financing statements, security agreement, mortgage,
assignment, certificate of title, affidavit, letter of authority, notice of
other similar documents which must be executed and/or filed in order to
perfect or continue perfected Bank's security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books
disclosing Bank's security interest in the Receivables. Bank (through any
of its officers, employees or agents) shall have the right at any time or
times hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the
amount of condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may
designate as Borrower's attorney-in-fact, with power: to endorse Borrower's
name on any checks, notes, acceptances, money order, drafts or other forms
of payment or security that may come into Bank's possession; to sign
Borrower's name on any invoice or bill of lading relating to any
Receivables, on drafts against account debtors, on schedules and
assignments of Receivables, on verifications of Receivables and on notices
to account debtors; to establish a lock box arrangement and/or to notify
the post office authorities to change the address for delivery of
Borrower's mail addressed to Borrower to an address
9
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
designated by Bank, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower; to send, whether in writing or by telephone, requests for
verification of Receivables; and to do all things necessary to carry out
this Agreement. Borrower ratifies and approves all acts of the attorney-in-
fact. Neither Bank nor its attorney-in-fact will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law. This
power being coupled with an interest, is irrevocable so long as any
Receivables in which Bank has a security interest remain unpaid and until
the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank
is granted hereunder, Bank may, in its sole discretion, discharge any lien
or encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added
to the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to
this Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
5. CONDITIONS PRECEDENT
--------------------
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause
to be executed, and deliver to Bank, in form and substance satisfactory to
Bank and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1) in form satisfactory to Bank for
filing and recording with the appropriate governmental authorities;
c. If Borrower is a corporation, then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for
herein and authorizing specific officers to execute and deliver the
agreements provided for herein;
d. If Borrower is a corporation, then a certificate of good standing
showing that Borrower is in good standing under the laws of the state
of its incorporation and certificates indicating that Borrower is
qualified to transact business and is in good standing in any other
state in which it conducts business;
e. If Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of Borrower;
f. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other
similar documents which Bank may require and in such form as bank may
require, in order to reflect, perfect or protect Bank's first priority
security interest in the Collateral and in order to fully consummate
all of the transactions contemplated under this Agreement;
10
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real property
on which any Collateral is located; and
i. Warranties and representations of officers.
6. Warranties, Representations and Covenants
-----------------------------------------
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less
than the advances made hereunder. Bank shall have the right to recompute
Borrower's Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within ninety (90) days from the date
of invoice, or an account debtor disputes liability or makes any claim with
respect thereto, or a position in bankruptcy or other application for
relief under the Bankruptcy Code or any other insolvency law is filed by or
against an account debtor, or an account debtor makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business,
then Bank may deem ineligible any and all accounts owing by that account
debtor, and reduce Borrower's Borrowing Base by the amount thereof. Bank
shall retain its security interest in all Receivables and accounts, whether
eligible or ineligible, until all Obligations have been fully paid and
satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual
customary practices of the Borrower, as they exist at this time. Any
merchandise which is returned by an account debtor or otherwise recovered
shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all
disputes and claims and settle or adjust them on terms approved by Bank.
After default by Borrower hereunder, no discount, credit or allowance shall
be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank's consent. Bank may, after
default by Borrower, settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which Bank considers advisable,
and in such cases Bank will credit Borrower's account with only the net
amounts received by Bank in payment of the accounts, after deducting all
Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that;
a. Borrower has good and marketable title to the Collateral. Bank has
and shall continue to have a first priority perfected security
interest in and to the Collateral. The Collateral shall at all times
remain free and clear of all liens, encumbrances and security
interests (except those in favor of Bank).
