Exhibit 10.38

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 6, 2008 (the
“Effective Date”) between SILICON VALLEY BANK, a California corporation with a
loan production office located at One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts 02462 (“Bank”), and NMS COMMUNICATIONS
CORPORATION, a Delaware corporation (“Borrower”), provides the terms on which
Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as
follows:

 

1             ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following GAAP.  Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13.  All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

2             LOAN AND TERMS OF PAYMENT

 

2.1                               PROMISE TO PAY.  BORROWER HEREBY
UNCONDITIONALLY PROMISES TO PAY BANK THE OUTSTANDING PRINCIPAL AMOUNT OF ALL
CREDIT EXTENSIONS AND ACCRUED AND UNPAID INTEREST THEREON AS AND WHEN DUE IN
ACCORDANCE WITH THIS AGREEMENT.

 

2.1.1                     REVOLVING ADVANCES.

 

(A)                                  AVAILABILITY.  SUBJECT TO THE TERMS AND
CONDITIONS OF THIS AGREEMENT, BANK SHALL MAKE ADVANCES NOT EXCEEDING THE
AVAILABILITY AMOUNT.  AMOUNTS BORROWED UNDER THE REVOLVING LINE MAY BE REPAID
AND, PRIOR TO THE REVOLVING LINE MATURITY DATE, REBORROWED, SUBJECT TO THE
APPLICABLE TERMS AND CONDITIONS PRECEDENT HEREIN.

 

(B)                                 TERMINATION; REPAYMENT.  THE REVOLVING LINE
TERMINATES ON THE REVOLVING LINE MATURITY DATE, WHEN THE PRINCIPAL AMOUNT OF ALL
ADVANCES, THE UNPAID INTEREST THEREON, AND ALL OTHER OBLIGATIONS RELATING TO THE
REVOLVING LINE SHALL BE IMMEDIATELY DUE AND PAYABLE.

 

2.1.2                     LETTERS OF CREDIT SUBLIMIT.

 

(a)           As part of the Revolving Line, Bank shall issue or have issued
Letters of Credit for Borrower’s account.  The face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) may not exceed Six Million Dollars ($6,000,000.00),
inclusive of Credit Extensions relating to Sections 2.1.1, 2.1.3 and 2.1.4. 
Such aggregate amounts utilized hereunder shall at all times reduce the amount
otherwise available for Advances under the Revolving Line.  If, on the Revolving
Line Maturity Date, there are any outstanding Letters of Credit, then on such
date Borrower shall provide to Bank cash collateral in an amount equal to 105%
of the face amount of all such Letters of Credit plus all interest, fees, and
costs due or to become due in connection therewith (as estimated by Bank in its
reasonable business judgment), to secure all of the Obligations relating to said
Letters of Credit.  All Letters of Credit shall be in form and substance
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank’s standard Application and Letter of Credit Agreement (the
“Letter of Credit Application”).  Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request.  Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto.

 

(b)           The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, such Letters of Credit, and the Letter of Credit Application.

 

(c)           Borrower may request that Bank issue a Letter of Credit payable in
a Foreign Currency.  If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent
of the amount thereof (plus fees and charges in connection therewith such as
wire, cable,

 

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SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in
San Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

 

(d)                                 To guard against fluctuations in currency
exchange rates, upon the issuance of any Letter of Credit payable in a Foreign
Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the
Revolving Line in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit.  The amount of the Letter of Credit Reserve may be
adjusted by Bank from time to time to account for fluctuations in the exchange
rate.  The availability of funds under the Revolving Line shall be reduced by
the amount of such Letter of Credit Reserve for as long as such Letter of Credit
remains outstanding.

 

2.1.3                     FOREIGN EXCHANGE SUBLIMIT.  AS PART OF THE REVOLVING
LINE, BORROWER MAY ENTER INTO FOREIGN EXCHANGE CONTRACTS WITH BANK UNDER WHICH
BORROWER COMMITS TO PURCHASE FROM OR SELL TO BANK A SPECIFIC AMOUNT OF FOREIGN
CURRENCY (EACH, A “FX FORWARD CONTRACT”) ON A SPECIFIED DATE (THE “SETTLEMENT
DATE”).  FX FORWARD CONTRACTS SHALL HAVE A SETTLEMENT DATE OF AT LEAST ONE
(1) FX BUSINESS DAY AFTER THE CONTRACT DATE AND SHALL BE SUBJECT TO A RESERVE OF
TEN PERCENT (10%) OF EACH OUTSTANDING FX FORWARD CONTRACT IN A MAXIMUM AGGREGATE
AMOUNT EQUAL TO SIX MILLION DOLLARS ($6,000,000.00) (THE “FX RESERVE”),
INCLUSIVE OF CREDIT EXTENSIONS RELATING TO SECTIONS 2.1.1, 2.1.2 AND 2.1.4.  THE
AGGREGATE AMOUNT OF FX FORWARD CONTRACTS AT ANY ONE TIME MAY NOT EXCEED TEN
(10) TIMES THE AMOUNT OF THE FX RESERVE.  THE AMOUNT OTHERWISE AVAILABLE FOR
CREDIT EXTENSIONS UNDER THE REVOLVING LINE SHALL BE REDUCED BY AN AMOUNT EQUAL
TO TEN PERCENT (10%) OF EACH OUTSTANDING FX FORWARD CONTRACT.  ANY AMOUNTS
NEEDED TO FULLY REIMBURSE BANK WILL BE TREATED AS ADVANCES UNDER THE REVOLVING
LINE AND WILL ACCRUE INTEREST AT THE INTEREST RATE APPLICABLE TO ADVANCES.

 

2.1.4                     CASH MANAGEMENT SERVICES SUBLIMIT.  BORROWER MAY USE
UP TO SIX MILLION DOLLARS ($6,000,000.00) (THE “CASH MANAGEMENT SERVICES
SUBLIMIT”), INCLUSIVE OF CREDIT EXTENSIONS RELATING TO SECTIONS 2.1.1, 2.1.2 AND
2.1.3 OF THE REVOLVING LINE FOR BANK’S CASH MANAGEMENT SERVICES WHICH MAY
INCLUDE MERCHANT SERVICES, DIRECT DEPOSIT OF PAYROLL, BUSINESS CREDIT CARD, AND
CHECK CASHING SERVICES IDENTIFIED IN BANK’S VARIOUS CASH MANAGEMENT SERVICES
AGREEMENTS (COLLECTIVELY, THE “CASH MANAGEMENT SERVICES”).  THE DOLLAR AMOUNT OF
ANY CASH MANAGEMENT SERVICES PROVIDED UNDER THIS SUBLIMIT WILL REDUCE THE AMOUNT
OTHERWISE AVAILABLE UNDER THE REVOLVING LINE.  ANY AMOUNTS USED OR RESERVED BY
BORROWER FOR ANY CASH MANAGEMENT SERVICES WILL REDUCE THE AMOUNT OTHERWISE
AVAILABLE FOR CREDIT EXTENSIONS UNDER THE REVOLVING LINE.  ANY AMOUNTS BANK PAYS
ON BEHALF OF BORROWER FOR ANY CASH MANAGEMENT SERVICES WILL BE TREATED AS
ADVANCES UNDER THE REVOLVING LINE AND WILL ACCRUE INTEREST AT THE INTEREST RATE
APPLICABLE TO ADVANCES.

 

2.2                               OVERADVANCES.  IF, AT ANY TIME, THE CREDIT
EXTENSIONS OUTSTANDING UNDER SECTIONS 2.1.1, 2.1.2, 2.1.3 AND 2.1.4 EXCEED THE
LESSER OF EITHER (A) THE REVOLVING LINE OR (B) THE BORROWING BASE, BORROWER
SHALL IMMEDIATELY PAY TO BANK IN CASH SUCH EXCESS.  NOTWITHSTANDING THE
FOREGOING, IF AT ANY TIME DURING ANY NON-FORMULA PERIOD, THE CREDIT EXTENSIONS
OUTSTANDING UNDER SECTIONS 2.1.1, 2.1.2, 2.1.3 AND 2.1.4 EXCEED THE NON-FORMULA
AMOUNT (AN “OVERADVANCE”), THEN, WITHIN FIFTEEN (15) DAYS OF THE DATE OF ANY
SUCH OVERADVANCE (THE “OVERADVANCE CURE PERIOD”), BORROWER SHALL (A) MAKE
PAYMENTS TO BANK AND/OR DEPOSIT UNRESTRICTED CASH WITH BANK IN AN AMOUNT
SUFFICIENT TO CURE THE OVERADVANCE, OR (B) PROVIDE BANK WITH A BORROWING BASE
CERTIFICATE WHICH EVIDENCES THAT BORROWER HAS ELIGIBLE ACCOUNTS EQUAL TO AT
LEAST ONE HUNDRED TWENTY-FIVE PERCENT (125%) OF THE AGGREGATE AMOUNT OF THE
CREDIT EXTENSIONS (NOT MERELY THE OVERADVANCE) WHICH ARE OUTSTANDING UNDER
SECTIONS 2.1.1, 2.1.2, 2.1.3 AND 2.1.4.  BORROWER MAY NOT HAVE MORE THAN ONE
(1) OVERADVANCE CURE PERIOD DURING EACH ROLLING THIRTY (30) DAY PERIOD.  THE
FAILURE OF BORROWER TO COMPLY WITH THE PROVISION IN THE IMMEDIATELY PRECEDING
SENTENCE SHALL RESULT IN AN IMMEDIATE EVENT OF DEFAULT FOR WHICH THERE SHALL BE
NO GRACE OR CURE PERIOD.

 

2.3                               PAYMENT OF INTEREST ON THE CREDIT EXTENSIONS.

 

(A)                                  INTEREST RATE.  SUBJECT TO SECTION 2.3(B),
THE PRINCIPAL AMOUNT OUTSTANDING UNDER THE REVOLVING LINE SHALL ACCRUE INTEREST
AT A FLOATING PER ANNUM RATE EQUAL TO THE PRIME RATE, WHICH INTEREST SHALL BE
PAYABLE MONTHLY IN ARREARS IN ACCORDANCE WITH SECTION 2.3(F) BELOW.

 

(B)                                 DEFAULT RATE. IMMEDIATELY UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, OBLIGATIONS SHALL
BEAR INTEREST AT A RATE PER ANNUM WHICH IS FOUR PERCENTAGE POINTS ABOVE THE RATE
EFFECTIVE IMMEDIATELY BEFORE THE EVENT OF DEFAULT (THE “DEFAULT RATE”).  PAYMENT
OR ACCEPTANCE OF THE INCREASED INTEREST RATE PROVIDED IN THIS SECTION 2.3(B) IS
NOT A PERMITTED ALTERNATIVE TO TIMELY PAYMENT AND SHALL NOT CONSTITUTE A WAIVER
OF ANY EVENT OF DEFAULT OR OTHERWISE PREJUDICE OR LIMIT ANY RIGHTS OR REMEDIES
OF BANK.

 

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(C)           ADJUSTMENT TO INTEREST RATE.  CHANGES TO THE INTEREST RATE OF ANY
CREDIT EXTENSION BASED ON CHANGES TO THE PRIME RATE SHALL BE EFFECTIVE ON THE
EFFECTIVE DATE OF ANY CHANGE TO THE PRIME RATE AND TO THE EXTENT OF ANY SUCH
CHANGE.

 

(D)           360-DAY YEAR.  INTEREST SHALL BE COMPUTED ON THE BASIS OF A
360-DAY YEAR FOR THE ACTUAL NUMBER OF DAYS ELAPSED.

 

(E)           DEBIT OF ACCOUNTS.  BANK MAY DEBIT THE DESIGNATED DEPOSIT ACCOUNT,
FOR PRINCIPAL AND INTEREST PAYMENTS OR ANY OTHER AMOUNTS BORROWER OWES BANK WHEN
DUE.  THESE DEBITS SHALL NOT CONSTITUTE A SET-OFF.

 

(F)            PAYMENTS.  UNLESS OTHERWISE PROVIDED, INTEREST IS PAYABLE MONTHLY
ON THE FIRST (1ST) CALENDAR CAY OF EACH MONTH.  PAYMENTS OF PRINCIPAL AND/OR
INTEREST RECEIVED AFTER 12:00 NOON EASTERN TIME ARE CONSIDERED RECEIVED AT THE
OPENING OF BUSINESS ON THE NEXT BUSINESS DAY.  WHEN A PAYMENT IS DUE ON A DAY
THAT IS NOT A BUSINESS DAY, THE PAYMENT IS DUE THE NEXT BUSINESS DAY AND
ADDITIONAL FEES OR INTEREST, AS APPLICABLE, SHALL CONTINUE TO ACCRUE.

 

2.4          EARLY TERMINATION.  THIS AGREEMENT MAY BE TERMINATED PRIOR TO THE
REVOLVING LINE MATURITY DATE AS FOLLOWS: (I) BY BORROWER, EFFECTIVE THREE
BUSINESS DAYS AFTER WRITTEN NOTICE OF TERMINATION IS GIVEN TO BANK; OR (II) BY
BANK AT ANY TIME AFTER THE OCCURRENCE OF  AN EVENT OF DEFAULT, WITHOUT NOTICE,
EFFECTIVE IMMEDIATELY.  IF THIS AGREEMENT IS TERMINATED (A) BY BANK IN
ACCORDANCE WITH CLAUSE (II) IN THE FOREGOING SENTENCE, OR (B) BY BORROWER FOR
ANY REASON, BORROWER SHALL PAY TO BANK A TERMINATION FEE IN AN AMOUNT EQUAL TO
ONE PERCENT (1.0%) OF THE REVOLVING LINE (THE “EARLY TERMINATION FEE”).  THE
EARLY TERMINATION FEE SHALL BE DUE AND PAYABLE ON THE EFFECTIVE DATE OF SUCH
TERMINATION AND THEREAFTER SHALL BEAR INTEREST AT A RATE EQUAL TO THE HIGHEST
RATE APPLICABLE TO ANY OF THE OBLIGATIONS.  NOTWITHSTANDING THE FOREGOING, BANK
AGREES TO WAIVE THE EARLY TERMINATION FEE IF BANK AGREES TO REFINANCE AND
REDOCUMENT THIS AGREEMENT UNDER ANOTHER DIVISION OF BANK (IN ITS SOLE AND
EXCLUSIVE DISCRETION) PRIOR TO THE REVOLVING LINE MATURITY DATE.

 

2.5          FEES.  BORROWER SHALL PAY TO BANK:

 

(A)           COMMITMENT FEE.  A NON-REFUNDABLE COMMITMENT FEE OF TWENTY-TWO
THOUSAND FIVE HUNDRED DOLLARS ($22,500.00) WAS PREVIOUSLY FULLY EARNED UPON
BORROWER’S EXECUTION OF THE TERM SHEET AND SHALL BE DUE AND PAYABLE ON THE
EFFECTIVE DATE;

 

(B)           LETTER OF CREDIT FEE.  BANK’S CUSTOMARY FEES AND EXPENSES FOR THE
ISSUANCE OR RENEWAL OF LETTERS OF CREDIT, UPON THE ISSUANCE, EACH ANNIVERSARY OF
THE ISSUANCE, AND THE RENEWAL OF SUCH LETTER OF CREDIT;

 

(C)           UNUSED REVOLVING LINE FACILITY FEE.  A FEE (THE “UNUSED REVOLVING
LINE FACILITY FEE”), PAYABLE QUARTERLY, IN ARREARS, ON A CALENDAR YEAR BASIS, IN
AN AMOUNT EQUAL TO ONE-HALF OF ONE PERCENT (0.50%) PER ANNUM OF THE AVERAGE
UNUSED PORTION OF THE REVOLVING LINE, AS DETERMINED BY BANK.  BORROWER SHALL NOT
BE ENTITLED TO ANY CREDIT, REBATE OR REPAYMENT OF ANY UNUSED REVOLVING LINE
FACILITY FEE PREVIOUSLY EARNED BY BANK PURSUANT TO THIS SECTION NOTWITHSTANDING
ANY TERMINATION OF THE AGREEMENT OR THE SUSPENSION OR TERMINATION OF BANK’S
OBLIGATION TO MAKE LOANS AND ADVANCES HEREUNDER;

 

(D)           EARLY TERMINATION FEE.  THE EARLY TERMINATION FEE, WHEN DUE AND
PAYABLE HEREUNDER;

 

(E)           BANK EXPENSES.  ALL BANK EXPENSES INCURRED THROUGH AND AFTER THE
EFFECTIVE DATE, WHEN DUE.

