Document:

Loan & Security Agreement

 

Exhibit 10.27

 

 

 

 

 

 

AMENDED AND RESTATED

LOAN AND

SECURITY AGREEMENT

Broadvision,

Inc.

 

 

 

 

 

AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

TABLE OF CONTENTS

	

  Heading

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  1.

  	

  ACCOUNTING AND OTHER TERMS.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  2.

  	

  LOAN

  AND TERMS OF PAYMENT.

  	

   

  	

   

  	

   

  
	

   

  	

  2.1

  	

  Promise to Pay.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2.1.1

  	

  Revolving

  Advances.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2.1.2

  	

  Cash Management

  Services Sublimit.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2.1.3

  	

  Foreign Exchange Sublimit.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2.1.4

  	

  Letters of Credit Sublimit.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2.1.5

  	

  Term Loans.

  	

   

  	

   

  	

   

  
	

   

  	

  2.2

  	

  Overadvances.

  	

   

  	

   

  	

   

  
	

   

  	

  2.3

  	

  Interest

  Rate, Payments.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2.3.1

  	

  Debit of Borrower’s

  Accounts.

  	

   

  	

   

  	

   

  
	

   

  	

  2.4

  	

  Fees.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  3.

  	

  CONDITIONS

  OF LOANS.

  	

   

  	

   

  	

   

  
	

   

  	

  3.1

  	

  Conditions

  Precedent to Initial Credit Extension.

  	

   

  	

   

  	

   

  
	

   

  	

  3.2

  	

  Conditions

  Precedent to all Credit Extensions.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  4.

  	

  CREATION OF SECURITY

  INTEREST.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  5.

  	

  REPRESENTATIONS AND

  WARRANTIES.

  	

   

  	

   

  	

   

  
	

   

  	

  5.1

  	

  Due Organization and

  Authorization.

  	

   

  	

   

  	

   

  
	

   

  	

  5.2

  	

  Collateral.

  	

   

  	

   

  	

   

  
	

   

  	

  5.3

  	

  Litigation.

  	

   

  	

   

  	

   

  
	

   

  	

  5.4

  	

  No

  Material Adverse Change in Financial Statements.

  	

   

  	

   

  	

   

  
	

   

  	

  5.5

  	

  Solvency.

  	

   

  	

   

  	

   

  
	

   

  	

  5.6

  	

  Regulatory

  Compliance.

  	

   

  	

   

  	

   

  
	

   

  	

  5.7

  	

  Investments.

  	

   

  	

   

  	

   

  
	

   

  	

  5.8

  	

  Full Disclosure.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  6.

  	

  AFFIRMATIVE

  COVENANTS.

  	

   

  	

   

  	

   

  
	

   

  	

  6.1

  	

  Government

  Compliance.

  	

   

  	

   

  	

   

  
	

   

  	

  6.2

  	

  Financial

  Statements, Reports, Certificates.

  	

   

  	

   

  	

   

  
	

   

  	

  6.3

  	

  Inventory;

  Returns.

  	

   

  	

   

  	

   

  
	

   

  	

  6.4

  	

  Taxes.

  	

   

  	

   

  	

   

  
	

   

  	

  6.5

  	

  Insurance.

  	

   

  	

   

  	

   

  
	

   

  	

  6.6

  	

  Deposits.

  	

   

  	

   

  	

   

  
	

   

  	

  6.7

  	

  Financial

  Covenant.

  	

   

  	

   

  	

   

  
	

   

  	

  6.8

  	

  Registration

  of Intellectual Property Rights.

  	

   

  	

   

  	

   

  
	

   

  	

  6.9

  	

  Further

  Assurances.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  7.

  	

  NEGATIVE

  COVENANTS.

  	

   

  	

   

  	

   

  
	

   

  	

  7.1

  	

  Dispositions.

  	

   

  	

   

  	

   

  
	

   

  	

  7.2

  	

  Changes

  in Business, Ownership, Management or Business Locations.

  	

   

  	

   

  	

   

  
	

   

  	

  7.3

  	

  Mergers

  or Acquisitions.

  	

   

  	

   

  	

   

  
	

   

  	

  7.4

  	

  Indebtedness.

  	

   

  	

   

  	

   

  
								

 

 

i

 

	

   

  	

  7.5

  	

  Encumbrances.

  	

   

  	

   

  	

   

  
	

   

  	

  7.6

  	

  Distributions; Investments.