11
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
b. All accounts are and will, at all times pertinent hereto, be bona fide
existing Obligations created by the sale and delivery of merchandise or the
rendition of services to account debtors in the ordinary course of
business, free of liens, claims, encumbrances and security interests
(except as held by Bank and except as may be consented to, in writing, by
Bank) and are unconditionally owed to Borrower with defenses, disputes,
offsets, counterclaims, rights of return or cancellation, and Borrower
shall have received no notice of actual or imminent bankruptcy or
insolvency of any account debtor at the time an account due from such
account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property giving rise
to such account shall have been delivered to the account debtor or to the
agent for the account debtor for immediate shipment to, and unconditional
acceptance by, the account debtor. Borrower shall deliver to Bank, as Bank
may from time to time require, delivery receipts, customer's purchase
orders, shipping instructions, bills of lading and any other evidence of
shipping arrangements. Absent such a request by Bank, copies of all such
documentation shall be held by Borrower as custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section 1.7, or
on such other terms approved in writing by Bank in advance of the creation of
such accounts and which are expressly set forth on the face of all invoices,
copies of which shall be held by Borrower as custodian for Bank, and no such
eligible account will then be past due.
6.5 Borrower shall keep the inventory only at the following locations:
_____________________________________________________ and the owner or
mortgagees of the respective locations are _____________________________________
______________________________________________________________________________.
a. Borrower, immediately upon demand by Bank therefor, shall now and from
time to time hereafter, at such intervals as are requested by Bank, deliver
to Bank, designations of inventory specifying Borrower's cost of Inventory,
the wholesale market value thereof and such other matters and information
relating to the Inventory as Bank may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost or the
wholesale market value thereof, at all times pertinent hereto shall not be
less than N/A Dollars ($ N/A ) which no less than N/A
---------- -------- -------------------
Dollars ($ N/A ) shall be in raw materials and finished
---------------------
goods;
c. All of the Inventory is and shall remain free from all purchase money
or other security interests, liens or encumbrances, except as held by Bank;
d. Borrower does now keep and hereafter at all times shall keep correct
and accurate records itemizing and describing the kind, type, quality and
quantity of
12
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
the Inventory, its cost therefor and selling price thereof, and the daily
withdrawals therefrom and additions thereto, all of which records shall be
available upon demand to any of Bank's officers, agents and employees for
inspection and copying;
e. All Inventory, now and hereafter at all times, shall be new inventory
of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times hereafter be
located or stored with a bailee, warehouseman or other third party without
Bank's prior written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman or other third
party to issue and deliver to Bank, in a form acceptable to Bank, warehouse
receipts in Bank's name evidencing the storage of Inventory or other
evidence of Bank's prior rights in the Inventory. In any event, Borrower
shall instruct any third party to hold all such inventory for Bank's
account subject to Bank's security interests and its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and examine
the Inventory and to check and test the same as to quality, quantity, value
and condition and Borrower agrees to reimburse Bank for Bank's reasonable
costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent:
a. Grant a security interest in or permit a lien, claim or encumbrance
upon any of the Collateral to any person, association, firm, corporation,
entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting any of
Borrower's assets;
c. Permit any judicial officer or assignees to be appointed or to take
possession of any or all of Borrower's assets;
d. Other than sales of inventory in the ordinary course of Borrower's
business, to sell, lease, or otherwise dispose of, move, or transfer,
whether by sale or otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate identity or structure;
add any new fictitious names, liquidate, merge or consolidate with or into
any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization;
13
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
h. Enter into any transaction not in the usual course of Borrower's
business;
i. Make any investment in securities of any person, association, firm,
entity, or corporation other than the securities of the United States of
America;
j. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely affect
the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts and interest thereon;
l. Make any advance or loan except in the ordinary course of Borrower's
business as currently conducted;
m. Make loans, advances or extensions of credit to any Person, except for
sales on open account and otherwise in the ordinary course of business;
n. Guarantee or otherwise, directly or indirectly, in any way be or become
responsible for obligations of any other person, whether by agreement to