 

3             CONDITIONS OF LOANS

 

3.1          CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.  BANK’S
OBLIGATION TO MAKE THE INITIAL CREDIT EXTENSION IS SUBJECT TO THE CONDITION
PRECEDENT THAT BANK SHALL HAVE RECEIVED, IN FORM AND SUBSTANCE SATISFACTORY TO
BANK, SUCH DOCUMENTS, AND COMPLETION OF SUCH OTHER MATTERS, AS BANK MAY
REASONABLY DEEM NECESSARY OR APPROPRIATE, INCLUDING, WITHOUT LIMITATION:

 

(A)           DULY EXECUTED ORIGINAL SIGNATURES TO THE LOAN DOCUMENTS TO WHICH
IT IS A PARTY;

 

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(B)                                 BORROWER SHALL HAVE DELIVERED ITS OPERATING
DOCUMENTS AND A GOOD STANDING CERTIFICATE OF BORROWER AND GUARANTOR CERTIFIED BY
THE SECRETARY OF STATE OF THE STATE OF DELAWARE AS OF A DATE NO EARLIER THAN
THIRTY (30) DAYS PRIOR TO THE EFFECTIVE DATE;

 

(C)                                  DULY EXECUTED ORIGINAL SIGNATURES TO THE
COMPLETED BORROWING RESOLUTIONS FOR BORROWER;

 

(D)                                 WITH RESPECT TO BOTH BORROWER AND GUARANTOR,
BANK SHALL HAVE RECEIVED CERTIFIED COPIES, DATED AS OF A RECENT DATE, OF
FINANCING STATEMENT SEARCHES, AS BANK SHALL REQUEST, ACCOMPANIED BY WRITTEN
EVIDENCE (INCLUDING ANY CODE TERMINATION STATEMENTS) THAT THE LIENS INDICATED IN
ANY SUCH FINANCING STATEMENTS EITHER CONSTITUTE PERMITTED LIENS OR HAVE BEEN OR,
IN CONNECTION WITH THE INITIAL CREDIT EXTENSION, WILL BE TERMINATED OR RELEASED;

 

(E)                                  UNCONDITIONAL GUARANTY BY THE GUARANTOR;

 

(F)                                    SECURITY AGREEMENT BY THE GUARANTOR;

 

(G)                                 BORROWER SHALL HAVE DELIVERED A LEGAL
OPINION OF BORROWER’S AND EACH GUARANTOR’S COUNSEL DATED AS OF THE EFFECTIVE
DATE TOGETHER WITH THE DULY EXECUTED ORIGINAL SIGNATURES THERETO;

 

(H)                                 BORROWER SHALL HAVE DELIVERED EVIDENCE
SATISFACTORY TO BANK THAT THE INSURANCE POLICIES REQUIRED BY SECTION 6.5 HEREOF
ARE IN FULL FORCE AND EFFECT, TOGETHER WITH APPROPRIATE EVIDENCE SHOWING LOSS
PAYABLE AND/OR ADDITIONAL INSURED CLAUSES OR ENDORSEMENTS IN FAVOR OF BANK; AND

 

(I)                                     BORROWER SHALL HAVE PAID THE FEES AND
BANK EXPENSES THEN DUE AS SPECIFIED IN SECTION 2.5 HEREOF.

 

3.2                               CONDITIONS PRECEDENT TO ALL CREDIT
EXTENSIONS.  BANK’S OBLIGATIONS TO MAKE EACH CREDIT EXTENSION, INCLUDING THE
INITIAL CREDIT EXTENSION, IS SUBJECT TO THE FOLLOWING:

 

(A)                                  EXCEPT AS OTHERWISE PROVIDED IN
SECTION 3.4, TIMELY RECEIPT OF AN EXECUTED PAYMENT/ADVANCE FORM;

 

(B)                                 THE REPRESENTATIONS AND WARRANTIES IN
SECTION 5 SHALL BE TRUE, ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS ON THE
DATE OF THE PAYMENT/ADVANCE FORM AND ON THE FUNDING DATE OF EACH CREDIT
EXTENSION; PROVIDED, HOWEVER, THAT SUCH MATERIALITY QUALIFIER SHALL NOT BE
APPLICABLE TO ANY REPRESENTATIONS AND WARRANTIES THAT ALREADY ARE QUALIFIED OR
MODIFIED BY MATERIALITY IN THE TEXT THEREOF; AND PROVIDED, FURTHER THAT THOSE
REPRESENTATIONS AND WARRANTIES EXPRESSLY REFERRING TO A SPECIFIC DATE SHALL BE
TRUE, ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS AS OF SUCH DATE, AND NO
DEFAULT OR EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING OR RESULT FROM
THE CREDIT EXTENSION.  EACH CREDIT EXTENSION IS BORROWER’S REPRESENTATION AND
WARRANTY ON THAT DATE THAT THE REPRESENTATIONS AND WARRANTIES IN SECTION 5
REMAIN TRUE IN ALL MATERIAL RESPECTS; PROVIDED, HOWEVER, THAT SUCH MATERIALITY
QUALIFIER SHALL NOT BE APPLICABLE TO ANY REPRESENTATIONS AND WARRANTIES THAT
ALREADY ARE QUALIFIED OR MODIFIED BY MATERIALITY IN THE TEXT THEREOF; AND
PROVIDED, FURTHER THAT THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY REFERRING
TO A SPECIFIC DATE SHALL BE TRUE, ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS
AS OF SUCH DATE; AND

 

(C)                                  IN BANK’S SOLE DISCRETION, THERE HAS NOT
BEEN ANY MATERIAL IMPAIRMENT IN THE GENERAL AFFAIRS, SENIOR MANAGEMENT, RESULTS
OF OPERATION, FINANCIAL CONDITION OR THE PROSPECT OF REPAYMENT OF THE
OBLIGATIONS, NOR HAS THERE BEEN ANY MATERIAL ADVERSE DEVIATION BY BORROWER FROM
THE MOST RECENT BUSINESS PLAN OF BORROWER PRESENTED TO AND ACCEPTED BY BANK.

 

3.3                               COVENANT TO DELIVER.

 

Borrower agrees to deliver to Bank each item required to be delivered to Bank
under this Agreement as a condition to any Credit Extension.  Borrower expressly
agrees that the extension of a Credit Extension prior to the receipt by Bank of
any such item shall not constitute a waiver by Bank of Borrower’s obligation to
deliver such item, and any such extension in the absence of a required item
shall be in Bank’s sole discretion.

 

3.4                               PROCEDURES FOR BORROWING.  SUBJECT TO THE
PRIOR SATISFACTION OF ALL OTHER APPLICABLE CONDITIONS TO THE MAKING OF AN
ADVANCE SET FORTH IN THIS AGREEMENT, TO OBTAIN AN ADVANCE (OTHER THAN ADVANCES
UNDER SECTIONS 2.1.2 OR 2.1.4), BORROWER SHALL NOTIFY BANK (WHICH NOTICE SHALL
BE IRREVOCABLE) BY ELECTRONIC MAIL, FACSIMILE, OR

 

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TELEPHONE BY 12:00 NOON EASTERN TIME ON THE FUNDING DATE OF THE ADVANCE. 
TOGETHER WITH ANY SUCH ELECTRONIC OR FACSIMILE NOTIFICATION, BORROWER SHALL
DELIVER TO BANK BY ELECTRONIC MAIL OR FACSIMILE A COMPLETED PAYMENT/ADVANCE
FORM EXECUTED BY A RESPONSIBLE OFFICER OR HIS OR HER DESIGNEE.  BANK MAY RELY ON
ANY TELEPHONE NOTICE GIVEN BY A PERSON WHOM BANK BELIEVES IS A RESPONSIBLE
OFFICER OR DESIGNEE.  BANK SHALL CREDIT ADVANCES TO THE DESIGNATED DEPOSIT
ACCOUNT.  BANK MAY MAKE ADVANCES UNDER THIS AGREEMENT BASED ON INSTRUCTIONS FROM
A RESPONSIBLE OFFICER OR HIS OR HER DESIGNEE OR WITHOUT INSTRUCTIONS IF THE
ADVANCES ARE NECESSARY TO MEET OBLIGATIONS WHICH HAVE BECOME DUE.

 

4             CREATION OF SECURITY INTEREST

 

4.1                               GRANT OF SECURITY INTEREST.  BORROWER HEREBY
GRANTS BANK, TO SECURE THE PAYMENT AND PERFORMANCE IN FULL OF ALL OF THE
OBLIGATIONS, A CONTINUING SECURITY INTEREST IN, AND PLEDGES TO BANK, THE
COLLATERAL, WHEREVER LOCATED, WHETHER NOW OWNED OR HEREAFTER ACQUIRED OR
ARISING, AND ALL PROCEEDS AND PRODUCTS THEREOF.  BORROWER REPRESENTS, WARRANTS,
AND COVENANTS THAT THE SECURITY INTEREST GRANTED HEREIN IS AND SHALL AT ALL
TIMES CONTINUE TO BE A FIRST PRIORITY PERFECTED SECURITY INTEREST IN THE
COLLATERAL (SUBJECT ONLY TO PERMITTED LIENS THAT MAY HAVE SUPERIOR PRIORITY TO
BANK’S LIEN UNDER THIS AGREEMENT).  IF BORROWER SHALL ACQUIRE A COMMERCIAL TORT
CLAIM, BORROWER SHALL PROMPTLY NOTIFY BANK IN A WRITING SIGNED BY BORROWER OF
THE GENERAL DETAILS THEREOF AND GRANT TO BANK IN SUCH WRITING A SECURITY
INTEREST THEREIN AND IN THE PROCEEDS THEREOF, ALL UPON THE TERMS OF THIS
AGREEMENT, WITH SUCH WRITING TO BE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO BANK.

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall terminate
when the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash.  Upon payment in full in cash of the Obligations (other than
inchoate indemnity obligations) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein shall revert
to Borrower.

 

4.2                               AUTHORIZATION TO FILE FINANCING STATEMENTS. 
BORROWER HEREBY AUTHORIZES BANK TO FILE FINANCING STATEMENTS, WITHOUT NOTICE TO
BORROWER, WITH ALL APPROPRIATE JURISDICTIONS TO PERFECT OR PROTECT BANK’S
INTEREST OR RIGHTS HEREUNDER, INCLUDING A NOTICE THAT ANY DISPOSITION OF THE
COLLATERAL, BY EITHER BORROWER OR ANY OTHER PERSON, SHALL BE DEEMED TO VIOLATE
THE RIGHTS OF BANK UNDER THE CODE.

 

5             REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                               DUE ORGANIZATION AND AUTHORIZATION.  BORROWER
AND EACH OF ITS SUBSIDIARIES, IF ANY, ARE DULY EXISTING AND IN GOOD STANDING, AS
REGISTERED ORGANIZATIONS IN THEIR RESPECTIVE JURISDICTIONS OF FORMATION AND ARE
QUALIFIED AND LICENSED TO DO BUSINESS AND ARE IN GOOD STANDING IN ANY
JURISDICTION IN WHICH THE CONDUCT OF THEIR BUSINESS OR THEIR OWNERSHIP OF
PROPERTY REQUIRES THAT THEY BE QUALIFIED EXCEPT WHERE THE FAILURE TO DO SO COULD
NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S
BUSINESS.  IN CONNECTION WITH THIS AGREEMENT, BORROWER HAS DELIVERED TO BANK A
COMPLETED PERFECTION CERTIFICATE SIGNED BY BORROWER (THE “PERFECTION
CERTIFICATE”).  BORROWER REPRESENTS AND WARRANTS TO BANK THAT (A) BORROWER’S
EXACT LEGAL NAME IS THAT INDICATED ON THE PERFECTION CERTIFICATE AND ON THE
SIGNATURE PAGE HEREOF; (B) BORROWER IS AN ORGANIZATION OF THE TYPE AND IS
ORGANIZED IN THE JURISDICTION SET FORTH IN THE PERFECTION CERTIFICATE; (C) THE
PERFECTION CERTIFICATE ACCURATELY SETS FORTH BORROWER’S ORGANIZATIONAL
IDENTIFICATION NUMBER OR ACCURATELY STATES THAT BORROWER HAS NONE; (D) THE
PERFECTION CERTIFICATE ACCURATELY SETS FORTH BORROWER’S PLACE OF BUSINESS, OR,
IF MORE THAN ONE, ITS CHIEF EXECUTIVE OFFICE AS WELL AS BORROWER’S MAILING
ADDRESS (IF DIFFERENT THAN ITS CHIEF EXECUTIVE OFFICE); (E) BORROWER (AND EACH
OF ITS PREDECESSORS) HAS NOT, IN THE PAST FIVE (5) YEARS, CHANGED ITS
JURISDICTION OF FORMATION, ORGANIZATIONAL STRUCTURE OR TYPE, OR ANY
ORGANIZATIONAL NUMBER ASSIGNED BY ITS JURISDICTION; AND (F) ALL OTHER
INFORMATION SET FORTH ON THE PERFECTION CERTIFICATE PERTAINING TO BORROWER AND
EACH OF ITS SUBSIDIARIES IS ACCURATE AND COMPLETE.  IF BORROWER IS NOT NOW A
REGISTERED ORGANIZATION BUT LATER BECOMES ONE, BORROWER SHALL PROMPTLY NOTIFY
BANK OF SUCH OCCURRENCE AND PROVIDE BANK WITH BORROWER’S ORGANIZATIONAL
IDENTIFICATION NUMBER.

 

The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s organizational documents, nor
constitute an event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement to which it is a party or
by which it is bound in which the default could have a material adverse effect
on Borrower’s business.

 

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5.2                               COLLATERAL.  BORROWER HAS GOOD TITLE TO, HAS
RIGHTS IN, AND THE POWER TO TRANSFER EACH ITEM OF THE COLLATERAL UPON WHICH IT
PURPORTS TO GRANT A LIEN HEREUNDER, FREE AND CLEAR OF ANY AND ALL LIENS EXCEPT
PERMITTED LIENS.  BORROWER HAS NO DEPOSIT ACCOUNTS OTHER THAN THE DEPOSIT
ACCOUNTS WITH BANK, THE DEPOSIT ACCOUNTS, IF ANY, DESCRIBED IN THE PERFECTION
CERTIFICATE DELIVERED TO BANK IN CONNECTION HEREWITH, OR OF WHICH BORROWER HAS
GIVEN BANK NOTICE AND TAKEN SUCH ACTIONS AS ARE NECESSARY TO GIVE BANK A
PERFECTED SECURITY INTEREST THEREIN.  THE ACCOUNTS ARE BONA FIDE, EXISTING
OBLIGATIONS OF THE ACCOUNT DEBTORS.