  	

   

  	

   

  	

   

  
	

   

  	

  7.7

  	

  Transactions with

  Affiliates.

  	

   

  	

   

  	

   

  
	

   

  	

  7.8

  	

  Subordinated

  Debt.

  	

   

  	

   

  	

   

  
	

   

  	

  7.9

  	

  Compliance.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  8.

  	

  EVENTS OF

  DEFAULT.

  	

   

  	

   

  	

   

  
	

   

  	

  8.1

  	

  Payment Default.

  	

   

  	

   

  	

   

  
	

   

  	

  8.2

  	

  Covenant

  Default.

  	

   

  	

   

  	

   

  
	

   

  	

  8.3

  	

  Material

  Adverse Change.

  	

   

  	

   

  	

   

  
	

   

  	

  8.4

  	

  Attachment.

  	

   

  	

   

  	

   

  
	

   

  	

  8.5

  	

  Insolvency.

  	

   

  	

   

  	

   

  
	

   

  	

  8.6

  	

  Other

  Agreements.

  	

   

  	

   

  	

   

  
	

   

  	

  8.7

  	

  Judgments.

  	

   

  	

   

  	

   

  
	

   

  	

  8.8

  	

  Misrepresentations.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  9.

  	

  BANK’S RIGHTS AND REMEDIES.

  	

   

  	

   

  	

   

  
	

   

  	

  9.1

  	

  Rights

  and Remedies.

  	

   

  	

   

  	

   

  
	

   

  	

  9.2

  	

  Power of

  Attorney.

  	

   

  	

   

  	

   

  
	

   

  	

  9.3

  	

  Accounts

  Collection.

  	

   

  	

   

  	

   

  
	

   

  	

  9.4

  	

  Bank Expenses.

  	

   

  	

   

  	

   

  
	

   

  	

  9.5

  	

  Bank’s Liability for

  Collateral.

  	

   

  	

   

  	

   

  
	

   

  	

  9.6

  	

  Remedies

  Cumulative.

  	

   

  	

   

  	

   

  
	

   

  	

  9.7

  	

  Demand Waiver.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  10.

  	

  NOTICES.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  11.

  	

  CHOICE OF

  LAW , VENUE AND JURY TRIAL WAIVER.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  12.

  	

  GENERAL

  PROVISIONS

  	

   

  	

   

  	

   

  
	

   

  	

  12.1

  	

  Successors

  and Assigns.

  	

   

  	

   

  	

   

  
	

   

  	

  12.2

  	

  Indemnification.

  	

   

  	

   

  	

   

  
	

   

  	

  12.3

  	

  Time of Essence.

  	

   

  	

   

  	

   

  
	

   

  	

  12.4

  	

  Severability of Provision.

  	

   

  	

   

  	

   

  
	

   

  	

  12.5

  	

  Amendments in

  Writing, Integration.

  	

   

  	

   

  	

   

  
	

   

  	

  12.6

  	

  Counterparts.

  	

   

  	

   

  	

   

  
	

   

  	

  12.7

  	

  Survival.

  	

   

  	

   

  	

   

  
	

   

  	

  12.8

  	

  Confidentiality.

  	

   

  	

   

  	

   

  
	

   

  	

  12.9

  	

  Attorneys’ Fees,

  Costs and Expenses.

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  13.

  	

  DEFINITIONS.

  	

   

  	

   

  	

   

  
	

   

  	

  13.1

  	

  Definitions.

  	

   

  	

   

  	

   

  
							

 

EXHIBITS

Exhibit A — Description of Collateral

Exhibit B — Payment/Advance Request Form

Exhibit C — Form of Compliance Certificate

 

ii

 

AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

                This AMENDED AND RESTATED LOAN AND

SECURITY AGREEMENT (the “Agreement”) dated as of March 31, 2002,

between SILICON VALLEY BANK, a California-chartered bank (“Bank”) whose address

is 3003 Tasman Drive, Santa Clara, California 95054, and BROADVISION, INC., a

Delaware corporation (“Borrower”) whose address is 585 Broadway, Redwood City,

California 94063, provides the terms on which Bank will lend to Borrower and

Borrower will borrow from Bank.