purchase the indebtedness of any other Person, agreement for the furnishing
of funds to any other Person through the furnishing of goods, supplies or
services, by way of stock purchase, capital contribution, advance or loan,
for the purpose of paying or discharging (or causing the payment or
discharge of) the indebtedness of any other person, or otherwise, except
for the endorsement of negotiable instruments by the Borrower in the
ordinary course of business for deposit or collection;
o. (a) Sell, lease, transfer or otherwise dispose of properties and assets
having an aggregate book value of more than N/A Dollars ($ N/A )
------------- -------
(whether in one transaction or in a series of transactions) except as to
the sale of inventory in the ordinary course of business; (b) change its
name, consolidate with or merge into any other corporation, permit another
corporation to merge into it, acquire all or substantially all the
properties or assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock, or (c) enter into any
sale-leaseback transaction;
p. Purchase or hold beneficially any stock or other securities of, or make
any investment or acquire any interest whatsoever in, any other Person,
except for the common stock of the Subsidiaries owned by the Borrower on
the date of this Agreement and except for certificates of deposit with
maturities of one year or less of United States commercial banks with
capital, surplus and undivided profits in excess of One Hundred Million
Dollars ($100,000,000) and direct obligations of the United States
Government maturing within one year from the date of acquisition thereof;
q. Allow any fact, condition or event to occur or exist with respect to
any employee pension or profit sharing plans established or maintained by
it which
14
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
might constitute grounds for termination of any such plan or for the court
appointment of a trustee to administer any such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the twelve (12) months
preceding the filing by Bank of a financing statement describing the Collateral.
At no time hereafter shall Borrower's sales for resale goods for personal,
family or household purposes exceed seventy-five percent (75%) in dollar volume
of its total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows :
a. Borrower will not make any distribution or declare or pay any dividend
(in stock or in cash) to any shareholder or on any of its capital stock, of
any class, whether now or hereafter outstanding, or purchase, acquire,
repurchase, or redeem or retire any such capital stock;
b. Borrower is and shall at all times hereafter be a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in California or
any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to enter into
this Agreement; and
d. The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of incorporation
or by-laws.
6.10 The execution and performance by Borrower of all of the terms and
provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under an Agreement to which Borrower is now or
hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its acquisition by
purchase, lease or otherwise of any after acquired properly of the type included
in the Collateral, with the exception of purchases of inventory in the ordinary
course of business.
6.12 All assessments and taxes, whether real, personal or otherwise, due
or payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make
15
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
due and timely payment or deposit of all federal, state and local taxes,
assessments or contributions required of it by law, and will execute and deliver
to Bank, on demand, appropriate certificates attesting to the payment or deposit
thereof. Borrower will make timely payment or deposit of all F.I.C.A. payments
and withholding taxes required of it by applicable laws, and will upon request
furnish Bank with proof satisfactory to it that Borrower has made such payments
or deposit. If Borrower fails to pay any such assessment, tax, contribution, or
make such deposit, or furnish the required proof, Bank may, in its sole and
absolute discretion and without notice to Borrower, (i) make payment of the same
or any part thereof, or (ii) set up such reserves in Borrower's account as Bank
deems necessary to satisfy the liability therefor, or both. Bank may
conclusively rely on the usual statements of the amount owing or other official
statements issued by the appropriate governmental agency. Each amount so paid or
deposited by Bank shall constitute a Bank Expense and an additional advance to
Borrower.
6.13 There are no actions or proceedings pending by or against Borrower or
any guarantor of Borrower before any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the Agreement,
Borrower shall immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain it assets
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof, with a waiver of warranties (Form 438-BFU), and all process
payable thereunder shall be payable to Bank, and, upon receipt by Bank, shall be
applied on account of the Obligations owing to Bank. To secure the payment of
the Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof, and Borrower shall direct all insurers under such policies
of insurance to pay all proceeds thereof directly to Bank.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's officers,
employees or agents designated by Bank) as Borrower's attorney for the purpose
of making, selling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance.