 

THE COLLATERAL IS NOT IN THE POSSESSION OF ANY THIRD PARTY BAILEE (SUCH AS A
WAREHOUSE) EXCEPT AS OTHERWISE PROVIDED IN THE PERFECTION CERTIFICATE AND EXCEPT
WITH RESPECT TO MOBILE EQUIPMENT IN POSSESSION OF EMPLOYEES WITH AN AGGREGATE
VALUE NOT EXCEEDING FIFTY THOUSAND DOLLARS ($50,000.00).  NONE OF THE COMPONENTS
OF THE COLLATERAL SHALL BE MAINTAINED AT LOCATIONS OTHER THAN AS PROVIDED IN THE
PERFECTION CERTIFICATE OR AS BORROWER HAS GIVEN BANK NOTICE PURSUANT TO
SECTION 7.2, EXCEPT FOR MOBILE EQUIPMENT IN POSSESSION OF EMPLOYEES WITH AN
AGGREGATE VALUE NOT EXCEEDING FIFTY THOUSAND DOLLARS ($50,000.00).  IN THE EVENT
THAT BORROWER, AFTER THE DATE HEREOF, INTENDS TO STORE OR OTHERWISE DELIVER ANY
PORTION OF THE COLLATERAL TO A BAILEE (EXCEPT WITH RESPECT TO MOBILE EQUIPMENT
IN POSSESSION OF EMPLOYEES WITH AN AGGREGATE VALUE NOT EXCEEDING FIFTY THOUSAND
DOLLARS ($50,000.00)), THEN BORROWER WILL FIRST RECEIVE THE WRITTEN CONSENT OF
BANK AND SUCH BAILEE MUST EXECUTE AND DELIVER A BAILEE AGREEMENT IN FORM AND
SUBSTANCE SATISFACTORY TO BANK IN ITS REASONABLE DISCRETION.

 

ALL INVENTORY IS IN ALL MATERIAL RESPECTS OF GOOD AND MARKETABLE QUALITY, FREE
FROM MATERIAL DEFECTS.

 

EXCEPT AS NOTED ON THE PERFECTION CERTIFICATE, BORROWER IS NOT A PARTY TO, NOR
IS BOUND BY, ANY MATERIAL LICENSE OR OTHER AGREEMENT WITH RESPECT TO WHICH
BORROWER IS THE LICENSEE THAT PROHIBITS OR OTHERWISE RESTRICTS BORROWER FROM
GRANTING A SECURITY INTEREST IN BORROWER’S INTEREST IN SUCH LICENSE OR AGREEMENT
OR ANY OTHER PROPERTY.  BORROWER SHALL PROVIDE WRITTEN NOTICE TO BANK WITHIN TEN
(10) DAYS OF ENTERING OR BECOMING BOUND BY ANY SUCH LICENSE OR AGREEMENT WHICH
IS REASONABLY LIKELY TO HAVE A MATERIAL IMPACT ON BORROWER’S BUSINESS OR
FINANCIAL CONDITION (OTHER THAN OVER-THE-COUNTER SOFTWARE THAT IS COMMERCIALLY
AVAILABLE TO THE PUBLIC).  BORROWER SHALL TAKE SUCH STEPS AS BANK REQUESTS TO
OBTAIN THE CONSENT OF, OR WAIVER BY, ANY PERSON WHOSE CONSENT OR WAIVER IS
NECESSARY FOR ALL SUCH LICENSES OR CONTRACT RIGHTS TO BE DEEMED “COLLATERAL” AND
FOR BANK TO HAVE A SECURITY INTEREST IN IT THAT MIGHT OTHERWISE BE RESTRICTED OR
PROHIBITED BY LAW OR BY THE TERMS OF ANY SUCH LICENSE OR AGREEMENT (SUCH CONSENT
OR AUTHORIZATION MAY INCLUDE A LICENSOR’S AGREEMENT TO A CONTINGENT ASSIGNMENT
OF THE LICENSE TO BANK IF BANK DETERMINES THAT IS NECESSARY IN ITS REASONABLE
BUSINESS JUDGMENT), WHETHER NOW EXISTING OR ENTERED INTO IN THE FUTURE.

 

5.3                               ACCOUNTS RECEIVABLE.  FOR ANY ELIGIBLE ACCOUNT
IN ANY BORROWING BASE CERTIFICATE, ALL STATEMENTS MADE AND ALL UNPAID BALANCES
APPEARING IN ALL INVOICES, INSTRUMENTS AND OTHER DOCUMENTS EVIDENCING SUCH
ELIGIBLE ACCOUNTS ARE AND SHALL BE TRUE AND CORRECT AND ALL SUCH INVOICES,
INSTRUMENTS AND OTHER DOCUMENTS, AND ALL OF BORROWER’S BOOKS ARE GENUINE AND IN
ALL RESPECTS WHAT THEY PURPORT TO BE.  ALL SALES AND OTHER TRANSACTIONS
UNDERLYING OR GIVING RISE TO EACH ELIGIBLE ACCOUNT SHALL COMPLY IN ALL MATERIAL
RESPECTS WITH ALL APPLICABLE LAWS AND GOVERNMENTAL RULES AND REGULATIONS. 
BORROWER HAS NO KNOWLEDGE OF ANY ACTUAL OR IMMINENT INSOLVENCY PROCEEDING OF ANY
ACCOUNT DEBTOR WHOSE ACCOUNTS ARE AN ELIGIBLE ACCOUNT IN ANY BORROWING BASE
CERTIFICATE.  TO THE BEST OF BORROWER’S KNOWLEDGE, ALL SIGNATURES AND
ENDORSEMENTS ON ALL DOCUMENTS, INSTRUMENTS, AND AGREEMENTS RELATING TO ALL
ELIGIBLE ACCOUNTS ARE GENUINE, AND ALL SUCH DOCUMENTS, INSTRUMENTS AND
AGREEMENTS ARE LEGALLY ENFORCEABLE IN ACCORDANCE WITH THEIR TERMS.

 

5.4                               LITIGATION.  EXCEPT AS SET FORTH ON THE
PERFECTION CERTIFICATE FOR GROOVE MOBILE, INC., THERE ARE NO ACTIONS OR
PROCEEDINGS PENDING OR, TO THE KNOWLEDGE OF THE RESPONSIBLE OFFICERS, THREATENED
IN WRITING BY OR AGAINST BORROWER OR ANY OF ITS SUBSIDIARIES INVOLVING MORE THAN
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00).

 

5.5                               NO MATERIAL DETERIORATION IN FINANCIAL
STATEMENTS.  ALL CONSOLIDATED FINANCIAL STATEMENTS FOR BORROWER AND ANY OF ITS
SUBSIDIARIES DELIVERED TO BANK FAIRLY PRESENT IN ALL MATERIAL RESPECTS
BORROWER’S CONSOLIDATED FINANCIAL CONDITION AND BORROWER’S CONSOLIDATED RESULTS
OF OPERATIONS.  THERE HAS NOT BEEN ANY MATERIAL DETERIORATION IN BORROWER’S
CONSOLIDATED FINANCIAL CONDITION SINCE THE DATE OF THE MOST RECENT FINANCIAL
STATEMENTS SUBMITTED TO BANK.

 

5.6                               SOLVENCY.  THE FAIR SALABLE VALUE OF
BORROWER’S ASSETS (INCLUDING GOODWILL MINUS DISPOSITION COSTS) EXCEEDS THE FAIR
VALUE OF ITS LIABILITIES; BORROWER IS NOT LEFT WITH UNREASONABLY SMALL CAPITAL
AFTER THE TRANSACTIONS IN THIS AGREEMENT; AND BORROWER IS ABLE TO PAY ITS DEBTS
(INCLUDING TRADE DEBTS) AS THEY MATURE.

 

5.7                               REGULATORY COMPLIANCE.  BORROWER IS NOT AN
“INVESTMENT COMPANY” OR A COMPANY “CONTROLLED” BY AN “INVESTMENT COMPANY” UNDER
THE INVESTMENT COMPANY ACT OF 1940.  BORROWER IS NOT ENGAGED AS ONE OF ITS

 

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IMPORTANT ACTIVITIES IN EXTENDING CREDIT FOR MARGIN STOCK (UNDER REGULATIONS T
AND U OF THE FEDERAL RESERVE BOARD OF GOVERNORS).  BORROWER HAS COMPLIED IN ALL
MATERIAL RESPECTS WITH THE FEDERAL FAIR LABOR STANDARDS ACT.  BORROWER HAS NOT
VIOLATED ANY LAWS, ORDINANCES OR RULES, THE VIOLATION OF WHICH COULD REASONABLY
BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS.  NONE OF
BORROWER’S OR ANY OF ITS SUBSIDIARIES’ PROPERTIES OR ASSETS HAS BEEN USED BY
BORROWER OR ANY SUBSIDIARY OR, TO THE BEST OF BORROWER’S KNOWLEDGE, BY PREVIOUS
PERSONS, IN DISPOSING, PRODUCING, STORING, TREATING, OR TRANSPORTING ANY
HAZARDOUS SUBSTANCE OTHER THAN LEGALLY.  BORROWER AND EACH OF ITS SUBSIDIARIES
HAVE OBTAINED ALL CONSENTS, APPROVALS AND AUTHORIZATIONS OF, MADE ALL
DECLARATIONS OR FILINGS WITH, AND GIVEN ALL NOTICES TO, ALL GOVERNMENT
AUTHORITIES THAT ARE NECESSARY TO CONTINUE ITS BUSINESS AS CURRENTLY CONDUCTED.

 

5.8          SUBSIDIARIES; INVESTMENTS.  BORROWER DOES NOT OWN ANY STOCK,
PARTNERSHIP INTEREST OR OTHER EQUITY SECURITIES EXCEPT FOR PERMITTED
INVESTMENTS.

 

5.9          TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS.  BORROWER HAS
TIMELY FILED ALL REQUIRED TAX RETURNS AND REPORTS, AND BORROWER AND ITS
SUBSIDIARIES HAVE TIMELY PAID ALL FOREIGN, FEDERAL, STATE AND LOCAL TAXES,
ASSESSMENTS, DEPOSITS AND CONTRIBUTIONS OWED BY BORROWER.  BORROWER MAY DEFER
PAYMENT OF ANY CONTESTED TAXES, PROVIDED THAT BORROWER (A) IN GOOD FAITH
CONTESTS ITS OBLIGATION TO PAY THE TAXES BY APPROPRIATE PROCEEDINGS PROMPTLY AND
DILIGENTLY INSTITUTED AND CONDUCTED, (B) NOTIFIES BANK IN WRITING OF THE
COMMENCEMENT OF, AND ANY MATERIAL DEVELOPMENT IN, THE PROCEEDINGS, (C) POSTS
BONDS OR TAKES ANY OTHER STEPS REQUIRED TO PREVENT THE GOVERNMENTAL AUTHORITY
LEVYING SUCH CONTESTED TAXES FROM OBTAINING A LIEN UPON ANY OF THE COLLATERAL
THAT IS OTHER THAN A “PERMITTED LIEN”.  BORROWER IS UNAWARE OF ANY CLAIMS OR
ADJUSTMENTS PROPOSED FOR ANY OF BORROWER’S PRIOR TAX YEARS WHICH COULD RESULT IN
ADDITIONAL TAXES BECOMING DUE AND PAYABLE BY BORROWER.  BORROWER HAS PAID ALL
AMOUNTS NECESSARY TO FUND ALL PRESENT PENSION, PROFIT SHARING AND DEFERRED
COMPENSATION PLANS IN ACCORDANCE WITH THEIR TERMS, AND BORROWER HAS NOT
WITHDRAWN FROM PARTICIPATION IN, AND HAS NOT PERMITTED PARTIAL OR COMPLETE
TERMINATION OF, OR PERMITTED THE OCCURRENCE OF ANY OTHER EVENT WITH RESPECT TO,
ANY SUCH PLAN WHICH COULD REASONABLY BE EXPECTED TO RESULT IN ANY LIABILITY OF
BORROWER, INCLUDING ANY LIABILITY TO THE PENSION BENEFIT GUARANTY CORPORATION OR
ITS SUCCESSORS OR ANY OTHER GOVERNMENTAL AGENCY.

 

5.10        USE OF PROCEEDS.  BORROWER SHALL USE THE PROCEEDS OF THE CREDIT
EXTENSIONS SOLELY AS WORKING CAPITAL, AND NOT FOR PERSONAL, FAMILY, HOUSEHOLD OR
AGRICULTURAL PURPOSES.

 

5.11        EXCLUDED ENTITIES.  (A) THE AGGREGATE VALUE OF CASH AND CASH
EQUIVALENTS HELD BY THE EXCLUDED ENTITIES DOES NOT AND WILL NOT EXCEED, IN THE
AGGREGATE, FIFTY THOUSAND DOLLARS ($50,000.00); AND (B) THE AGGREGATE VALUE OF
THE TANGIBLE PROPERTY HELD BY EACH INDIVIDUAL EXCLUDED ENTITY DOES NOT EXCEED,
IN THE AGGREGATE, TWO HUNDRED THOUSAND DOLLARS ($200,000.00) PER EXCLUDED
ENTITY.

 

5.12        FULL DISCLOSURE.  NO WRITTEN REPRESENTATION, WARRANTY OR OTHER
STATEMENT OF BORROWER IN ANY CERTIFICATE OR WRITTEN STATEMENT GIVEN TO BANK IN
CONNECTION WITH THIS AGREEMENT, AS OF THE DATE SUCH REPRESENTATIONS, WARRANTIES,
OR OTHER STATEMENTS WERE MADE, TAKEN TOGETHER WITH ALL SUCH WRITTEN CERTIFICATES
AND WRITTEN STATEMENTS GIVEN TO BANK IN CONNECTION WITH THIS AGREEMENT, CONTAINS
ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT
NECESSARY TO MAKE THE STATEMENTS CONTAINED IN THE CERTIFICATES OR STATEMENTS, IN
LIGHT OF THE CIRCUMSTANCES IN WHICH THEY WERE MADE, NOT MISLEADING (IT BEING
RECOGNIZED BY BANK THAT THE PROJECTIONS AND FORECASTS PROVIDED BY BORROWER IN
GOOD FAITH AND BASED UPON REASONABLE ASSUMPTIONS ARE NOT VIEWED AS FACTS AND
THAT ACTUAL RESULTS DURING THE PERIOD OR PERIODS COVERED BY SUCH PROJECTIONS AND
FORECASTS MAY DIFFER FROM THE PROJECTED OR FORECASTED RESULTS).

 

6              AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1          GOVERNMENT COMPLIANCE.  EXCEPT AS PERMITTED UNDER SECTION 7.3,
MAINTAIN ITS AND ALL ITS SUBSIDIARIES’ LEGAL EXISTENCE AND GOOD STANDING IN
THEIR RESPECTIVE JURISDICTIONS OF FORMATION AND MAINTAIN QUALIFICATION IN EACH
JURISDICTION IN WHICH THE FAILURE TO SO QUALIFY WOULD REASONABLY BE EXPECTED TO
HAVE A MATERIAL ADVERSE EFFECT ON BORROWER’S BUSINESS OR OPERATIONS.  BORROWER
SHALL COMPLY, AND HAVE EACH SUBSIDIARY COMPLY, WITH ALL LAWS, ORDINANCES AND
REGULATIONS TO WHICH IT IS SUBJECT, THE NONCOMPLIANCE WITH WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON BORROWER’S BUSINESS.

 

7

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6.2                               FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

 

(A)                                  DELIVER TO BANK:  (I) AS SOON AS AVAILABLE,
BUT NO LATER THAN THIRTY (30) DAYS AFTER THE LAST DAY OF EACH MONTH IN WHICH
OBLIGATIONS ARE OUTSTANDING OR IN WHICH ANY CREDIT EXTENSIONS HAVE BEEN
REQUESTED (OR, IF NO SUCH OBLIGATIONS ARE OUTSTANDING OR CREDIT EXTENSIONS ARE
REQUESTED, WITHIN FORTY-FIVE (45) DAYS OF THE END OF THE CURRENT FISCAL
QUARTER), A COMPANY PREPARED CONSOLIDATED AND CONSOLIDATING BALANCE SHEET,
INCOME STATEMENT AND CASH FLOW STATEMENT COVERING BORROWER’S CONSOLIDATED
OPERATIONS DURING THE PERIOD CERTIFIED BY A RESPONSIBLE OFFICER AND IN A FORM
ACCEPTABLE TO BANK; (II) WITHIN FIVE (5) DAYS OF DELIVERY, COPIES OF ALL
STATEMENTS, REPORTS AND NOTICES MADE AVAILABLE TO BORROWER’S SECURITY HOLDERS OR
TO ANY HOLDERS OF SUBORDINATED DEBT; (III) WITHIN FIVE (5) DAYS OF FILING, ALL
REPORTS ON FORM 10-K, 10-Q AND 8-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR A LINK THERETO ON BORROWER’S OR ANOTHER WEBSITE ON THE INTERNET;
(IV) A PROMPT REPORT OF ANY LEGAL ACTIONS PENDING OR THREATENED AGAINST BORROWER
OR ANY OF ITS SUBSIDIARIES THAT COULD RESULT IN DAMAGES OR COSTS TO BORROWER OR
ANY OF ITS SUBSIDIARIES OF TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) OR
MORE; (V) AS SOON AS AVAILABLE, BUT NO LATER THAN FORTY-FIVE (45) DAYS AFTER THE
LAST DAY OF BORROWER’S FISCAL YEAR, AND IN CONNECTION WITH ANY AMENDMENTS,
BORROWER’S FINANCIAL PROJECTIONS FOR THE SUBSEQUENT FISCAL YEAR AS APPROVED BY
BORROWER’S BOARD OF DIRECTORS; AND (VI) BUDGETS, SALES PROJECTIONS, OPERATING
PLANS AND OTHER FINANCIAL INFORMATION REASONABLY REQUESTED BY BANK.