RECITALS

                A.            Borrower and Bank are parties to that certain Loan and

Security Agreement dated as of July 2, 1997 (the “Original Agreement”), as

amended and modified from time to time, including, without limitation, by that

certain First Amendment to Loan and Security Agreement dated as of February 5,

1998, that certain Second Amendment to Loan and Security Agreement dated as of

April 7, 1998, that certain Amendment to Loan and Security Agreement dated as

of May 4, 1999, that certain Loan Modification Agreement dated as of August 30,

1999, that certain Second Loan Modification Agreement dated as of May 3, 2000,

that certain Third Loan Modification Agreement dated as of May 11, 2001, that

certain Fourth Loan Modification Agreement dated as of August 3, 2001, and that

certain Loan Modification Agreement dated as of November 1, 2001 (collectively,

the “Amendments and Modifications”).

                B.            Bank and Borrower desire to replace and supplant in full

the Original Agreement, as amended and modified from time to time (including,

without limitation, by the Amendments and Modifications), with this Agreement.

                NOW, THEREFORE, the parties

agree as follows:

1.             ACCOUNTING AND OTHER

TERMS.

                Accounting terms not defined in this Agreement will be

construed in accordance with GAAP. Calculations and determinations must be made

in accordance with GAAP.  The term

“financial statements” includes the notes and schedules.  The terms “including” and “includes” always

mean “including (or includes) without limitation,” in this or any Loan

Document.

2.             LOAN AND TERMS OF

PAYMENT.

2.1          Promise to Pay.

                Borrower promises

to pay Bank the unpaid principal amount of all Credit Extensions and interest

on the unpaid principal amount of all Credit Extensions.

2.1.1       Revolving

Advances.

                (a)  Bank will

make Revolving Advances not exceeding at any time the Committed Revolving

Line minus the sum of (A) the Cash Management Services Sublimit, (B) the

then-outstanding principal balance of all Revolving Advances, (C) the FX

Sublimit, and (D) the amount of all outstanding Letters of Credit (including

drawn but unreimbursed Letters of Credit). 

Amounts borrowed under this Section 2.1.1 may be repaid and reborrowed

through the Revolving Maturity Date.

                (b)  To obtain

a Revolving Advance, Borrower must notify Bank by facsimile or telephone by

12:00 p.m., Pacific Time, one Business Day prior to the day on which the

Revolving Advance is to be made. 

Borrower must promptly confirm the notification by delivering to Bank a

completed Loan 

 

1

 

Payment/Advance

Request Form in the form attached as Exhibit B.  Bank will credit Revolving Advances to Borrower’s deposit

account.  Bank may make Revolving

Advances under this Agreement based on instructions from a Responsible Officer

or his or her designee, or without instructions if the Revolving Advances are

necessary to meet Obligations which have become due.  Bank may rely on any telephone notice given by a person whom Bank

reasonably believes is a Responsible Officer or designee. Borrower will

indemnify Bank for any loss Bank suffers due to such reliance.

                (c)  The

Committed Revolving Line terminates on the Revolving Maturity Date, when all

Revolving Advances, and all accrued and unpaid interest thereon, are

immediately due and payable, provided, however, that Borrower may

elect to amortize up to $5,000,000 of the Committed Revolving Line (the

“Deferred Amount”) over the thirty-six (36) month period beginning on the

Revolving Maturity Date (the “Deferral Period”) by providing Bank written

notice of such election at least 10 days prior to the Revolving Maturity

Date.  The Deferred Amount, if any,

shall be payable on the first Business Day of each month during the Deferral

Period until the last day of such period (the “Deferral Maturity Date”) in

thirty-six (36) equal installments of principal plus interest.

                (d)  Bank’s

obligation to lend the undisbursed portion of the Committed Revolving Line or

any other credit available hereunder to Borrower will terminate if, in Bank’s

sole discretion, there has been a Material Adverse Change or there has occurred

any material adverse deviation from the most recent business plan of Borrower

presented to and accepted by Bank prior to the execution of this Agreement.

2.1.2       Cash

Management Services Sublimit.

                Borrower may use up to $25,000,000 of the amounts

available under Section 2.1.1(a) (the “Cash Management Services Sublimit”)

for Bank’s Cash Management Services, which may include merchant services,

direct deposit of payroll, automated clearing house transactions, controlled

disbursement accounts, business credit card and check cashing services

identified in various cash management services agreements related to such

services (the “Cash Management Services”). 