Borrower will not cancel any of such policies
16
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
without Bank's prior written consent. Each such insurer shall agree by
endorsement upon the policy or policies of insurance issued by it to Borrower as
required above, or by independent instruments furnished to Bank, that it will
give Bank at least ten (10) days written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no act or default
of Borrower, or any other person, shall affect the right of Bank to recover
under such policy or policies of insurance required above or to pay any premium
in whole or in part relating thereto. Bank, without waiving or releasing any
Obligations or any Event of Default, may, but shall have no obligation to do so,
obtain and maintain such policies of insurance and pay such premiums and take
any other action with respect to such policies which Bank deems advisable. All
sums so disbursed by Bank, as well as reasonable attorneys' fees, court costs,
expenses and other charges relating thereto, shall constitute Bank Expenses and
are payable on demand.
6.15 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with GAAP consistently applied and there
has been no material adverse change in the financial condition of Borrower since
the submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied with
ledger and account cards and/or computer tapes and computer disks, computer
printouts and computer records pertaining to the Collateral which contain
information as may from time to time be requested by Bank, not modify or change
its method of accounting or enter into, modify or terminate any agreement
presently existing, or at any time hereafter entered into with any third party
accounting firm and/or service bureau for the preparation and/or storage of
Borrower's accounting records without the written consent of Bank first obtained
and without said accounting firm and/or service bureau agreeing to provide
information regarding the Receivables and Inventory and Borrower's financial
condition to Bank; permit Bank and any of its employees, offices or agents, upon
demand, during Borrower's usual business hours, or the usual business hour of
third persons having control thereof, to have access to and examine all of the
Borrower's Books relating to the Collateral, Borrower's Obligations to Bank.
Borrower's financial condition and the results of Borrower's operations and in
connection therewith, permit Bank or any of its agents, employees or officers to
copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the end of
each month, a company prepared balance sheet and profit and loss statement
covering Borrower's operations and deliver to Bank within ninety (90) days after
the end of each Borrower's fiscal years a(n) audited statement of the financial
condition of the Borrower for each such fiscal year, including but not limited
in, a balance sheet and profit and loss statement and any other report requested
by Bank relating to the Collateral and the financial condition of Borrowers, and
a certificate signed by an authorized employee of Borrower to the effect that
all reports, statements, computer disk or tape files, computer printouts,
computer runs, or other computer prepared information of any kind or nature
relating to the foregoing or documents delivered or caused to be delivered to
Bank under
17
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
its subparagraph are complete, correct and thoroughly present the financial
condition of Borrower and that there exists on the date of delivery to Bank no
condition or event which constitutes a breach or Event of Default under this
Agreement.
c. In addition to the financial statements requested above, the Borrower
agrees to provide Bank with the following schedules:
x Accounts Receivable Agings on a monthly basis
----- ---------
x Accounts Payable Agings on a monthly basis
----- ----------
_____ Job Progress Reports on a _________ basis; and
BORROWING BASE CERTIFICATE on a monthly basis
-------------------------- ---------
COMPLIANCE CERTIFICATE* on a monthly basis
---------
6.17 Borrower shall maintain the following financial ratios and covenants
on a consolidated and non-consolidated basis:
a. Working Capital in an amount not less than n/a
----------------------------
b. Tangible Effective Net Worth in an amount not less than $900,000.00
-----------
STEPPING UP TO $1,3000,000.00 AT 12/31/95
---------------------------------------------------------------------------
c. a ratio of Current Assets to Current Liabilities of not less than
1.25:1.00
-----------
___________________________________________________________________________
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than N/A
----------------------------------------------
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 2.5:1.00 STEPPING UP TO 2.0:1.00
--------------------------------
AT 12/31/95
-----------
___________________________________________________________________________
f. a ratio of Cash Flow to Fixed Charges of not less than 1.5:1.00
--------
MEASURED QUARTERLY AT 4 TIMES MOST RECENT QUARTER
---------------------------------------------------------------------------
g. Net Income after taxes of POSITIVE QUARTERLY, EXCEPT 3RD QTR '95
------------------------------------------
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds n/a Dollars ($
n/a ) in any fiscal year, and
i. MAXIMUM DILUTION NOT GREATER THAN 10%