 

(B)                                 WITHIN THIRTY (30) DAYS AFTER THE LAST DAY
OF EACH MONTH IN WHICH OBLIGATIONS ARE OUTSTANDING OR IN WHICH ANY CREDIT
EXTENSIONS HAVE BEEN REQUESTED (OR, IF NO SUCH OBLIGATIONS ARE OUTSTANDING OR
CREDIT EXTENSIONS ARE REQUESTED, WITHIN FORTY-FIVE (45) DAYS OF THE END OF THE
CURRENT FISCAL QUARTER), DELIVER TO BANK A DULY COMPLETED BORROWING BASE
CERTIFICATE SIGNED BY A RESPONSIBLE OFFICER, WITH AGED LISTINGS OF ACCOUNTS
RECEIVABLE (BY INVOICE DATE).

 

(C)                                  WITHIN THIRTY (30) DAYS AFTER THE LAST DAY
OF EACH MONTH IN WHICH OBLIGATIONS ARE OUTSTANDING OR IN WHICH ANY CREDIT
EXTENSIONS HAVE BEEN REQUESTED (OR, IF NO SUCH OBLIGATIONS ARE OUTSTANDING OR
CREDIT EXTENSIONS ARE REQUESTED, WITHIN FORTY-FIVE (45) DAYS OF THE END OF THE
CURRENT FISCAL QUARTER), DELIVER TO BANK WITH THE FINANCIAL STATEMENTS REQUIRED
TO BE DELIVERED PURSUANT TO SECTION 6.2(A)(I) ABOVE, A DULY COMPLETED COMPLIANCE
CERTIFICATE SIGNED BY A RESPONSIBLE OFFICER SETTING FORTH CALCULATIONS SHOWING
COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH IN THIS AGREEMENT.

 

(D)                                 ALLOW BANK TO AUDIT BORROWER’S COLLATERAL AT
BORROWER’S EXPENSE.  SUCH AUDITS SHALL BE CONDUCTED NO MORE OFTEN THAN ONCE
EVERY TWELVE (12) MONTHS UNLESS A DEFAULT OR AN EVENT OF DEFAULT HAS OCCURRED
AND IS CONTINUING.  BORROWER HEREBY ACKNOWLEDGES THAT THE FIRST SUCH AUDIT SHALL
BE CONDUCTED WITHIN ONE HUNDRED TWENTY (120) DAYS OF THE EFFECTIVE DATE.

 

6.3                               INVENTORY; RETURNS.  KEEP ALL INVENTORY IN
GOOD AND MARKETABLE CONDITION, FREE FROM MATERIAL DEFECTS.  RETURNS AND
ALLOWANCES BETWEEN BORROWER AND ITS ACCOUNT DEBTORS SHALL FOLLOW BORROWER’S
CUSTOMARY PRACTICES AS THEY EXIST AT THE EFFECTIVE DATE.  BORROWER MUST PROMPTLY
NOTIFY BANK OF ALL RETURNS, RECOVERIES, DISPUTES AND CLAIMS THAT INVOLVE MORE
THAN TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00).

 

6.4                               TAXES; PENSIONS.  MAKE, AND CAUSE EACH OF ITS
SUBSIDIARIES TO MAKE, TIMELY PAYMENT OF ALL FOREIGN, FEDERAL, STATE, AND LOCAL
TAXES OR ASSESSMENTS (OTHER THAN TAXES AND ASSESSMENTS WHICH BORROWER IS
CONTESTING PURSUANT TO THE TERMS OF SECTION 5.9 HEREOF) AND SHALL DELIVER TO
BANK, ON DEMAND, APPROPRIATE CERTIFICATES ATTESTING TO SUCH PAYMENTS, AND PAY
ALL AMOUNTS NECESSARY TO FUND ALL PRESENT PENSION, PROFIT SHARING AND DEFERRED
COMPENSATION PLANS IN ACCORDANCE WITH THEIR TERMS.

 

6.5                               INSURANCE.  KEEP ITS BUSINESS AND THE
COLLATERAL INSURED FOR RISKS AND IN AMOUNTS STANDARD FOR COMPANIES IN BORROWER’S
INDUSTRY AND LOCATION AND AS BANK MAY REASONABLY REQUEST.  INSURANCE POLICIES
SHALL BE IN A FORM, WITH COMPANIES, AND IN AMOUNTS THAT ARE SATISFACTORY TO
BANK, IT BEING AGREED THAT THE INSURANCE MAINTAINED BY BORROWER AS OF THE
EFFECTIVE DATE IS SATISFACTORY TO BANK AS OF THE EFFECTIVE DATE.  ALL PROPERTY
POLICIES SHALL HAVE A LOSS PAYABLE ENDORSEMENT SHOWING BANK AS THE SOLE LOSS
PAYEE AND WAIVE SUBROGATION AGAINST BANK, AND ALL LIABILITY POLICIES SHALL SHOW,
OR HAVE ENDORSEMENTS SHOWING, BANK AS AN ADDITIONAL INSURED.  ALL POLICIES (OR
THE LOSS PAYABLE AND ADDITIONAL INSURED ENDORSEMENTS) SHALL PROVIDE THAT THE
INSURER MUST GIVE BANK AT LEAST TWENTY (20) DAYS NOTICE BEFORE CANCELING,
AMENDING, OR DECLINING TO RENEW ITS POLICY.  AT BANK’S REASONABLE REQUEST,
BORROWER SHALL DELIVER CERTIFIED COPIES OF POLICIES AND EVIDENCE OF ALL PREMIUM
PAYMENTS.  PROCEEDS PAYABLE UNDER ANY POLICY SHALL, AT BANK’S OPTION, BE PAYABLE
TO BANK ON ACCOUNT OF THE OBLIGATIONS.  IF BORROWER FAILS TO OBTAIN INSURANCE AS
REQUIRED UNDER THIS SECTION 6.5 OR TO PAY ANY AMOUNT OR FURNISH ANY REQUIRED
PROOF OF PAYMENT TO THIRD PERSONS AND BANK, BANK MAY MAKE ALL OR PART OF SUCH
PAYMENT OR OBTAIN SUCH INSURANCE POLICIES REQUIRED IN THIS SECTION 6.5, AND TAKE
ANY ACTION UNDER THE POLICIES BANK DEEMS PRUDENT.

 

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6.6                               OPERATING ACCOUNTS.

 

(A)                                  MAINTAIN ITS AND ITS SUBSIDIARIES’ PRIMARY
OPERATING ACCOUNTS WITH BANK AND BANK’S AFFILIATES.  IN ADDITION, BORROWER AND
ITS SUBSIDIARIES SHALL MAINTAIN CASH OR SECURITIES WITH BANK AND BANK’S
AFFILIATES IN AN AMOUNT EQUAL TO A MAJORITY OF BORROWER’S AND SUCH SUBSIDIARIES’
CASH OR SECURITIES IN EXCESS OF THAT AMOUNT USED FOR BORROWER’S AND SUCH
SUBSIDIARIES’ CURRENT OPERATIONS.  SUBJECT TO THE FOREGOING, BORROWER AND ITS
SUBSIDIARIES MAY MAINTAIN ACCOUNTS WITH FINANCIAL INSTITUTIONS OUTSIDE OF THE
UNITED STATES WITH FINANCIAL INSTITUTIONS OTHER THAN BANK AND BANK’S AFFILIATES.

 

(B)                                 PROVIDE BANK FIVE (5) DAYS PRIOR WRITTEN
NOTICE BEFORE ESTABLISHING ANY COLLATERAL ACCOUNT AT OR WITH ANY BANK OR
FINANCIAL INSTITUTION OTHER THAN BANK OR ITS AFFILIATES.  IN ADDITION, FOR EACH
COLLATERAL ACCOUNT THAT BORROWER OR GUARANTOR AT ANY TIME MAINTAINS, BORROWER
SHALL CAUSE THE APPLICABLE BANK OR FINANCIAL INSTITUTION (OTHER THAN BANK) AT OR
WITH WHICH ANY COLLATERAL ACCOUNT IS MAINTAINED TO EXECUTE AND DELIVER A CONTROL
AGREEMENT OR OTHER APPROPRIATE INSTRUMENT WITH RESPECT TO SUCH COLLATERAL
ACCOUNT TO PERFECT BANK’S LIEN IN SUCH COLLATERAL ACCOUNT IN ACCORDANCE WITH THE
TERMS HEREUNDER, WHICH CONTROL AGREEMENT MAY NOT BE TERMINATED WITHOUT THE PRIOR
WRITTEN CONSENT OF BANK.  THE PROVISIONS OF THE PREVIOUS SENTENCE SHALL NOT
APPLY TO DEPOSIT ACCOUNTS EXCLUSIVELY USED FOR PAYROLL, PAYROLL TAXES AND OTHER
EMPLOYEE WAGE AND BENEFIT PAYMENTS TO OR FOR THE BENEFIT OF BORROWER’S EMPLOYEES
AND IDENTIFIED TO BANK BY BORROWER AS SUCH.

 

6.7                               FINANCIAL COVENANTS.

 

Borrower shall maintain at all times, on a consolidated basis with respect to
Borrower and its Subsidiaries:

 

(a)                                  Adjusted Quick Ratio.  For any month in
which Obligations are outstanding, or for any month in which a Credit Extension
is requested, Borrower shall maintain at all times, to be tested as of the last
day of each such month, an Adjusted Quick Ratio of at least 1.5 to 1.0;
provided, however, if the Adjusted Quick Ratio is not tested for any month
pursuant to this Section 6.7(a), Borrower shall maintain at all times, to be
tested as of the last day of the current fiscal quarter, an Adjusted Quick Ratio
of at least 1.5 to 1.0.

 

(b)                                 Minimum Profit.  Borrower shall have
quarterly Profit of at least: (i) ($2,000,000.00) as of the quarter ended
March 31, 2008; (ii) ($1,250,000.00) as of the quarter ending June 30, 2008;
(iii) $0.00 as of the quarter ending September 30, 2008; and (iv) $1,750,000.00
as of the quarter ending December 31, 2008 and as of the last day of each
quarter thereafter.

 

6.8                               PROTECTION OF INTELLECTUAL PROPERTY RIGHTS. 
BORROWER SHALL PROTECT, DEFEND AND MAINTAIN THE VALIDITY AND ENFORCEABILITY OF
ITS INTELLECTUAL PROPERTY MATERIAL TO BORROWER’S BUSINESS.

 

6.9                               LITIGATION COOPERATION.  FROM THE DATE HEREOF
AND CONTINUING THROUGH THE TERMINATION OF THIS AGREEMENT, MAKE AVAILABLE TO
BANK, WITHOUT EXPENSE TO BANK, BORROWER AND ITS OFFICERS, EMPLOYEES AND AGENTS
AND BORROWER’S BOOKS AND RECORDS, TO THE EXTENT THAT BANK MAY DEEM THEM
REASONABLY NECESSARY TO PROSECUTE OR DEFEND ANY THIRD-PARTY SUIT OR PROCEEDING
INSTITUTED BY OR AGAINST BANK WITH RESPECT TO ANY COLLATERAL OR RELATING TO
BORROWER; PROVIDED, HOWEVER, PRIOR TO THE OCCURRENCE AND CONTINUANCE OF AN EVENT
OF DEFAULT, SUCH MATERIALS SHALL BE MADE AVAILABLE TO BANK DURING REGULAR
BUSINESS HOURS AND UPON REASONABLE PRIOR NOTICE BY BANK.

 

6.10                        NATURAL MICROSYSTEMS SECURITIES CORPORATION. 
BORROWER SHALL, WITHIN THIRTY (30) DAYS OF THE EFFECTIVE DATE, DELIVER TO BANK
EVIDENCE THAT IT HAS DISSOLVED ITS WHOLLY-OWNED SUBSIDIARY, NATURAL MICROSYSTEMS
SECURITIES CORPORATION, AND CAUSE SUCH SUBSIDIARY TO TRANSFER ALL OF ITS
PROPERTY TO BORROWER.

 

6.11                        POST-CLOSING REQUIREMENTS.  BORROWER SHALL DELIVER
TO BANK:

 

(a)           Within thirty (30) days of the Effective Date, a fully-executed
landlord’s consent, in form and substance acceptable to Bank in Bank’s sole and
absolute discretion, with respect to Borrower’s location at 100 Crossing Blvd.,
Framingham, Massachusetts 01702.

 

(b)           Within thirty (30) days of the Effective Date, a fully-executed
landlord’s consent for each Guarantor, in form and substance acceptable to Bank
in Bank’s sole and absolute discretion, with respect to each Guarantor’s
location at 100 Crossing Blvd., Framingham, Massachusetts 01702.

 

9

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(c)           Within thirty (30) days of the Effective Date, a fully-executed
bailee’s waiver, in form and substance acceptable to Bank in Bank’s sole and
absolute discretion, with respect to Borrower’s location at Plexus Service
Corp., 55 Jewelers Park Drive, Neenah, Wisconsin 54957.

 

(d)           Within ten (10) days of the Effective Date, insurance certificates
for Borrower and each Guarantor (on forms Acord 25 and Acord 28), in form and
substance acceptable to Bank in Bank’s sole and absolute discretion.

 

6.12        FURTHER ASSURANCES.  EXECUTE ANY FURTHER INSTRUMENTS AND TAKE
FURTHER ACTION AS BANK REASONABLY REQUESTS TO PERFECT OR CONTINUE BANK’S LIEN IN
THE COLLATERAL OR TO EFFECT THE PURPOSES OF THIS AGREEMENT.

 

7              NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1          DISPOSITIONS.  CONVEY, SELL, LEASE, TRANSFER, ASSIGN, OR OTHERWISE
DISPOSE OF (COLLECTIVELY “TRANSFER”), OR PERMIT ANY OF ITS SUBSIDIARIES TO
TRANSFER, ALL OR ANY PART OF ITS BUSINESS OR PROPERTY, EXCEPT FOR:

 

(a)           Transfers in the ordinary course of business for reasonably
equivalent consideration;

 

(b)           Transfers of property in connection with sale-leaseback
transactions;

 

(c)           Transfers of property to the extent such property is exchanged for
credit against, or proceeds are promptly applied to, the purchase price of other
property used or useful in the business of Borrower or its Subsidiaries;

 

(d)           Transfers constituting non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business and other non-perpetual licenses that may be
exclusive in some respects other than territory (and/or that may be exclusive as
to territory only in discreet geographical areas outside of the United States),
but that could not result in a legal transfer of Borrower’s title in the
licensed property;

 

(e)           Transfers otherwise permitted by the Loan Documents;

 

(f)            sales or discounting of delinquent accounts in the ordinary
course of business;

 

(g)           Transfers associated with the making or disposition of a Permitted
Investment;

 

(h)           Transfers in connection with a permitted acquisition of a portion
of the assets or rights acquired;

 

(i)            Transfers of cash to its Subsidiaries for the ordinary and
necessary current operating expenses of such Subsidiaries in an amount not to
exceed Two Million Two Hundred Fifty Thousand Dollars ($2,250,000.00) per fiscal
quarter; and

 

(j)            Transfers of assets (other than Accounts and Inventory (unless
such Transfer is in the ordinary course of Borrower’s business)) not otherwise
permitted in this Section 7.1, provided, that the aggregate book value of all
such Transfers by Borrower and its Subsidiaries, together, shall not exceed in
any fiscal year, Two Hundred Fifty Thousand Dollars ($250,000.00) in the
aggregate.