The Cash Management Services Sublimit

will reduce, on a dollar-for-dollar basis, the amount otherwise available to be

borrowed under the Committed Revolving Line.  Any amounts Bank pays on behalf of Borrower, and any amounts that

are not paid by Borrower, for any Cash Management Services will be treated as

Revolving Advances under the Committed Revolving Line and will accrue interest

at the rate for Revolving Advances. 

Borrower agrees to execute any further documentation in connection with

the Cash Management Services as Bank may request.

2.1.3       Foreign

Exchange Sublimit.

                To the extent that

the FX Sublimit (as defined herein) is not exceeded, then Borrower may enter

into foreign exchange forward contracts with the Bank under which Borrower

commits to purchase from or sell to Bank a set amount of foreign currency more

than one Business Day after the contract date (the “FX Forward Contract”).  The FX Sublimit (“FX Sublimit “) shall be an

amount equal to 10% of the face amount of all outstanding FX Forward Contracts;

provided, however, that at no time shall the FX Sublimit exceed

the maximum amount available under the Committed Revolving Line (as adjusted

from time to time pursuant to paragraph (a) of Section 2.1.1).  The aggregate amount of the FX Sublimit

shall at all times reduce, on a dollar-for-dollar basis, the amount available

under the Committed Revolving Line. Bank may terminate the FX Forward Contracts

if an Event of Default occurs.

2.1.4       Letters

of Credit Sublimit.

                Bank will issue Letters of

Credit for Borrower’s account in an aggregate face amount not exceeding the

Committed Revolving Line minus (i) the outstanding principal balance of the

Revolving Advances, (ii) the Cash Management Sublimit, and (iii) the FX

Sublimit; provided, however, that the face amount of outstanding

Letters of Credit (including drawn but unreimbursed Letters of Credit) may at

no 

 

2

 

time exceed the Committed

Revolving Line.  Each Letter of Credit

will have an expiry date of not later than 180 days after the Revolving

Maturity Date, but Borrower’s reimbursement obligation will be secured by cash

on terms acceptable to Bank at any time after the Revolving Maturity Date if

the term of this Agreement is not extended by Bank.  Borrower agrees to execute any further documentation in

connection with the Letters of Credit as Bank may reasonably request.

2.1.5       Term Loans.

                (a)           Borrower

acknowledges and agrees that, as of the Closing Date, Borrower owes Bank the

outstanding principal sum of $1,690,300 under a leasehold facility (hereinafter

“Term Loan #1”), under which Borrower must pay to Bank installments of

principal plus interest on the first Business Day of each month until the Term

Loan #1 Maturity Date.  Borrower’s final

payment on the Term Loan #1 Maturity Date shall include all outstanding Term

Loan #1 principal and accrued interest.

                (b)           Borrower acknowledges and agrees

that, as of the Closing Date, Borrower owes Bank the outstanding principal sum

of $1,964,200 under another leasehold facility (hereinafter “Term Loan #2”),

under which Borrower must pay to Bank installments of principal plus interest

on the first Business Day of each month until the Term Loan #2 Maturity

Date.  Borrower’s final payment on the

Term Loan #2 Maturity Date shall include all outstanding Term Loan #2 principal

and accrued interest.

2.2          Overadvances.

                If the amount of principal of all Obligations under

Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 at any time exceed the Committed

Revolving Line, then Borrower will be in an Overadvance to the extent of such

excess principal amount.  If Borrower is

in an Overadvance, then Borrower shall immediately repay to Bank the amount by

which the sum of all outstanding principal exceeds the Committed Revolving Line

and Borrower shall also repay accrued interest on such amounts.

2.3          Interest

Rate, Payments.

                (a)           Revolving

Advances shall accrue interest on the aggregate principal balance thereof from

time to time outstanding at a per annum rate equal to the Prime Rate.  Term Loan #1 shall accrue interest on the

aggregate principal balance thereof from time to time outstanding at a per

annum rate equal to the Prime Rate. 

Term Loan #2 shall accrue interest on the aggregate principal balance

thereof from time to time outstanding at a per annum rate equal to the Prime

Rate plus one and one-quarter percent (1.25%). 

The Deferred Amount, if any, shall accrue interest on the aggregate

principal balance thereof from time to time outstanding at a per annum rate

equal to the Prime Rate plus one-half percent (0.50%).  After an Event of Default, Obligations shall

accrue interest at a rate equal to three percent (3.00%) above the rate

effective immediately before the Event of Default. The interest rate increases

or decreases when the Prime Rate changes. 