----------------------------------------------------------------------
___________________________________________________________________________
18
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
______________________________________________________________________
______________________________________________________________________
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including offers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
*Compliance Certificate will reflect "rest periods" on the $200M
sublimit, and dilution.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning
its affair (or that of any guarantor) as Bank may request from time to time
hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which
constitutes a breach of or an event which constitutes an Event of Default
under this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for
all sums expended by Bank in connection with any action brought by Bank to
correct any default or enforce any provision of this Agreement, including
all Bank Expenses; Borrower authorizes and approves all advances and
payments by Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and
shall be conclusively presumed to have been relied on by Bank regardless of
any investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements
which Borrower shall give, or cause to be given, to Bank, either now or
hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank
and shall notify the Bank immediately in writing of the existence of any
other bank account, deposit account, or any other account into which money
can be deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has reason
to know that any reportable event with respect to any deferred compensation
plan has occurred, a statement of the chief financial officer of Borrower
setting forth the details concerning such reportable event and the action
which Borrower proposes to take with respect thereto, together with a copy
of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation. If a copy of such notice is available to Borrower;
(b) promptly after filing thereof with the United States Securities of
Labor or the Pension
19
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
Benefit Guaranty Corporation, copies of each annual report with respect to
each deferred compensation plan; (c) promptly after receipt thereof, a copy
of any notice Borrower may receive from the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any deferred
compensation plan; provided, however, this subparagraph shall not apply to
notice of general application issued by the Pension Benefit Guaranty
Corporation or the Internal Revenue Service; and (d) when the same is made
available to participants in the deferred compensation plan, all notices
and other forms of information from time to time disseminated to the
participants by the administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times thereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits.
6.25 Borrower shall maintain insurance on the life of ____________
in an amount not to be less than No/100 Dollars
--------------------
($ n/a ) under one more policies issued by insurance companies
-------------
satisfactory to Bank, which policies shall be assigned to Bank as security
for the indebtedness and on which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to
the following employees___________,__________________,___________to an
aggregate of N/A Dollars ($ N/A ) per
------------------------------, ------------
N/A
--------------------
7. EVENTS OF DEFAULT. Any one or more of the following events shall constitute
-----------------
a default by Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any
term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement, or any other present or
future agreement between Borrower and Bank;
b. If any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents to
Bank is not true and correct;
c. If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or
otherwise);
d. If there is a material impairment of the prospect of repayment of
all or any portion of Borrower's Obligations or a material impairment
of the value or priority of Bank's security interest in the
Collateral;
20
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
e. If all or any of Borrower's assets are attached, seized, subject to a
writ of distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within ten (10) days thereafter;
f. If any insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for its
dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
i. If a notice of lien, levy or assessment is filed of record with respect
to any or all of Borrower's assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
choate or otherwise, upon any or all of the Borrower's assets and the same
is not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any or
all of Borrower's assets and the same is not satisfied, dismissed or bonded
against within ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies, amends or changes
its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested
information or financial data pertaining to Bank's Collateral, Borrower's
financial condition or the results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration
of the maturity of Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise;
m. If Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if
any such warranty or representation is withdrawn by any officer or