 

7.2          CHANGES IN BUSINESS, MANAGEMENT, OR BUSINESS LOCATIONS.  (A) ENGAGE
IN OR PERMIT ANY OF ITS SUBSIDIARIES TO ENGAGE IN ANY BUSINESS OTHER THAN THE
BUSINESSES CURRENTLY ENGAGED IN BY BORROWER AND SUCH SUBSIDIARY, AS APPLICABLE,
OR REASONABLY RELATED THERETO; (B) LIQUIDATE OR DISSOLVE; OR (C) HAVE A CHANGE
IN MANAGEMENT SUCH THAT A KEY PERSON DEPARTS AND A REPLACEMENT REASONABLY
ACCEPTABLE TO BANK IS NOT MADE WITHIN NINETY (90) DAYS OF SUCH KEY PERSON’S
DEPARTURE.  BORROWER SHALL NOT, WITHOUT AT LEAST THIRTY (30) DAYS PRIOR WRITTEN
NOTICE TO BANK: (1) ADD ANY NEW OFFICES OR BUSINESS LOCATIONS, INCLUDING
WAREHOUSES (UNLESS EACH SUCH NEW OFFICE OR BUSINESS LOCATION CONTAINS LESS THAN
TWENTY-FIVE THOUSAND DOLLARS ($25,000) IN BORROWER’S ASSETS OR PROPERTY),
(2) CHANGE ITS JURISDICTION OF ORGANIZATION, (3) CHANGE ITS ORGANIZATIONAL
STRUCTURE OR TYPE, (4) CHANGE ITS LEGAL NAME, OR (5) CHANGE ANY ORGANIZATIONAL
NUMBER (IF ANY) ASSIGNED BY ITS JURISDICTION OF ORGANIZATION.

 

7.3          MERGERS OR ACQUISITIONS.  MERGE OR CONSOLIDATE, OR PERMIT ANY OF
ITS SUBSIDIARIES TO MERGE OR CONSOLIDATE, WITH ANY PERSON OTHER THAN WITH
BORROWER OR ANY SUBSIDIARY, OR ACQUIRE, OR PERMIT ANY OF ITS

 

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SUBSIDIARIES TO ACQUIRE, ALL OR SUBSTANTIALLY ALL OF THE CAPITAL STOCK OR
PROPERTY OF A PERSON OTHER THAN BORROWER OR ANY SUBSIDIARY, EXCEPT WHERE NO
EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING OR WOULD RESULT FROM SUCH ACTION
DURING THE TERM OF THIS AGREEMENT, AND (A) BORROWER IS THE SURVIVING ENTITY OR
(B) SUCH MERGER OR CONSOLIDATION IS A TRANSFER OTHERWISE PERMITTED PURSUANT TO
SECTION 7.1 HEREOF.

 

7.4          INDEBTEDNESS.  CREATE, INCUR, ASSUME, OR BE LIABLE FOR ANY
INDEBTEDNESS, OR PERMIT ANY SUBSIDIARY TO DO SO, OTHER THAN PERMITTED
INDEBTEDNESS.

 

7.5          ENCUMBRANCE.  CREATE, INCUR, OR ALLOW ANY LIEN ON ANY OF ITS
PROPERTY, OR ASSIGN OR CONVEY ANY RIGHT TO RECEIVE INCOME, INCLUDING THE SALE OF
ANY ACCOUNTS, OR PERMIT ANY OF ITS SUBSIDIARIES TO DO SO, EXCEPT FOR PERMITTED
LIENS, OR PERMIT ANY COLLATERAL NOT TO BE SUBJECT TO THE FIRST PRIORITY SECURITY
INTEREST GRANTED HEREIN, OR ENTER INTO ANY AGREEMENT, DOCUMENT, INSTRUMENT OR
OTHER ARRANGEMENT (EXCEPT WITH OR IN FAVOR OF BANK) WITH ANY PERSON WHICH
DIRECTLY OR INDIRECTLY PROHIBITS OR HAS THE EFFECT OF PROHIBITING BORROWER OR
ANY SUBSIDIARY FROM ASSIGNING, MORTGAGING, PLEDGING, GRANTING A SECURITY
INTEREST IN OR UPON, OR ENCUMBERING ANY OF BORROWER’S OR ANY SUBSIDIARY’S
INTELLECTUAL PROPERTY, EXCEPT AS IS OTHERWISE PERMITTED IN SECTION 7.1 HEREOF
AND THE DEFINITION OF “PERMITTED LIENS” HEREIN.

 

7.6          MAINTENANCE OF COLLATERAL ACCOUNTS.  MAINTAIN ANY COLLATERAL
ACCOUNT EXCEPT PURSUANT TO THE TERMS OF SECTION 6.6(B) HEREOF.

 

7.7          DISTRIBUTIONS; INVESTMENTS.  (A) PAY ANY DIVIDENDS OR MAKE ANY
DISTRIBUTION OR PAYMENT OR REDEEM, RETIRE OR PURCHASE ANY CAPITAL STOCK OTHER
THAN PERMITTED DISTRIBUTIONS; OR (B) DIRECTLY OR INDIRECTLY ACQUIRE OR OWN ANY
PERSON, OR MAKE ANY INVESTMENT IN ANY PERSON, OTHER THAN PERMITTED INVESTMENTS,
OR PERMIT ANY OF ITS SUBSIDIARIES TO DO SO.

 

7.8          TRANSACTIONS WITH AFFILIATES.  DIRECTLY OR INDIRECTLY ENTER INTO OR
PERMIT TO EXIST ANY MATERIAL TRANSACTION WITH ANY AFFILIATE OF BORROWER, EXCEPT
FOR TRANSACTIONS THAT ARE IN THE ORDINARY COURSE OF BORROWER’S BUSINESS, UPON
FAIR AND REASONABLE TERMS THAT ARE NO LESS FAVORABLE TO BORROWER THAN WOULD BE
OBTAINED IN AN ARM’S LENGTH TRANSACTION WITH A NON-AFFILIATED PERSON.

 

7.9          SUBORDINATED DEBT.  (A) MAKE OR PERMIT ANY PAYMENT ON ANY
SUBORDINATED DEBT, EXCEPT UNDER THE TERMS OF THE SUBORDINATION, INTERCREDITOR,
OR OTHER SIMILAR AGREEMENT TO WHICH SUCH SUBORDINATED DEBT IS SUBJECT, OR
(B) AMEND ANY PROVISION IN ANY DOCUMENT RELATING TO THE SUBORDINATED DEBT WHICH
WOULD INCREASE THE AMOUNT THEREOF OR ADVERSELY AFFECT THE SUBORDINATION THEREOF
TO OBLIGATIONS OWED TO BANK.

 

7.10        COMPLIANCE.  BECOME AN “INVESTMENT COMPANY” OR A COMPANY CONTROLLED
BY AN “INVESTMENT COMPANY”, UNDER THE INVESTMENT COMPANY ACT OF 1940 OR
UNDERTAKE AS ONE OF ITS IMPORTANT ACTIVITIES EXTENDING CREDIT TO PURCHASE OR
CARRY MARGIN STOCK (AS DEFINED IN REGULATION U OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM), OR USE THE PROCEEDS OF ANY CREDIT EXTENSION FOR THAT
PURPOSE; FAIL TO MEET THE MINIMUM FUNDING REQUIREMENTS OF ERISA, PERMIT A
REPORTABLE EVENT OR PROHIBITED TRANSACTION, AS DEFINED IN ERISA, TO OCCUR; FAIL
TO COMPLY WITH THE FEDERAL FAIR LABOR STANDARDS ACT OR VIOLATE ANY OTHER LAW OR
REGULATION, IF THE VIOLATION COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL
ADVERSE EFFECT ON BORROWER’S BUSINESS, OR PERMIT ANY OF ITS SUBSIDIARIES TO DO
SO; WITHDRAW OR PERMIT ANY SUBSIDIARY TO WITHDRAW FROM PARTICIPATION IN, PERMIT
PARTIAL OR COMPLETE TERMINATION OF, OR PERMIT THE OCCURRENCE OF ANY OTHER EVENT
WITH RESPECT TO, ANY PRESENT PENSION, PROFIT SHARING AND DEFERRED COMPENSATION
PLAN WHICH COULD REASONABLY BE EXPECTED TO RESULT IN ANY LIABILITY OF BORROWER,
INCLUDING ANY LIABILITY TO THE PENSION BENEFIT GUARANTY CORPORATION OR ITS
SUCCESSORS OR ANY OTHER GOVERNMENTAL AGENCY.

 

8              EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

 

8.1          PAYMENT DEFAULT.  BORROWER FAILS TO (A) MAKE ANY PAYMENT OF
PRINCIPAL OR INTEREST ON ANY CREDIT EXTENSION ON ITS DUE DATE, OR (B) PAY ANY
OTHER OBLIGATIONS WITHIN THREE (3) BUSINESS DAYS AFTER SUCH OBLIGATIONS ARE DUE
AND PAYABLE (WHICH THREE (3) BUSINESS DAY GRACE PERIOD WILL NOT APPLY TO
PAYMENTS DUE ON THE REVOLVING LINE MATURITY DATE).  DURING THE CURE PERIOD, THE
FAILURE TO CURE THE PAYMENT DEFAULT IS NOT AN EVENT OF DEFAULT (BUT NO CREDIT
EXTENSION WILL BE MADE DURING THE CURE PERIOD);

 

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8.2          COVENANT DEFAULT.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5,
6.6, 6.7, 6.11, or violates any covenant in Section 7; or

 

(B) BORROWER FAILS OR NEGLECTS TO PERFORM, KEEP, OR OBSERVE ANY OTHER TERM,
PROVISION, CONDITION, COVENANT OR AGREEMENT CONTAINED IN THIS AGREEMENT, ANY
LOAN DOCUMENTS, AND AS TO ANY DEFAULT (OTHER THAN THOSE SPECIFIED IN THIS
SECTION 8) UNDER SUCH OTHER TERM, PROVISION, CONDITION, COVENANT OR AGREEMENT
THAT CAN BE CURED, HAS FAILED TO CURE THE DEFAULT WITHIN TEN (10) DAYS AFTER THE
OCCURRENCE THEREOF; PROVIDED, HOWEVER, THAT IF THE DEFAULT CANNOT BY ITS NATURE
BE CURED WITHIN THE TEN (10) DAY PERIOD OR CANNOT AFTER DILIGENT ATTEMPTS BY
BORROWER BE CURED WITHIN SUCH TEN (10) DAY PERIOD, AND SUCH DEFAULT IS LIKELY TO
BE CURED WITHIN A REASONABLE TIME, THEN BORROWER SHALL HAVE AN ADDITIONAL PERIOD
(WHICH SHALL NOT IN ANY CASE EXCEED THIRTY (30) DAYS) TO ATTEMPT TO CURE SUCH
DEFAULT, AND WITHIN SUCH REASONABLE TIME PERIOD THE FAILURE TO CURE THE DEFAULT
SHALL NOT BE DEEMED AN EVENT OF DEFAULT (BUT NO CREDIT EXTENSIONS SHALL BE MADE
DURING SUCH CURE PERIOD).  GRACE PERIODS PROVIDED UNDER THIS SECTION SHALL NOT
APPLY, AMONG OTHER THINGS, TO FINANCIAL COVENANTS OR ANY OTHER COVENANTS SET
FORTH IN SUBSECTION (A) ABOVE;

 

8.3          MATERIAL ADVERSE CHANGE.  A MATERIAL ADVERSE CHANGE OCCURS;

 

8.4          ATTACHMENT.  (A) ANY MATERIAL PORTION OF BORROWER’S ASSETS IS
ATTACHED, SEIZED, LEVIED ON, OR COMES INTO POSSESSION OF A TRUSTEE OR RECEIVER
AND THE ATTACHMENT, SEIZURE OR LEVY IS NOT REMOVED IN TEN (10) DAYS; (B) THE
SERVICE OF PROCESS SEEKING TO ATTACH, BY TRUSTEE OR SIMILAR PROCESS, ANY FUNDS
OF BORROWER, OR OF ANY ENTITY UNDER CONTROL OF BORROWER (INCLUDING A
SUBSIDIARY), ON DEPOSIT WITH BANK OR BANK’S AFFILIATE; (C) BORROWER IS ENJOINED,
RESTRAINED, OR PREVENTED BY COURT ORDER FROM CONDUCTING A MATERIAL PART OF ITS
BUSINESS; (D) A JUDGMENT OR OTHER CLAIM IN EXCESS OF ONE HUNDRED THOUSAND
DOLLARS ($100,000) BECOMES A LIEN ON ANY OF BORROWER’S ASSETS; OR (E) A NOTICE
OF LIEN, LEVY, OR ASSESSMENT IS FILED AGAINST ANY OF BORROWER’S ASSETS BY ANY
GOVERNMENT AGENCY AND NOT PAID WITHIN TEN (10) DAYS AFTER BORROWER RECEIVES
NOTICE.  THESE ARE NOT EVENTS OF DEFAULT IF STAYED OR IF A BOND IS POSTED
PENDING CONTEST BY BORROWER (BUT NO CREDIT EXTENSIONS SHALL BE MADE DURING THE
CURE PERIOD);

 

8.5          INSOLVENCY (A) BORROWER IS UNABLE TO PAY ITS DEBTS (INCLUDING TRADE
DEBTS) AS THEY BECOME DUE OR OTHERWISE BECOMES INSOLVENT; (B) BORROWER BEGINS AN
INSOLVENCY PROCEEDING; OR (C) AN INSOLVENCY PROCEEDING IS BEGUN AGAINST BORROWER
AND NOT DISMISSED OR STAYED WITHIN THIRTY (30) DAYS (BUT NO CREDIT EXTENSIONS
SHALL BE MADE WHILE OF ANY OF THE CONDITIONS DESCRIBED IN CLAUSE (A) EXIST
AND/OR UNTIL ANY INSOLVENCY PROCEEDING IS DISMISSED);

 

8.6          OTHER AGREEMENTS.  IF BORROWER FAILS TO (A) MAKE ANY PAYMENT THAT
IS DUE AND PAYABLE WITH RESPECT TO ANY MATERIAL INDEBTEDNESS AND SUCH FAILURE
CONTINUES AFTER THE APPLICABLE GRACE OR NOTICE PERIOD, IF ANY, SPECIFIED IN THE
AGREEMENT OR INSTRUMENT RELATING THERETO, OR (B) PERFORM OR OBSERVE ANY OTHER
CONDITION OR COVENANT, OR ANY OTHER EVENT SHALL OCCUR OR CONDITION EXIST UNDER
ANY AGREEMENT OR INSTRUMENT RELATING TO ANY MATERIAL INDEBTEDNESS, AND SUCH
FAILURE CONTINUES AFTER THE APPLICABLE GRACE OR NOTICE PERIOD, IF ANY, SPECIFIED
IN THE AGREEMENT OR INSTRUMENT RELATING THERETO AND THE EFFECT OF SUCH FAILURE,
EVENT OR CONDITION IS TO CAUSE THE HOLDER OR HOLDERS OF SUCH MATERIAL
INDEBTEDNESS TO ACCELERATE THE MATURITY OF SUCH MATERIAL INDEBTEDNESS OR CAUSE
THE MANDATORY REPURCHASE OF ANY MATERIAL INDEBTEDNESS;

 