Interest is computed on a 360-day year for the actual number of days

elapsed.

 

                (b)           Payments.  Interest on outstanding Revolving Advances

shall be due and payable on the 1st Business Day of each month.  Interest on amounts outstanding under Term

Loan #1 shall be due and payable on the 1st Business Day of each month.  Interest on amounts outstanding under Term

Loan #2 shall be due and payable on the 1st day of each month.  Payments received after 12:00 noon, Pacific

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 on the next Business Day and

additional fees and interest shall accrue from the initial due date.

 

3

 

2.3.1       Debit

of Borrower’s Accounts.

Bank may debit any of

Borrower’s deposit accounts, including Account Number 273417670, for principal

and interest payments, and any other amounts Borrower owes Bank when due.  Bank will notify Borrower when it debits

Borrower’s accounts.  These debits are

not a set-off.

2.4          Fees.

                (a)   Borrower

will pay all Bank Expenses (including reasonable attorneys’ fees and reasonable

expenses) incurred through and after the date of this Agreement.  All Bank Expenses are due and payable upon

demand from Bank.

 

                (b)   Borrower

will pay the Commitment Fee on or before the Closing Date.

 

                (c)   Borrower

will pay an annual fee for Letters of Credit (the “Letter of Credit Fee”) equal

to one-half percent (0.50%) of the face amount of each Letter of Credit,

including without limitation Letters of Credit outstanding as of the Closing

Date.  Such Letter of Credit Fee will be

due and payable on the date of issuance of each Letter of Credit and on each

yearly anniversary thereof, and is not refundable in the event that a Letter of

Credit is prematurely cancelled or otherwise terminated.

 

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 following conditions

precedent:

                (a)   Bank

shall have received the agreements, documents and fees that it requires.

                (b)   An audit

of the Collateral shall have been completed, and Bank shall have determined, in

its sole discretion, that the results thereof are acceptable to Bank.

                (c)   Bank

shall have received from Borrower signed control agreements, in form and

substance acceptable to Bank, from all holders of investment properties or

deposit accounts in which Borrower has an interest.

                (d)   Bank

shall have received a copy of Borrower’s board-approved 2002 forecasts.

                (e)   Bank

shall have received from Borrower evidence reasonably satisfactory to Bank

showing Bank as loss payee on all of Borrower’s insurance policies pursuant to

Section 6.5.

                (f)   Borrower

shall have an aggregate balance of $20,000,000 in all of its accounts with the

Bank.

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)   timely

receipt of any Loan Payment/Advance Request Form; and

                (b)   the representations and warranties in Section 5 must be

true in all material respects on the date of the Loan Payment/Advance Request

Form and the Loan Supplement, and on the effective date of each Credit

Extension, and no Event of Default may have occurred and be continuing, or

result from the 

 

4

 

Credit Extension. Each

Credit Extension is Borrower’s representation and warranty on that date that

the representations and warranties of Section 5 remain true in all

material respects.

4.             CREATION OF

SECURITY INTEREST.

                Borrower grants

Bank a continuing security interest in all presently existing and later

acquired Collateral to secure all Obligations and the performance of each of

Borrower’s duties under the Loan Documents. 

Except for Permitted Liens, any security interest will be a first

priority security interest in the Collateral. 

Bank may place a “hold” on any deposit account pledged as Collateral. If

this Agreement is terminated, Bank’s lien and security interest in the

Collateral will continue until Borrower fully satisfies its Obligations.

5.             REPRESENTATIONS

AND WARRANTIES.

                Borrower

represents and warrants as follows:

5.1          Due Organization and Authorization.

                Borrower and each

Subsidiary is duly existing and in good standing in its jurisdiction of

formation and is qualified and licensed to do business in, and in good standing

in, each jurisdiction in which the conduct of its business or its ownership of

property requires that it be qualified, except where the failure to do so could

not reasonably be expected to cause a Material Adverse Change.  Borrower is a Delaware corporation.

                The execution,

delivery and performance by Borrower of the Loan Documents have been duly

authorized, and do not conflict with Borrower’s formation 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 or by which

it is bound in which the default could reasonably be expected to cause a

Material Adverse Change.

5.2          Collateral.

                Borrower has good

title to its Collateral, free of Liens except Permitted Liens.  The Accounts are bona fide, existing

obligations, and the service or property that is the subject of each Account

has been performed or delivered to the account debtor or its agent for

immediate shipment to and unconditional acceptance by the account debtor.  Borrower has no notice of any actual or

imminent Insolvency Proceeding of any account. 