director;
21
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
o. If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its
subordination or guaranty, becomes insolvent or an insolvency
Proceeding is commenced by or against any such subordinating party or
guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of N/A
-------------
percent (_______%) or more of the issued and outstanding stock of
Borrower; or
r. If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer
any such plan, shall have occurred and be continuing thirty (30) days
after written notice of such determination shall have been given to
Borrower by Bank, or any such Plan shall be terminated within the
meaning of Title IV of the Employment Retirement Income Security Act
("ERISA"), or a trustee shall be appointed by the appropriate United
States District Court to administer any such plan, or the Pension
Benefit Guaranty Corporation shall institute proceedings to terminate
any plan and in case of any event described in this Section 7.0, the
aggregate amount of the Borrower's liability to the Pension Benefit
Guaranty Corporation under Sections 4062, 4063 or 4064 of ERISA shall
exceed five percent (5%) of Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank
shall refrain from exercising its rights and remedies and Event of
Default shall thereafter not be deemed to have occurred by reason of
the occurrence of any of the events set forth in Sections 7.e, 7.f or
7.j of this Agreement if, within ten (10) days from the date thereof,
the same is released, discharged, dismissed, bonded against or
satisfied; provided, however, if the event is the institution of
insolvency Proceedings against Borrower, Bank shall not be obligated
to make advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES
--------------------------
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes for otherwise, immediately
due and payable to the Bank;
b. Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, or any other agreement between
Borrower and Bank;
22
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
c. Terminate this agreement as to any future liability or obligation of
Bank, but without affecting Bank's rights and security interests in the
Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter
the premises where the Collateral is located, take and maintain possession
of the Collateral and the premises (at no charge to Bank), or any part
thereof, and to pay, purchase, contest or compromise any encumbrance,
charge or lien which in the opinion of Bank appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith;
e. Without limiting Bank's rights under any security interest, Bank is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature as it pertains to the Collateral, in completing production
of, advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreement shall inure to Bank's
benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sales and sell (in the manner provided for herein) the
Inventory;
g. Sell or dispose the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
is commercially reasonable in the opinion of Bank. It is not necessary that
the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the Collateral as follows:
(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written
request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale of some
disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at
least five (5) calendar days before the date fixed of the sale,
or at least five (5) calendar days before the date on or after
which the
23
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
private sale or other disposition is to be made, unless the
Collateral is perishable or threatens to decline speedily in
value. Notice to persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses
as have been furnished to Bank;
(3) If the sale is to be a public sale, Bank shall also
give notice of the time and place by publishing a notice one
time at least five (5) calendar days before the date of the
sale in a newspaper of general circulation in the county in
which the sale is to be held; and
(4) Bank may credit bid and purchase at any public sale.
i. Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the Collateral
as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third
parties, to Borrower by Bank, or, in Bank's discretion, to any party
who Bank believes, in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in satisfaction of
an obligation within the meaning of 9505 of the Uniform Commercial
Code or an action under California Code of Civil Procedure 726, apply
any and all amounts maintained by Borrower as deposit accounts (as
that term is defined under 9105 of the Uniform Commercial Code) or
other accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent therewith as provided by law or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and no
waiver by Bank of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election or
acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY
------------------------------------------------
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future, or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual
24
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
official notice of the payment thereof shall be conclusive evidence that the
same was validly due and owing. Such payments shall constitute Bank Expenses and
additional advances to Borrower.