8.7          JUDGMENTS.  A JUDGMENT OR JUDGMENTS FOR THE PAYMENT OF MONEY IN AN
AMOUNT, INDIVIDUALLY OR IN THE AGGREGATE, OF AT LEAST ONE HUNDRED THOUSAND
DOLLARS ($100,000) (NOT COVERED BY INDEPENDENT THIRD-PARTY INSURANCE) SHALL BE
RENDERED AGAINST BORROWER AND SHALL REMAIN UNSATISFIED AND UNSTAYED FOR A PERIOD
OF TEN (10) DAYS AFTER THE ENTRY THEREOF (PROVIDED THAT NO CREDIT EXTENSIONS
WILL BE MADE PRIOR TO THE SATISFACTION OR STAY OF SUCH JUDGMENT);

 

8.8          MISREPRESENTATIONS.  BORROWER OR ANY PERSON ACTING FOR BORROWER
MAKES ANY REPRESENTATION, WARRANTY, OR OTHER STATEMENT NOW OR LATER IN THIS
AGREEMENT, ANY LOAN DOCUMENT OR IN ANY WRITING DELIVERED TO BANK OR TO INDUCE
BANK TO ENTER THIS AGREEMENT OR ANY LOAN DOCUMENT, AND SUCH REPRESENTATION,
WARRANTY, OR OTHER STATEMENT IS INCORRECT IN ANY MATERIAL RESPECT WHEN MADE;

 

8.9          SUBORDINATED DEBT.  A DEFAULT OR BREACH OCCURS UNDER ANY AGREEMENT
BETWEEN BORROWER AND ANY CREDITOR OF BORROWER THAT SIGNED A SUBORDINATION,
INTERCREDITOR, OR OTHER SIMILAR AGREEMENT WITH BANK, OR ANY CREDITOR THAT HAS
SIGNED SUCH AN AGREEMENT WITH BANK BREACHES ANY TERMS OF SUCH AGREEMENT; OR

 

8.10        GUARANTY.  (A) ANY GUARANTY OF ANY OBLIGATIONS TERMINATES OR CEASES
FOR ANY REASON TO BE IN FULL FORCE AND EFFECT; (B) ANY GUARANTOR DOES NOT
PERFORM ANY OBLIGATION OR COVENANT UNDER ANY GUARANTY OF THE OBLIGATIONS;
(C) ANY CIRCUMSTANCE DESCRIBED IN SECTIONS 8.3, 8.4, 8.5, 8.7, OR 8.8. OCCURS
WITH RESPECT TO ANY GUARANTOR, (D) THE LIQUIDATION, WINDING UP, OR TERMINATION
OF EXISTENCE OF ANY GUARANTOR; OR (E) (I) A MATERIAL

 

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IMPAIRMENT IN THE PERFECTION OR PRIORITY OF BANK’S LIEN IN THE COLLATERAL
PROVIDED BY GUARANTOR OR IN THE VALUE OF SUCH COLLATERAL OR (II) A MATERIAL
ADVERSE CHANGE IN THE GENERAL AFFAIRS, MANAGEMENT, RESULTS OF OPERATION,
CONDITION (FINANCIAL OR OTHERWISE) OR THE PROSPECT OF REPAYMENT OF THE
OBLIGATIONS OCCURS WITH RESPECT TO ANY GUARANTOR.

 

9             BANK’S RIGHTS AND REMEDIES

 

9.1          RIGHTS AND REMEDIES.  WHILE AN EVENT OF DEFAULT OCCURS AND
CONTINUES BANK MAY, WITHOUT NOTICE OR DEMAND, DO ANY OR ALL OF THE FOLLOWING, TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW:

 

(A)           DECLARE ALL OBLIGATIONS IMMEDIATELY DUE AND PAYABLE (BUT IF AN
EVENT OF DEFAULT DESCRIBED IN SECTION 8.5 OCCURS ALL OBLIGATIONS ARE IMMEDIATELY
DUE AND PAYABLE WITHOUT ANY ACTION BY BANK);

 

(B)           STOP ADVANCING MONEY OR EXTENDING CREDIT FOR BORROWER’S BENEFIT
UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT BETWEEN BORROWER AND BANK;

 

(C)           DEMAND THAT BORROWER (I) DEPOSITS CASH WITH BANK IN AN AMOUNT
EQUAL TO THE AGGREGATE AMOUNT OF ANY LETTERS OF CREDIT REMAINING UNDRAWN, AS
COLLATERAL SECURITY FOR THE REPAYMENT OF ANY FUTURE DRAWINGS UNDER SUCH LETTERS
OF CREDIT, AND BORROWER SHALL FORTHWITH DEPOSIT AND PAY SUCH AMOUNTS, AND
(II) PAY IN ADVANCE ALL LETTER OF CREDIT FEES SCHEDULED TO BE PAID OR PAYABLE
OVER THE REMAINING TERM OF ANY LETTERS OF CREDIT;

 

(D)           TERMINATE ANY FX FORWARD CONTRACTS;

 

(E)           SETTLE OR ADJUST DISPUTES AND CLAIMS DIRECTLY WITH ACCOUNT DEBTORS
FOR AMOUNTS ON TERMS AND IN ANY ORDER THAT BANK CONSIDERS ADVISABLE, NOTIFY ANY
PERSON OWING BORROWER MONEY OF BANK’S SECURITY INTEREST IN SUCH FUNDS, AND
VERIFY THE AMOUNT OF SUCH ACCOUNT;

 

(F)            MAKE ANY PAYMENTS AND DO ANY ACTS IT CONSIDERS NECESSARY OR
REASONABLE TO PROTECT THE COLLATERAL AND/OR ITS SECURITY INTEREST IN THE
COLLATERAL.  BORROWER SHALL ASSEMBLE THE COLLATERAL IF BANK REQUESTS AND MAKE IT
AVAILABLE AS BANK DESIGNATES AT A LOCATION THAT IS REASONABLY CONVENIENT TO BANK
AND BORROWER.  BANK MAY PEACEABLY ENTER PREMISES WHERE THE COLLATERAL IS
LOCATED, TAKE AND MAINTAIN POSSESSION OF ANY PART OF THE COLLATERAL, AND PAY,
PURCHASE, CONTEST, OR COMPROMISE ANY LIEN WHICH APPEARS TO BE PRIOR OR SUPERIOR
TO ITS SECURITY INTEREST AND PAY ALL EXPENSES INCURRED. BORROWER GRANTS BANK A
LICENSE TO ENTER AND OCCUPY ANY OF ITS PREMISES, WITHOUT CHARGE BY BORROWER, TO
EXERCISE ANY OF BANK’S RIGHTS OR REMEDIES;

 

(G)           APPLY TO THE OBLIGATIONS THEN DUE ANY (I) BALANCES AND DEPOSITS OF
BORROWER IT HOLDS, OR (II) ANY AMOUNT HELD BY BANK OWING TO OR FOR THE CREDIT OR
THE ACCOUNT OF BORROWER;

 

(H)           SHIP, RECLAIM, RECOVER, STORE, FINISH, MAINTAIN, REPAIR, PREPARE
FOR SALE, ADVERTISE FOR SALE, AND SELL THE COLLATERAL.  BANK IS HEREBY GRANTED A
NON-EXCLUSIVE, ROYALTY-FREE LICENSE OR OTHER RIGHT TO USE, WITHOUT CHARGE,
BORROWER’S LABELS, PATENTS, COPYRIGHTS, MASK WORKS, RIGHTS OF USE OF ANY NAME,
TRADE SECRETS, TRADE NAMES, TRADEMARKS, SERVICE MARKS, AND ADVERTISING MATTER,
OR ANY SIMILAR PROPERTY AS IT PERTAINS TO THE COLLATERAL, IN COMPLETING
PRODUCTION OF, ADVERTISING FOR SALE, AND SELLING ANY COLLATERAL AND, IN
CONNECTION WITH BANK’S EXERCISE OF ITS RIGHTS UNDER THIS SECTION, BORROWER’S
RIGHTS UNDER ALL LICENSES AND ALL FRANCHISE AGREEMENTS INURE TO BANK’S BENEFIT;

 

(I)            PLACE A “HOLD” ON ANY ACCOUNT MAINTAINED WITH BANK AND/OR DELIVER
A NOTICE OF EXCLUSIVE CONTROL, ANY ENTITLEMENT ORDER, OR OTHER DIRECTIONS OR
INSTRUCTIONS PURSUANT TO ANY CONTROL AGREEMENT OR SIMILAR AGREEMENTS PROVIDING
CONTROL OF ANY COLLATERAL;

 

(J)            DEMAND AND RECEIVE POSSESSION OF BORROWER’S BOOKS; AND

 

(K)           EXERCISE ALL RIGHTS AND REMEDIES AVAILABLE TO BANK UNDER THE LOAN
DOCUMENTS OR AT LAW OR EQUITY, INCLUDING ALL REMEDIES PROVIDED UNDER THE CODE
(INCLUDING DISPOSAL OF THE COLLATERAL PURSUANT TO THE TERMS THEREOF).

 

9.2          POWER OF ATTORNEY.  BORROWER HEREBY IRREVOCABLY APPOINTS BANK AS
ITS LAWFUL ATTORNEY-IN-FACT, EXERCISABLE UPON THE OCCURRENCE AND DURING THE
CONTINUANCE OF AN EVENT OF DEFAULT, TO:  (A) ENDORSE BORROWER’S NAME ON ANY
CHECKS OR OTHER FORMS OF PAYMENT OR SECURITY; (B) SIGN BORROWER’S NAME ON ANY
INVOICE OR BILL OF LADING FOR ANY ACCOUNT OR DRAFTS AGAINST ACCOUNT DEBTORS;
(C) SETTLE AND ADJUST DISPUTES AND CLAIMS ABOUT THE ACCOUNTS

 

13

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DIRECTLY WITH ACCOUNT DEBTORS, FOR AMOUNTS AND ON TERMS BANK DETERMINES
REASONABLE; (D) MAKE, SETTLE, AND ADJUST ALL CLAIMS UNDER BORROWER’S INSURANCE
POLICIES; (E) PAY, CONTEST OR SETTLE ANY LIEN, CHARGE, ENCUMBRANCE, SECURITY
INTEREST, AND ADVERSE CLAIM IN OR TO THE COLLATERAL, OR ANY JUDGMENT BASED
THEREON, OR OTHERWISE TAKE ANY ACTION TO TERMINATE OR DISCHARGE THE SAME; AND
(F) TRANSFER THE COLLATERAL INTO THE NAME OF BANK OR A THIRD PARTY AS THE CODE
PERMITS.  BORROWER HEREBY APPOINTS BANK AS ITS LAWFUL ATTORNEY-IN-FACT TO SIGN
BORROWER’S NAME ON ANY DOCUMENTS NECESSARY TO PERFECT OR CONTINUE THE PERFECTION
OF BANK’S SECURITY INTEREST IN THE COLLATERAL REGARDLESS OF WHETHER AN EVENT OF
DEFAULT HAS OCCURRED UNTIL ALL OBLIGATIONS HAVE BEEN SATISFIED IN FULL AND BANK
IS UNDER NO FURTHER OBLIGATION TO MAKE CREDIT EXTENSIONS HEREUNDER.  BANK’S
FOREGOING APPOINTMENT AS BORROWER’S ATTORNEY IN FACT, AND ALL OF BANK’S RIGHTS
AND POWERS, COUPLED WITH AN INTEREST, ARE IRREVOCABLE UNTIL ALL OBLIGATIONS HAVE
BEEN FULLY REPAID AND PERFORMED AND BANK’S OBLIGATION TO PROVIDE CREDIT
EXTENSIONS TERMINATES.

 

9.3          ACCOUNTS VERIFICATION; COLLECTION.  WHETHER OR NOT AN EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING, BANK MAY NOTIFY ANY PERSON OWING
BORROWER MONEY OF BANK’S SECURITY INTEREST IN SUCH FUNDS AND VERIFY THE AMOUNT
OF SUCH ACCOUNT.  AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, ANY AMOUNTS
RECEIVED BY BORROWER SHALL BE HELD IN TRUST BY BORROWER FOR BANK, AND, IF
REQUESTED BY BANK, BORROWER SHALL IMMEDIATELY DELIVER SUCH RECEIPTS TO BANK IN
THE FORM RECEIVED FROM THE ACCOUNT DEBTOR, WITH PROPER ENDORSEMENTS FOR DEPOSIT.

 

9.4          PROTECTIVE PAYMENTS.  IF BORROWER FAILS TO OBTAIN THE INSURANCE
CALLED FOR BY SECTION 6.5 OR FAILS TO PAY ANY PREMIUM THEREON OR FAILS TO PAY
ANY OTHER AMOUNT WHICH BORROWER IS OBLIGATED TO PAY UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, BANK MAY OBTAIN SUCH INSURANCE OR MAKE SUCH PAYMENT, AND
ALL AMOUNTS SO PAID BY BANK ARE BANK EXPENSES AND IMMEDIATELY DUE AND PAYABLE,
BEARING INTEREST AT THE THEN HIGHEST APPLICABLE RATE CHARGED BY BANK, AND
SECURED BY THE COLLATERAL.  BANK WILL MAKE REASONABLE EFFORTS TO PROVIDE
BORROWER WITH NOTICE OF BANK OBTAINING SUCH INSURANCE AT THE TIME IT IS OBTAINED
OR WITHIN A REASONABLE TIME THEREAFTER.  NO PAYMENTS BY BANK ARE DEEMED AN
AGREEMENT TO MAKE SIMILAR PAYMENTS IN THE FUTURE OR BANK’S WAIVER OF ANY EVENT
OF DEFAULT.

 

9.5          APPLICATION OF PAYMENTS AND PROCEEDS.  IF AN EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING, BANK MAY APPLY ANY FUNDS IN ITS POSSESSION, WHETHER
FROM BORROWER ACCOUNT BALANCES, PAYMENTS, PROCEEDS REALIZED AS THE RESULT OF ANY
COLLECTION OF ACCOUNTS OR OTHER DISPOSITION OF THE COLLATERAL, OR OTHERWISE, TO
THE OBLIGATIONS IN SUCH ORDER AS BANK SHALL DETERMINE IN ITS SOLE DISCRETION. 
ANY SURPLUS SHALL BE PAID TO BORROWER OR OTHER PERSONS LEGALLY ENTITLED THERETO;
BORROWER SHALL REMAIN LIABLE TO BANK FOR ANY DEFICIENCY.  IF BANK, IN ITS
REASONABLE BUSINESS JUDGMENT, DIRECTLY OR INDIRECTLY ENTERS INTO A DEFERRED
PAYMENT OR OTHER CREDIT TRANSACTION WITH ANY PURCHASER AT ANY SALE OF
COLLATERAL, BANK SHALL HAVE THE OPTION, EXERCISABLE AT ANY TIME, OF EITHER
REDUCING THE OBLIGATIONS BY THE PRINCIPAL AMOUNT OF THE PURCHASE PRICE OR
DEFERRING THE REDUCTION OF THE OBLIGATIONS UNTIL THE ACTUAL RECEIPT BY BANK OF
CASH THEREFOR.

 

9.6          BANK’S LIABILITY FOR COLLATERAL.  SO LONG AS BANK COMPLIES WITH
APPLICABLE LAW AND REASONABLE BANKING PRACTICES REGARDING THE SAFEKEEPING OF THE
COLLATERAL IN THE POSSESSION OR UNDER THE CONTROL OF BANK, BANK SHALL NOT BE
LIABLE OR RESPONSIBLE FOR: (A) THE SAFEKEEPING OF THE COLLATERAL; (B) ANY LOSS
OR DAMAGE TO THE COLLATERAL; (C) ANY DIMINUTION IN THE VALUE OF THE COLLATERAL;
OR (D) ANY ACT OR DEFAULT OF ANY CARRIER, WAREHOUSEMAN, BAILEE, OR OTHER
PERSON.  BORROWER BEARS ALL RISK OF LOSS, DAMAGE OR DESTRUCTION OF THE
COLLATERAL.