All Inventory is in all material respects of good and marketable

quality, free from material defects. 

Borrower owns or possesses adequate rights to use all of its respective

Intellectual Property, except for non-exclusive licenses granted to its

respective customers in the ordinary course of business.  To the best of Borrower’s knowledge, each

Patent is valid and enforceable, no part of the Intellectual Property has been

judged invalid or unenforceable (in whole or in part), and Borrower has no

knowledge that any claim has been made that any part of the Intellectual

Property violates the rights of any third party, except to the extent such

claim, if the subject of an unfavorable decision, ruling or finding, could not

reasonably be expected to cause a Material Adverse Change.

5.3          Litigation.

                Except

as shown in the Schedules, there are no actions or proceedings pending or, to

the knowledge of Borrower’s Responsible Officers, threatened by or against

Borrower or any Subsidiary in which an adverse decision could reasonably be

expected to cause a Material Adverse Change.

 

5

 

5.4          No Material Adverse Change in

Financial Statements.

                All separate or consolidated

financial statements for Borrower and any Subsidiary delivered to Bank fairly

present in all material respects such entity’s separate and consolidated

financial condition and separate and 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.

5.5          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 contemplated in this Agreement, and Borrower is

able to pay its debts (including trade debts) as they mature.

5.6          Regulatory

Compliance.

                Neither Borrower

nor any Subsidiary, is an “investment company” or a company “controlled” by an

“investment company” under the Investment Company Act.  Neither Borrower nor any Subsidiary, is

engaged, as one of its material activities, in extending credit for margin

stock (under Regulations T and U promulgated by the Board of Governors of

the Federal Reserve System).  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 cause a Material Adverse Change. 

None of Borrower’s or any Subsidiary’s 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 in a legal manner in compliance with all

environmental laws and regulations. 

Each of Borrower and each Subsidiary has timely filed all required tax

returns and paid, or made adequate provision to pay, all material taxes, except

those being contested in good faith with adequate reserves under GAAP.  Each of Borrower and each Subsidiary has

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, except where the

failure to do so could not reasonably be expected to cause a Material Adverse

Change.

5.7          Investments.

                Borrower owns no

stock, partnership interest or other equity securities except for Permitted

Investments.

5.8          Full

Disclosure.

                No written representation,

warranty or other statement of Borrower in any certificate or written statement

given to Bank (taken together with all such written certificates and written

statements to Bank) 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 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 and forecasted results.

 

6

 

6.             AFFIRMATIVE

COVENANTS.

                Borrower will do all of the following for so long as

Bank has an obligation to lend, or there are outstanding Obligations:

6.1          Government

Compliance.

                Borrower will

maintain its and all Subsidiaries’ legal existence and good standing in its

respective jurisdictions of formation and maintain qualification in each

jurisdiction in which the failure to so qualify could reasonably be expected to

result in a Material Adverse Change. 

Borrower will comply, and cause each Subsidiary to comply, with all

laws, ordinances and regulations to which it is subject, noncompliance with

which would reasonably be expected to have a material adverse effect on

Borrower’s business or operations or could reasonably be expected to cause a

Material Adverse Change.

6.2          Financial Statements, Reports,

Certificates.

                (a)   Borrower will deliver to Bank: 

(i) as soon as available, but no later than 45 days after the last day

of each calendar quarter, company-prepared unaudited balance sheets and income

statements covering the operations of Borrower and its Subsidiaries during the

period, certified by a Responsible Officer and in a form acceptable to Bank;

(ii) as soon as available but no later than 90 days after the last day of

Borrower’s fiscal year, audited financial statements for Borrower, and its

Subsidiaries prepared under GAAP, consistently applied, together with an

unqualified opinion on the financial statements from an independent certified

public accounting firm reasonably acceptable to Bank; (iii) a prompt report of

any legal actions pending or threatened against Borrower or any Subsidiary that

could result in damages or costs to Borrower or any Subsidiary of $250,000 or

more; (iv) annual financial projections of the Borrower, within 45 days after

the end of each fiscal year of Borrower; and (v) prompt notice of any material

change in the composition of the Intellectual Property, including any

subsequent ownership right of Borrower or any Subsidiary in or to any

Copyright, Patent or Trademark not shown in any intellectual property security

agreement between Borrower and Bank or knowledge of an event that could

reasonably be expected to materially adversely affect the value of the

Intellectual Property.