10. WAIVERS
-------
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and Borrower
waives the right to direct the application of any and all payments at any
time or times hereafter received by Bank on account of Borrower's
Obligations and Borrower agrees that Bank shall have the continuing
exclusive right to apply and reapply such payments in any manner as Bank
may deem advisable, notwithstanding any entry by Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension
or renewal of any or all commercial paper, accounts, documents,
instruments, chattel paper and guarantees at any time held by Bank on which
Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All
risk of loss, damage or destruction of Inventory shall be borne by
Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm
and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and
agrees that a Bank may contact directly any such accountants, accounting
firm and/or service bureau or consultant in order to obtain such
information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION
HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR
BREACH OF DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND
BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails
to pursue or enforce any term, such waiver, delay or failure to pursue or
enforce shall only be effective with respect to that single act and shall
not be construed to affect any subsequent transactions or Bank's right to
later pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION. All loans and advances heretofore, now or
-------------------------------
at any time or times hereafter made by Bank to Borrower under this Agreement or
any
25
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
other agreement between Bank and Borrower, shall constitute one loan secured by
Bank's security interests in the Collateral and by all other security interests,
liens, encumbrances heretofore, now or from time to time hereafter granted by
Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES. Unless otherwise provided in this Agreement, all notices or
-------
demands by either party on the other relating to this Agreement shall be in
writing and sent by regular United States mail, postage prepaid, properly
addressed to Borrower or to Bank at the addresses stated in this Agreement, or
to such other addresses as Borrower or Bank may from time to time specify to the
other in writing. Request to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE. Bank is hereby authorized to make loans and
-------------------------
advances hereunder upon telephonic or other instructions received from anyone
purporting to be an officer, employee, or representative of Borrower, or at the
discretion of Bank if said loans and advances are necessary to meet any
Obligations of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank's honor of, or failure to
honor, any such instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules, invoices or
-----------------------------------
other papers delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
involves or other papers and makes arrangements, at Borrower's expense, for
their return.
15. CHOICE OF LAW. The validity of this Agreement, its construction,
-------------
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or the County of Santa
Clara.
16. GENERAL PROVISIONS
------------------
16.1 This Agreement shall be binding and deemed effective when
executed by the Borrower and accepted and executed by Bank at its
headquarter office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided,
however, that Borrower may not assign this Agreement or any rights
hereunder without Bank's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by
26
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
Bank shall release Borrower or any guarantor from their Obligations to
Bank. Bank may assign this Agreement and its rights and duties hereunder.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in Bank's rights and
benefits hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this
entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any
rule of construction or otherwise; on the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish the
purposes and intentions of all parties hereto. When permitted by the
context, the singular includes the plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as
to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations,
if any, with respect to the subject matter hereof, are merged into this
Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers, liabilities, obligations and discretions shall be
performed, carried out, discharged and exercised reasonably and in good
faith.
27
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
16.8 In addition, if this Agreement is secured by a deed of trust or
mortgage covering real property, then the trustor or mortgagor shall not
mortgage or pledge the mortgaged premises as security for any other
indebtedness or obligations. This Agreement, together with all other
indebtedness secured by said deed of trust or mortgage, shall become due
and payable immediately, without notice, at the option of Bank, (a) if said
trustor or mortgagor shall mortgage or pledge the mortgaged premises or any
other indebtedness or obligations or shall convey, assign or transfer the
mortgaged premises by deed, installment sale contract or other instrument;
(b) if the title to the mortgaged premises shall become vested in any other
person or party in any manner whatsoever, or (c) if there is any
disposition (through one or more transactions ) of legal or beneficial
title to a controlling interest of said trustor or mortgagor.
IN WITNESS WHEREOF, the parties hereto have caused this Loan & Security
Agreement (Accounts and Inventory) to be executed as of the date first
hereinabove written.
ATTEST:
__________________________________
Title:
BORROWER: SONIC SYSTEMS
Accepted and effective as of May 26, 1995 By: /s/ Sreekanth Ravi
------------------------------
at Bank's Headquarter Office Signature of
Title:____________________________
COMERICA BANK - CALIFORNIA By:_______________________________
Signature of
By: /s./ John Sugg Title:____________________________
------------------------------
Signature of John Sugg
Title:____________________________ By:_______________________________
Signature of
Title:____________________________
By:_______________________________
Title:____________________________
28
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
FIRST MODIFICATION TO LOAN & SECURITY AGREEMENT
-----------------------------------------------
This First Modification to Loan & Security Agreement (this "Modification")
is entered into by and between SONIC SYSTEMS ("Borrower") and Comerica Bank-
California ("Bank") as of this 9th day of JULY, 1996, at San Jose, California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (Accounts & Inventory) (the
"Agreement") dated May 26, 1995.