 

9.7          NO WAIVER; REMEDIES CUMULATIVE.  BANK’S FAILURE, AT ANY TIME OR
TIMES, TO REQUIRE STRICT PERFORMANCE BY BORROWER OF ANY PROVISION OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL NOT WAIVE, AFFECT, OR DIMINISH ANY
RIGHT OF BANK THEREAFTER TO DEMAND STRICT PERFORMANCE AND COMPLIANCE HEREWITH OR
THEREWITH.  NO WAIVER HEREUNDER SHALL BE EFFECTIVE UNLESS SIGNED BY BANK AND
THEN IS ONLY EFFECTIVE FOR THE SPECIFIC INSTANCE AND PURPOSE FOR WHICH IT IS
GIVEN.  BANK’S RIGHTS AND REMEDIES UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS ARE CUMULATIVE.  BANK HAS ALL RIGHTS AND REMEDIES PROVIDED UNDER THE
CODE, BY LAW, OR IN EQUITY.  BANK’S EXERCISE OF ONE RIGHT OR REMEDY IS NOT AN
ELECTION, AND BANK’S WAIVER OF ANY EVENT OF DEFAULT IS NOT A CONTINUING WAIVER. 
BANK’S DELAY IN EXERCISING ANY REMEDY IS NOT A WAIVER, ELECTION, OR
ACQUIESCENCE.

 

9.8          DEMAND WAIVER.  BORROWER WAIVES DEMAND, NOTICE OF DEFAULT OR
DISHONOR, NOTICE OF PAYMENT AND NONPAYMENT, NOTICE OF ANY DEFAULT, NONPAYMENT AT
MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL OF ACCOUNTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTEES HELD BY BANK ON WHICH
BORROWER IS LIABLE.

 

10           NOTICES

 

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be

 

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deemed to have been validly served, given, or delivered: (a) upon the earlier of
actual receipt and three (3) Business Days after deposit in the U.S. mail, first
class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below.  Bank or Borrower may change its address or facsimile number by giving
the other party written notice thereof in accordance with the terms of this
Section 10.

 

 

If to Borrower:

NMS Communications Corporation

 

 

100 Crossing Boulevard

 

 

Framingham, MA 01702

 

 

Attn: Corporate Controller & Chief Accounting Officer

 

 

Fax: (508) 271-1300

 

 

Email: todd_donahue@nmss.com

 

 

 

 

with a copy to:

Goodwin Procter LLP

 

 

53 State Street

 

 

Boston, Massachusetts 02109

 

 

Attn: Mark T. Bettencourt

 

 

Fax: (617) 523-1231

 

 

Email: mbettencourt@goodwinprocter.com

 

 

 

 

If to Bank:

Silicon Valley Bank

 

 

One Newton Executive Park, Suite 200

 

 

2221 Washington Street

 

 

Newton, Massachusetts 02462

 

 

Attn: Ms. Lara Chilton

 

 

Fax: (617) 969-5973

 

 

Email:  LChilton@svb.com

 

 

 

 

with a copy to:

Riemer & Braunstein LLP

 

 

Three Center Plaza

 

 

Boston, Massachusetts 02108

 

 

Attn: David A. Ephraim, Esquire

 

 

Fax: (617) 880-3456

 

 

Email: DEphraim@riemerlaw.com

 

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11           CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 

Massachusetts law governs the Loan Documents without regard to principles of
conflicts of law.  Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Massachusetts; provided, however, that if for
any reason Bank cannot avail itself of such courts in the Commonwealth of
Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Clara County, California.  NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN
ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST
BORROWER OR ITS PROPERTY.

 

TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12           GENERAL PROVISIONS

 

12.1        SUCCESSORS AND ASSIGNS.  THIS AGREEMENT BINDS AND IS FOR THE BENEFIT
OF THE SUCCESSORS AND PERMITTED ASSIGNS OF EACH PARTY.  BORROWER MAY NOT ASSIGN
THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS UNDER IT WITHOUT BANK’S PRIOR
WRITTEN CONSENT (WHICH MAY BE GRANTED OR WITHHELD IN BANK’S DISCRETION).  BANK
HAS THE RIGHT, WITHOUT THE CONSENT OF OR NOTICE TO BORROWER, TO SELL, TRANSFER,
ASSIGN, NEGOTIATE, OR GRANT PARTICIPATION IN ALL OR ANY PART OF, OR ANY INTEREST
IN, BANK’S OBLIGATIONS, RIGHTS, AND BENEFITS UNDER THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS.

 

12.2        INDEMNIFICATION.  BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK
AND ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS, OR ANY OTHER PERSON
AFFILIATED WITH OR REPRESENTING BANK HARMLESS AGAINST:  (A) ALL OBLIGATIONS,
DEMANDS, CLAIMS, AND LIABILITIES (COLLECTIVELY, “CLAIMS”) ASSERTED BY ANY OTHER
PARTY IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS;
AND (B) ALL LOSSES OR BANK EXPENSES INCURRED, OR PAID BY BANK FROM, FOLLOWING,
OR ARISING FROM TRANSACTIONS BETWEEN BANK AND BORROWER (INCLUDING REASONABLE
ATTORNEYS’ FEES AND EXPENSES), EXCEPT FOR CLAIMS AND/OR LOSSES DIRECTLY CAUSED
BY BANK’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

12.3        TIME OF ESSENCE.  TIME IS OF THE ESSENCE FOR THE PERFORMANCE OF ALL
OBLIGATIONS IN THIS AGREEMENT.

 

12.4        SEVERABILITY OF PROVISIONS.  EACH PROVISION OF THIS AGREEMENT IS
SEVERABLE FROM EVERY OTHER PROVISION IN DETERMINING THE ENFORCEABILITY OF ANY
PROVISION.

 

12.5        AMENDMENTS IN WRITING; INTEGRATION.  ALL AMENDMENTS TO THIS
AGREEMENT MUST BE IN WRITING SIGNED BY BOTH BANK AND BORROWER.  THIS AGREEMENT
AND THE LOAN DOCUMENTS REPRESENT THE ENTIRE AGREEMENT ABOUT THIS SUBJECT MATTER
AND SUPERSEDE PRIOR NEGOTIATIONS OR AGREEMENTS.  ALL PRIOR AGREEMENTS,
UNDERSTANDINGS, REPRESENTATIONS, WARRANTIES, AND NEGOTIATIONS BETWEEN THE
PARTIES ABOUT THE SUBJECT MATTER OF THIS AGREEMENT AND THE LOAN DOCUMENTS MERGE
INTO THIS AGREEMENT AND THE LOAN DOCUMENTS.

 

12.6        COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF
COUNTERPARTS AND BY DIFFERENT PARTIES ON SEPARATE COUNTERPARTS, EACH OF WHICH,
WHEN EXECUTED AND DELIVERED, IS AN ORIGINAL, AND ALL TAKEN TOGETHER, CONSTITUTE
ONE AGREEMENT.

 

12.7        SURVIVAL.  ALL COVENANTS, REPRESENTATIONS AND WARRANTIES MADE IN
THIS AGREEMENT CONTINUE IN FULL FORCE UNTIL THIS AGREEMENT HAS TERMINATED
PURSUANT TO ITS TERMS AND ALL OBLIGATIONS (OTHER THAN INCHOATE INDEMNITY
OBLIGATIONS AND ANY OTHER OBLIGATIONS WHICH, BY THEIR TERMS, ARE TO SURVIVE THE
TERMINATION OF THIS AGREEMENT) HAVE BEEN SATISFIED.  THE OBLIGATION OF BORROWER
IN SECTION 12.2 TO INDEMNIFY BANK SHALL SURVIVE UNTIL THE STATUTE OF LIMITATIONS
WITH RESPECT TO SUCH CLAIM OR CAUSE OF ACTION SHALL HAVE RUN.

 

12.8        CONFIDENTIALITY.  IN HANDLING ANY FINANCIAL STATEMENTS OF BORROWER
OR OTHER CONFIDENTIAL INFORMATION, BANK SHALL EXERCISE THE SAME DEGREE OF CARE
THAT IT EXERCISES FOR ITS OWN PROPRIETARY INFORMATION, BUT

 

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DISCLOSURE OF INFORMATION MAY BE MADE: (A) TO BANK’S SUBSIDIARIES OR AFFILIATES;
(B) TO PROSPECTIVE TRANSFEREES OR PURCHASERS OF ANY INTEREST IN THE CREDIT
EXTENSIONS (PROVIDED, HOWEVER, BANK SHALL USE COMMERCIALLY REASONABLE EFFORTS TO
OBTAIN SUCH PROSPECTIVE TRANSFEREE’S OR PURCHASER’S AGREEMENT TO THE TERMS OF
THIS PROVISION); (C) AS REQUIRED BY LAW, REGULATION, SUBPOENA, OR OTHER ORDER;
(D) TO BANK’S REGULATORS OR AS OTHERWISE REQUIRED IN CONNECTION WITH BANK’S
EXAMINATION OR AUDIT; AND (E) AS BANK CONSIDERS APPROPRIATE IN EXERCISING
REMEDIES UNDER THIS AGREEMENT.  CONFIDENTIAL INFORMATION DOES NOT INCLUDE
INFORMATION THAT EITHER: (I) IS IN THE PUBLIC DOMAIN OR IN BANK’S POSSESSION
WHEN DISCLOSED TO BANK, OR BECOMES PART OF THE PUBLIC DOMAIN AFTER DISCLOSURE TO
BANK; OR (II) IS DISCLOSED TO BANK BY A THIRD PARTY, IF BANK DOES NOT KNOW THAT
THE THIRD PARTY IS PROHIBITED FROM DISCLOSING THE INFORMATION.

 

12.9        RIGHT OF SET OFF.   BORROWER HEREBY GRANTS TO BANK, A LIEN, SECURITY
INTEREST AND RIGHT OF SET OFF AS SECURITY FOR ALL OBLIGATIONS TO BANK, WHETHER
NOW EXISTING OR HEREAFTER ARISING UPON AND AGAINST ALL DEPOSITS, CREDITS,
COLLATERAL AND PROPERTY, NOW OR HEREAFTER IN THE POSSESSION, CUSTODY,
SAFEKEEPING OR CONTROL OF BANK OR ANY ENTITY UNDER THE CONTROL OF BANK
(INCLUDING A BANK SUBSIDIARY) OR IN TRANSIT TO ANY OF THEM.  AT ANY TIME AFTER
THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITHOUT DEMAND
OR NOTICE, BANK MAY SET OFF THE SAME OR ANY PART THEREOF AND APPLY THE SAME TO
ANY OBLIGATION OF BORROWER THEN DUE AND PAYABLE REGARDLESS OF THE ADEQUACY OF
ANY OTHER COLLATERAL SECURING THE OBLIGATIONS.  ANY AND ALL RIGHTS TO REQUIRE
BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

13           DEFINITIONS

 

13.1       DEFINITIONS.  AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:

 

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

 

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Adjusted Quick Ratio” is a ratio of (a) Quick Assets to (b) Current Liabilities
minus Deferred Revenue.

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

“Affiliate” of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.

 

“Agreement” is defined in the preamble hereof.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
Borrowing Base, minus (b) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus an amount equal to the
Letter of Credit Reserves, minus (c) the FX Reserve, and minus (d) the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services).

 

“Bank” is defined in the preamble hereof.

 

“Bank Expenses” are all audit fees and expenses, and other reasonable documented
out-of-pocket costs, and expenses (including reasonable documented attorneys’
fees and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in
connection with appeals or Insolvency Proceedings) or otherwise incurred with
respect to Borrower.

 

“Borrower” is defined in the preamble hereof

 

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“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.

 

“Borrowing Base” is (a) during the absence of an Overadvance, or during the
Overadvance Cure Period, or upon Borrower’s written request to Bank that the
Borrowing Base be the Non-Formula Amount and until Borrower provides subsequent
written notice to Bank stating otherwise (the “Non-Formula Period”), the
Non-Formula Amount, and (b) for any time other than a Non-Formula Period, eighty
percent (80.0%) of Eligible Accounts, as determined by Bank from Borrower’s most
recent Borrowing Base Certificate; provided, however, that Bank may, after
consultation with Borrower, decrease the foregoing percentages in its reasonable
business judgment based on events, conditions, contingencies, or risks which, as
determined by Bank may adversely affect Collateral.

 

“Borrowing Base Certificate” is that certain certificate in the form attached
hereto as Exhibit C.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to Bank
approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Bank may conclusively rely on such certificate unless and until
such Person shall have delivered to Bank a further certificate canceling or
amending such prior certificate.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

 

“Cash Equivalents” are (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Cash Management Services” is defined in Section 2.1.4.

 

“Cash Management Services Sublimit” is defined in Section 2.1.4.

 

“Claims” are defined in Section 12.2.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the Commonwealth of Massachusetts; provided, that, to
the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or Divisions
of the Code, the definition of such term contained in Article or Division 9
shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, Bank’s Lien on any Collateral is governed by the
Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth
of Massachusetts, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes on the
provisions thereof relating to such attachment, perfection, priority, or
remedies and for purposes of definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

 

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Communication” is defined in Section 10.

 

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“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit D.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business.  The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.

 

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.

 

“Credit Extension” is any Advance, Letter of Credit, FX Forward Contract, amount
utilized for Cash Management Services, or any other extension of credit by Bank
for Borrower’s benefit.

 

“Current Liabilities” are all obligations and liabilities of Borrower to Bank,
plus, without duplication, the aggregate amount of Borrower’s Total Liabilities
that mature within one (1) year.

 

 “Default” is any event which with notice or passage of time or both, would
constitute an Event of Default.

 

“Default Rate” is defined in Section 2.3(b).

 

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue, but specifically excluding
inventory in the channel and systems shipped to customers from which Borrower is
awaiting acceptance.

 

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Designated Deposit Account” is Borrower’s deposit account, account number
                          , maintained with Bank.

 

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

 

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

 

“Early Termination Fee” is defined in Section 2.4.

 

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense,
amortization expense and non-stock compensation expense, plus (d) income tax
expense.

 

“Effective Date” is defined in the preamble of this Agreement.

 

“Eligible Accounts” are Accounts which arise in the ordinary course of Obligor’s
business that meet all Borrower’s representations and warranties in
Section 5.3.  Bank reserves the right, at any time and from time to time after
the Effective Date upon notice to Borrower, to adjust any of the criteria set
forth below and to establish new criteria in its reasonable business judgment. 
Unless Bank agrees otherwise in writing, Eligible Accounts shall not include:

 

(a)           Accounts for which the Account Debtor has not been invoiced;

 

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(b)           Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;

 

(c)           Accounts owing from an Account Debtor, fifty percent (50%) or more
of whose Accounts have not been paid within ninety (90) days of invoice date;

 

(d)           Credit balances over ninety (90) days from invoice date;

 

(e)           Accounts owing from an Account Debtor, including Affiliates, whose
total obligations to Obligors exceed twenty-five percent (25%) of all Accounts,
for the amounts that exceed that percentage, unless Bank approves in writing;

 

(f)            Accounts owing from an Account Debtor which does not have its
principal place of business in the United States unless otherwise approved by
Bank in writing on a case-by-case basis in Bank’s sole discretion;

 

(g)           Accounts owing from an Account Debtor which is a federal, state or
local government entity or any department, agency, or instrumentality thereof;

 

(i)            Accounts owing from an Account Debtor to the extent that an
Obligor is indebted or obligated in any manner to the Account Debtor (as
creditor, lessor, supplier or otherwise - sometimes called “contra” accounts,
accounts payable, customer deposits or credit accounts), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor by
Obligor in the ordinary course of its business;

 

(j)            Accounts for demonstration or promotional equipment, or in which
goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on
approval”, “bill and hold”, or other terms if Account Debtor’s payment may be
conditional;

 

(k)           Accounts for which the Account Debtor is any Obligor’s Affiliate,
Subsidiary, officer, employee, or agent;

 

(l)            Accounts in which the Account Debtor disputes liability or makes
any claim (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;

 

(m)          Accounts owing from an Account Debtor with respect to which any
Obligor has received deferred revenue (but only to the extent of such deferred
revenue);

 

(n)           Accounts owing from an Account Debtor with respect to which an
Obligor maintains a reserve in connection with such Obligor’s provision of a
right of return to the Account Debtor (but only to the extent of such reserve);

 

(o)           Accounts for which Bank in its reasonable business judgment after
consultation with Borrower determines collection to be doubtful; and

 

(p)           other Accounts Bank deems ineligible in the exercise of its
reasonable business judgment after consultation with Borrower.