 

                (b)   Within 45 days after the last day of each calendar quarter and

concurrently with the delivery of the audited annual financial statements,

Borrower will deliver to Bank with the quarterly financial statements and the

annual financial statements a Compliance Certificate in the form of

Exhibit C, signed by a Responsible Officer.

 

                (c)   Borrower will allow Bank to audit the Collateral at Borrower’s

expense.  The first such audit shall be

completed on or before the Closing Date, and subsequent audits will be

conducted no more often than every six months unless an Event of Default has

occurred and is continuing (in which case the foregoing limitation on frequency

will not apply).

 

6.3          Inventory;

Returns.

                Borrower will keep

all Inventory in good and marketable condition, free from material

defects.  Returns and allowances between

Borrower and its account debtors will follow Borrower’s customary practices as

they exist at execution of this Agreement. 

Borrower must promptly notify Bank when the aggregate value of all

returns, recoveries, disputes and claims with respect to a single customer involves

more than $50,000.

6.4          Taxes.

                Borrower will make, and cause

each Subsidiary to make, timely payment of all material federal, state, and

local taxes or assessments (other than taxes and assessments which Borrower is

contesting in 

 

7

 

good faith, with adequate reserves maintained in accordance with GAAP)

and will deliver to Bank, on demand, appropriate certificates attesting to the

payment.

6.5          Insurance.

                Borrower will keep

its business and the Collateral insured for risks and in amounts as Bank may

reasonably request.  Insurance policies

will be in forms, with companies, and in amounts that are reasonably

satisfactory to Bank.  All property

policies will have a lender’s loss payable endorsement showing Bank as an

additional loss payee, all liability policies will show the Bank as an

additional insured, and all policies will provide that the insurer must give

Bank at least 20 days notice before canceling its policy.  At Bank’s reasonable request, Borrower will

deliver certificates of insurance and evidence of all premium payments.

Proceeds payable under any policy will, at Bank’s option, be payable to Bank on

account of the Obligations.  So long as

no Event of Default has occurred and is continuing, Borrower shall have the

option of applying the proceeds of any casualty policy to the replacement or

repair of destroyed or damaged property; provided that, at the occurrence and

during the continuance of an Event of Default, all proceeds payable under any

such casualty policy shall, at the option of Bank, be payable to Bank on

account of the Obligations.

6.6          Deposits.

                Borrower will at

all times, beginning on the first day following the thirty day period

immediately following the Closing Date and ending on the later of the Revolving

Maturity Date and the Deferral Maturity Date (if applicable), maintain, in the

aggregate, a minimum of Thirty Million Dollars ($30,000,000) in accounts with

Bank and its Affiliates; provided, however, beginning on the Closing Date the

minimum shall be $20,000,000 to increase to $30,000,000 within thirty (30) days

of the Closing Date.  In addition,

Borrower will at all times maintain an operating account with Bank.

6.7          Financial

Covenant.

                Borrower will at

all times until the later of the Revolving Maturity Date and the Deferral

Maturity Date (if applicable) maintain a minimum of Eighty Million Dollars

($80,000,000) on Borrower’s balance sheet as Unrestricted Cash, cash

equivalents and long-term investments (exclusive of equities holdings).

6.8          Registration of Intellectual Property

Rights.

                Within 30 days of

the Closing Date, Borrower will register with the United States Patent and

Trademark Office or the United States Copyright Office (as the case may be) its

Intellectual Property and additional Intellectual Property rights developed or

acquired, including revisions or additions with any product before the sale or

licensing of the product to any third party, unless Borrower reasonably

determines that such registration would not be commercially reasonable.  Borrower will: (i) protect, defend and

maintain the validity and enforceability of its Intellectual Property when

commercially reasonable; (ii) promptly advise Bank in writing of material

infringements of its Intellectual Property of which Borrower becomes aware; and

(iii) not allow any Intellectual Property material to Borrower’s business

to be abandoned, forfeited or dedicated to the public without Bank’s written

consent, which consent will not be unreasonably withheld.

6.9          Further

Assurances.

                Borrower will execute all further

instruments and take all further actions as Bank reasonably requests to perfect

or continue Bank’s security interest in the Collateral and to effect the

purposes of this Agreement, including without limitation providing Bank with

control agreements, in form and substance acceptable to Bank, for any and all

deposit and securities accounts maintained by Borrower.