B. Borrower has requested, and Bank has agreed, to modify the Agreement
as set forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Section 1.5 "Borrowing Base" as used in this Agreement means the sum of (1)
SEVENTY-FIVE percent (75%) of the net amount of Eligible
------------ ---
Accounts after deducting therefrom all payments, adjustments and
credits applicable thereto ("Accounts Receivable Borrowing
Base"); and (2) the amount, if any, of the advances against
Inventory agreed to be made pursuant to any Inventory Rider
("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be
entered into by Bank and borrower.
Section 2.4 A fee of 25bp on the unused commitment is to be calculated and
payable in arrears on a quarterly basis.
Section 6.16d Decrease the periodic A/R audits to at least one per year versus
the approved at least 2 per year.
Section 6.16e Management letter required with annual CPA audited financial
statements.
Section 6.17b Tangible Effective Net Worth in an amount not less than
----
$600,000.00 stepping up to $900,000.00 at 12/31/96.
--------------------------------------------------
29
Section 6.17e A ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 3.40:1.00 to step down
----------------------
to 3.00:1.00 at 12/31/96, Borrower to be below 3.10:1.00
--------------------------------------------------------
leverage in order to borrow.
---------------------------
Section 6.17g Net Income after taxes of quarterly profitability, except to
----------------------------------
allow loss for 3rd quarter 1996.
-------------------------------
Incorporation by Reference. The Agreement as modified hereby
--------------------------
and the Recitals are incorporated herein by this reference.
Legal Effect. Except as specifically set forth in this
------------
Modification, all of the terms and conditions of the Agreement remain in full
force and effect.
Integration. This is an integrated Modification and
-----------
supersedes all prior negotiations and agreements regarding the subject matter
hereof. All amendments hereto must be in writing and signed by the parties.
WITNESS WHEREOF, the parties have agreed as of the date
first set forth above.
BORROWER: BANK:
SONIC SYSTEMS COMERICA BANK-CALIFORNIA
By: /s/ Sreekanth Ravi By: /s/ John Sugg
---------------------------- --------------------------------
John Sugg
Title: President/CEO Vice President
-------------------------
By: /s/ Sudhakar Ravi
----------------------------
Title: VP Engineering
-------------------------
30
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
MODIFICATION TO THE LOAN & SECURITY AGREEMENT
---------------------------------------------
This second Modification to Loan & Security Agreement (this "Modification")
is entered into by and between SONIC SYSTEMS ("Borrower") and COMERICA BANK-
CALIFORNIA ("Bank") as of this 24th day of December, 1997, at San Jose,
California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (Accounts & Inventory) (the
"Agreement") dated May 26, 1995.
B. Borrower has requested, and Bank has agreed, to modify the Agreement
as set forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
--------------------------
Recitals are incorporated herein by this reference.
SECTION 6.17 Borrower shall maintain the following financial ratios and
covenants:
(b) Tangible Effective Net Worth in an amount not less than
$900,000.00
(e) A ratio of Total Liabilities (less debt subordinated to
Bank) to Tangible Effective Net Worth of less than
2.50.00:1.00.
Legal Effect. Except as specifically set forth in this Modification, all
------------
of the terms and conditions of the Agreement remain in full force and effect.
31
Exhibit 10.5
LOAN & SECURITY AGREEMENT
(Accounts & Inventory
Integration. This is an integrated Modification and supersedes all prior
-----------
negotiations and agreements regarding the subject matter hereof. All amendments
hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
SONIC SYSTEMS COMERICA BANK-CALIFORNIA
By: /s/ Sreekanth Ravi By: /s/ John Sugg
-------------------------- --------------------------
Sreekanth Ravi John Sugg
President Vice President
By: /s/ Sudhakar Ravi
--------------------------
Sudhakar Ravi
Vice President
32
Loan and Security Agreement - Comerica Bank California and Sonic Systems
Was this helpful?