 

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Section 8.

 

“Excluded Entities” is NMS Communications Korea Corporation, a Delaware
corporation, Openera Technologies, Inc., a Texas corporation, and Openera
Technologies, Inc., a Delaware corporation.

 

“Foreign Currency” means lawful money of a country other than the United States.

 

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“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

 

“Funding Date” is any date on which a Credit Extension is made to or on account
of Borrower which shall be a Business Day.

 

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.

 

“Guarantor” is any present or future guarantor of the Obligations including,
without limitation, NMS Communications International Corporation, LiveWire
Mobile, Inc. and Groove Mobile, Inc.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower, including, without
limitation or duplication, all commissions, discounts, or related amortization
and other fees and charges with respect to letters of credit and bankers’
acceptance financing and the net costs associated with interest rate swap, cap,
and similar arrangements, and the interest portion of any deferred payment
obligation (including leases of all types).

 

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

 

“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.

 

“Key Person” is either of Borrower’s Chief Executive Officer and Chief Financial
Officer.

 

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 “Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.

 

“Letter of Credit Application” is defined in Section 2.1.2(a).

 

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

 

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or
other encumbrance.

 

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
the subordination agreement, any note, or notes or guaranties executed by
Borrower or any Guarantor, and any other present or future agreement between
Borrower any Guarantor and/or for the benefit of Bank in connection with this
Agreement, all as amended, restated, or otherwise modified.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations; or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6 during the next succeeding financial reporting
period.

 

“Material Indebtedness” is any Indebtedness the principal amount of which is
equal to or greater than Two Hundred Fifty Thousand Dollars ($250,000.00).

 

“Net Income” means, as calculated for Borrower for any period as at any date of
determination, the net profit (or loss), after provision for taxes, of Borrower
for such period taken as a single accounting period.

 

“Non-Formula Amount” is, at any given time, an amount equal to the lesser of
(a) Three Million Dollars ($3,000,000.00), and (b) the aggregate amount of
Borrower’s unrestricted and unencumbered cash at Bank and/or SVB Securities.

 

“Non-Formula Period” is defined in the definition of Borrowing Base.

 

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
whether under this Agreement, the Loan Documents, or otherwise, including,
without limitation, all obligations relating to letters of credit (including
reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and the performance of Borrower’s
duties under the Loan Documents.

 

“Obligors” are Borrower, NMS Communications International Corporation, LiveWire
Mobile, Inc. and Groove Mobile, Inc.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than thirty (30) days prior to the Effective Date, and,
its bylaws in current form, each of the foregoing with all current amendments or
modifications thereto.

 

“Overadvance” is defined in Section 2.2.

 

“Overadvance Cure Period” is defined in Section 2.2.

 

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Distributions” means:

 

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(a)                                  open market share repurchases and purchases
of capital stock from former employees, consultants and directors pursuant to
repurchase agreements or other similar agreements in an aggregate amount not to
exceed One Hundred Thousand Dollars ($100,000.00) in the aggregate in any fiscal
year provided that at the time of such repurchase or purchase no Default or
Event of Default has occurred and is continuing;

 

(b)                                 distributions or dividends consisting solely
of Borrower’s capital stock;

 

(c)                                  purchases for value of any rights
distributed in connection with any stockholder rights plan;

 

(d)                                 purchases of capital stock or options to
acquire such capital stock with the proceeds received from a substantially
concurrent issuance of capital stock or convertible securities;

 

(e)                                  purchases of capital stock pledged as
collateral for loans to employees;

 

(f)                                    purchases of capital stock in connection
with the exercise of stock options or stock appreciation rights by way of
cashless exercise or in connection with the satisfaction of withholding tax
obligations;

 

(g)                                 purchases of fractional shares of capital
stock arising out of stock dividends, splits or combinations or business
combinations; and

 

(h)                                 the settlement or performance of such
Person’s obligations under any equity derivative transaction, option contract or
similar transaction or combination of transactions.

 

“Permitted Indebtedness” is:

 

(a)                                  Borrower’s Indebtedness to Bank under this
Agreement and the other Loan Documents;

 

(b)                                 Indebtedness existing on the Effective Date
and shown on the Perfection Certificate;

 

(c)                                  Subordinated Debt;

 

(d)                                 unsecured Indebtedness to trade creditors
incurred in the ordinary course of business;

 

(e)                                  Indebtedness secured by the Liens described
in subsection (c) of the definition of Permitted Liens in an amount not to
exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate
outstanding at any time; and

 

(f)                                    extensions, refinancings, modifications,
amendments and restatements of any items of Permitted Indebtedness (a) through
(d) above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.

 

“Permitted Investments” are:

 

(a)                                  Investments shown on the Perfection
Certificate and existing on the Effective Date; and

 

(b)                                 Cash Equivalents.

 

“Permitted Liens” are:

 

(a)                                  Liens existing on the Effective Date and
shown on the Perfection Certificate or arising under this Agreement and the
other Loan Documents;

 

(b)                                 Liens for taxes, fees, assessments or other
government charges or levies, either not delinquent or being contested in good
faith and for which Borrower maintains adequate reserves on Borrower’s Books, if
they have no priority over any of Bank’s Liens;

 

(c)                                  purchase money Liens (i) on Equipment
acquired or held by Borrower incurred for financing the acquisition of the
Equipment securing no more than Two Hundred Fifty Thousand Dollars ($250,000.00)
in the

 

23

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aggregate amount outstanding, or (ii) existing on Equipment when acquired, if
the Lien is confined to the property and improvements and the proceeds of the
Equipment; and

 

(d)                                 Liens incurred in the extension, renewal or
refinancing of the indebtedness secured by Liens described in (a) through (c),
but any extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness may
not increase.

 

“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

 

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.

 

“Profit” is, for any period, Borrower’s (a) EBITDA, minus (b) capital
expenditures.

 

“Quick Assets” is, on any date, Borrower’s unrestricted cash and net billed
accounts receivable determined according to GAAP.

 

 “Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made

 

“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.

 

“Revolving Line” is an Advance or Advances in an aggregate amount of up to Six
Million Dollars ($6,000,000.00) outstanding at any time.

 

“Revolving Line Maturity Date” is May 5, 2010.

 

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

 

“Settlement Date” is defined in Section 2.1.3.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

 

“Subsidiary” is, with respect to any Person, any Person of which more than 50%
of the voting stock or other equity interests (in the case of Persons other than
corporations) is owned or controlled, directly or indirectly, by such Person or
one or more Affiliates of such Person.

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s balance sheet, including all
Indebtedness, and current portion of Subordinated Debt permitted by Bank to be
paid by Borrower, but excluding all other Subordinated Debt.

 

 “Transfer” is defined in Section 7.1.

 

“Unused Revolving Line Facility Fee” is defined in Section 2.5(c).

 

[Signature page follows.]

 

24

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the Effective Date.

 

BORROWER:

 

NMS COMMUNICATIONS CORPORATION

 

By

/s/ Herbert Shumway

 

Name:

Herbert Shumway

 

Title:

CFO

 

 

BANK:

 

SILICON VALLEY BANK

 

By

/s/ Larisa B. Chilton

 

Name:

Larisa B. Chilton

 

Title:

Vice President

 

 

 

[Signature page to Loan and Security Agreement]

 

--------------------------------------------------------------------------------

 

EXHIBIT A

 

The Collateral consists of all of Borrower’s right, title and interest in and to
the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, certificates of
deposit, fixtures, letters of credit rights (whether or not the letter of credit
is evidenced by a writing), securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and

 

all Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include any of the
following, whether now owned or hereafter acquired, (a) more than 66.67% of the
presently existing and hereafter arising issued and outstanding shares of
capital stock owned by Borrower of any Foreign Subsidiary which shares entitle
the holder thereof to vote for directors or any other matter, or (b) any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
thereby, know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing; provided, however, the Collateral shall
include all Accounts, license and royalty fees and other revenues, proceeds, or
income arising out of or relating to any of the foregoing.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Bank’s prior written consent.

 

1

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EXHIBIT B

 

Loan Payment/Advance Request Form

 

DEADLINE FOR SAME DAY PROCESSING IS NOON E.S.T.*

 

Fax To:

 

Date:

 

 

LOAN PAYMENT:

 

NMS Communications Corporation

 

From Account #

 

 

To Account #

 

 

 

(Deposit Account #)

 

(Loan Account #)

 

 

Principal $

 

 

and/or Interest $

 

 

 

 

Authorized Signature:

 

 

 

Phone Number:

 

 

Print Name/Title:

 

 

 

 

LOAN ADVANCE:

 

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

 

From Account #

 

 

To Account #

 

 

 

(Loan Account #)

 

(Deposit Account #)

 

 

Amount of Advance $

 

 

 

 

 

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
request for an advance; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:

 

Authorized Signature:

 

 

Phone Number:

 

 

Print Name/Title:

 

 

 

 

OUTGOING WIRE REQUEST:

Complete only if all or a portion of funds from the loan advance above is to be
wired.

Deadline for same day processing is noon, E.S.T.

 

Beneficiary Name:

 

 

Amount of Wire: $

 

Beneficiary Bank:

 

 

Account Number:

 

City and State:

 

 

 

 

 

Beneficiary Bank Transit (ABA) #:

 

 

Beneficiary Bank Code (Swift, Sort, Chip, etc.):

 

 

(For International Wire Only)

 

 

Intermediary Bank:

 

 

Transit (ABA) #:

 

For Further Credit to:

 

 

 

 

Special Instruction:

 

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:

 

 

2nd Signature (if required):

 

 

Print Name/Title:

 

 

Print Name/Title:

 

 

Telephone #:

 

 

Telephone #:

 

 

 

--------------------------------------------------------------------------------

*  Unless otherwise provided for an Advance bearing interest at LIBOR.

 

1

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EXHIBIT C

 

BORROWING BASE CERTIFICATE

 

Borrower: NMS Communications Corporation
Lender:        Silicon Valley Bank
Commitment Amount:                            $6,000,000.00

 

ACCOUNTS RECEIVABLE

 

 

1.

ACCOUNTS RECEIVABLE BOOK VALUE AS OF

$

 

2.

ADDITIONS (PLEASE EXPLAIN ON REVERSE)

$

 

3.

TOTAL ACCOUNTS RECEIVABLE

$

 

 

 

 

 

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

 

 

4.

AMOUNTS OVER 90 DAYS DUE

$

 

5.

BALANCE OF 50% OVER 90 DAY ACCOUNTS

$

 

6.

CREDIT BALANCES OVER 90 DAYS

$

 

7.

CONCENTRATION LIMITS

$

 

8.

FOREIGN ACCOUNTS

$

 

9.

GOVERNMENTAL ACCOUNTS

$

 

10.

Contra Accounts

$

 

11.

Promotion or Demo Accounts

$

 

12.

Intercompany/Employee Accounts

$

 

13.

Disputed Accounts

$

 

14.

Deferred Revenue

$

 

15.

Right of Return Offset

$

 

16.

Other (please explain on reverse)

 

 

17.

TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

$

 

18.

Eligible Accounts (#3 minus #17)

$

 

19.

ELIGIBLE AMOUNT OF ACCOUNTS (80.0% of #18)

$

 

 

 

 

 

20.

Non-Formula Amount

$

 

 

 

 

 

BALANCES

 

 

21.

Maximum Loan Amount

$

 

22.

Total Funds Available (#20 during any Non-Formula Period and #19 otherwise)

$

 

23.

Present balance owing on Line of Credit

$

 

24.

Outstanding under Sublimits

$

 

25.

RESERVE POSITION (#22 minus #23 and #24)

$

 

 

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

 

 

BANK USE ONLY

 

 

COMMENTS:

Received by:

 

 

 

 

AUTHORIZED SIGNER

 

Date:

 

 

By:

 

 

Verified:

 

 

Authorized Signer

 

AUTHORIZED SIGNER

Date:

 

 

Date:

 

 

 

Compliance Status:

Yes     No

 

1

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EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

TO:

SILICON VALLEY BANK

Date:

 

FROM:

NMS COMMUNICATIONS CORPORATION

 

 

 

The undersigned authorized officer of NMS Communications Corporation
(“Borrower”) certifies that under the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is
in complete compliance for the period ending                                with
all required covenants except as noted below, (2) there are no Events of
Default, (3) all representations and warranties in the Agreement are true and
correct in all material respects on this date except as noted below; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date,
(4) Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank.  Attached are the
required documents supporting the certification.  The undersigned certifies that
these are prepared in accordance with GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes.  The
undersigned acknowledges that no borrowings may be requested at any time or date
of determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.  Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

 

Required

 

Complies

 

 

 

 

 

Monthly financial statements with Compliance Certificate

 

Monthly within 30 days (or quarterly within 45 days if no Obligations are
outstanding or no Credit Extensions are requested)

 

Yes   No

10-Q, 10-K and 8-K

 

Within 5 days after filing with SEC

 

Yes   No

Borrowing Base Certificate and A/R Agings

 

Monthly within 30 (or quarterly within 45 days if no Obligations are outstanding
or no Credit Extensions are requested)

 

Yes   No

Board Projections

 

Annually within 45 days after year end and with updates

 

Yes   No

 

Maintain:

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Quick Ratio (*monthly/quarterly)

 

1.5:1.0

 

:1.0

 

Yes   No

 

 

 

 

 

 

 

Minimum Profit

 

$

 

**

$

 

Yes   No

 

--------------------------------------------------------------------------------

*As set forth in Section 6.7(a) of the Loan and Security Agreement

**As set forth in Section 6.7(b) of the Loan and Security Agreement

 

1

--------------------------------------------------------------------------------

 

The following financial covenant analyses and information set forth in Schedule
1 attached hereto are true and accurate as of the date of this Certificate.

 

The following are the exceptions with respect to the certification above:  (If
no exceptions exist, state “No exceptions to note.”)

 

 

NMS Communications Corporation

BANK USE ONLY

 

 

 

 

 

Received by:

 

 

By:

 

 

 

AUTHORIZED SIGNER

 

Name:

 

 

Date:

 

 

Title:

 

 

 

 

 

Verified:

 

 

 

 

AUTHORIZED SIGNER

 

 

Date:

 

 

 

 

 

 

 

Compliance Status:

Yes    No

 

 

2

--------------------------------------------------------------------------------

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

Dated:                            

 

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall control.

 

I.                                         Adjusted Quick Ratio (Section 6.7(a))
(to be calculated and tested on a consolidated basis)

 

Required:

1.50:1.00

 

Actual:

        :1.00

 

 

A.

 

Aggregate value of the unrestricted cash of Borrower

$

 

 

 

 

 

 

B.

 

Aggregate value of the net billed accounts receivable of Borrower

$

 

 

 

 

 

 

C.

 

Quick Assets (the sum of lines A through B)

$

 

 

 

 

 

 

D.

 

Aggregate value of Obligations to Bank

$

 

 

 

 

 

 

E.

 

Aggregate value of liabilities of Borrower (including all Indebtedness) that
matures within one (1) year and current portion of Subordinated Debt permitted
by Bank to be paid by Borrower

$

 

 

 

 

 

 

F.

 

Current Liabilities (the sum of lines D and E)

$

 

 

 

 

 

 

G

 

Deferred Revenue

$

 

 

 

 

 

 

H

 

Line F minus line G

$

 

 

 

 

 

 

I.

 

Adjusted Quick Ratio (line C divided by line H)

 

 

 

Is line I equal to or greater than 1.50:1:00?

 

 

 

No, not in compliance

 

 

 

Yes, in compliance

 

II.                                     Minimum Profit (Section 6.7(b))

 

Required:                                             $                   (as
set forth in Section 6.7(b)) (to be calculated and tested on a consolidated
basis)

 

Actual:                                                         $

 

 

 

No, not in compliance

 

 

 

Yes, in compliance

 

3

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