 

8

 

7.             NEGATIVE

COVENANTS.

                For so long as

Bank has an obligation to lend or there are any outstanding Obligations,

Borrower will not do any of the following without Bank’s prior written consent,

which will not be unreasonably withheld:

7.1          Dispositions.

                Borrower will not

convey, sell, lease, transfer 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 Transfers (i) of Inventory in the ordinary course

of business, (ii) of non-exclusive licenses and similar arrangements for

the use of the property of Borrower or its Subsidiaries in the ordinary course

of business, or (iii) of worn–out or obsolete Equipment.

7.2          Changes in Business, Ownership,

Management or Business Locations.

                Borrower will not

engage in, or permit any of its Subsidiaries to engage in, any business other

than the businesses currently engaged in by Borrower or businesses reasonably

related thereto.  There shall not be a

material change in Borrower’s ownership of greater than 35%.  Borrower will not, without at least 30 days

prior written notice, relocate its chief executive office or add any new

offices or business locations in which Borrower maintains or stores over

$20,000 in Borrower’s assets or property.

7.3          Mergers

or Acquisitions.

                Borrower will not

merge or consolidate, or permit any of its Subsidiaries to merge or

consolidate, with any other Person, or acquire, or permit any of its

Subsidiaries to acquire, all or substantially all of the capital stock or

property of another Person except where such transactions do not exceed ten percent

(10%) of Borrower’s then-current market capitalization and no Event of Default

has occurred and is continuing or would exist after giving effect to the

transaction.  A Subsidiary may merge or

consolidate into another Subsidiary or into Borrower, so long as Borrower

remains the obligor of all Obligations.

7.4          Indebtedness.

                Borrower will not

create, incur, assume or be liable for any Indebtedness, or permit any

Subsidiary to do so, other than Permitted Indebtedness.

7.5          Encumbrances.

                Borrower will not create,

incur or allow to exist any Lien on any of its properties, 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 herein

granted to Bank, subject to Permitted Liens.

7.6          Distributions;

Investments.

                Except as provided in Section

7.3, Borrower will not 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, or pay any dividends or make any distribution

or payment related to, or redeem, retire or purchase any of, its capital stock,

except for repurchases of stock from former employees and directors of Borrower

under the terms of applicable repurchase agreements in an aggregate amount not

to exceed $2,000,000 in the aggregate in any fiscal year, provided that no

Event of Default has occurred, is continuing or would exist after giving effect

to the repurchases.

 

9

 

7.7          Transactions

with Affiliates.

                Borrower will not

directly or indirectly enter into or permit any material transaction with any

Affiliate, except transactions that are in the ordinary course of Borrower’s

business, on terms less favorable to Borrower or equally favorable to Borrower

than would be obtained in an arm’s length transaction with a non-affiliated

Person.

7.8          Subordinated

Debt.

                Borrower will not

make or permit any payment on any Subordinated Debt except under the express

terms of the Subordinated Debt, or amend any provision in any document relating

to the Subordinated Debt, without Bank’s prior written consent.

7.9          Compliance.

                Borrower will not

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

material activities extending credit to purchase or carry margin stock, 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 operations or would reasonably be expected to cause a

Material Adverse Change, or permit any of its Subsidiaries to do so.

8.             EVENTS

OF DEFAULT.

8.1          Payment

Default.

                Borrower fails to

pay any of the Obligations within three Business Days after their due

date.  During the three-day period, the

failure to cure the default is not itself an Event of Default (but Bank shall

have no obligation to make a Credit Extension during the three-day period).

8.2          Covenant

Default.

                (a)           Borrower fails to perform any

obligation under Section 6.6 or Section 6.7, or violates any of the covenants

in Article 7 of this Agreement, or

                (b)           Borrower fails or neglects to

perform, keep or observe any other material term, provision, condition,

covenant or agreement in this Agreement, in any other Loan Documents or in any

other present or future agreement between Borrower and Bank and, as to any

default under such other term, provision, condition, agreement or covenant 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-day period, and such default is likely to be cured

within a reasonable time thereafter, then Borrower shall have an additional

reasonable time period (which shall not in any case exceed ten additional days)

to cure such default.  During the

ten-day period and (if applicable) the additional ten-day period, the failure

to cure the default is not itself an Event of Default (but Bank shall have no

obligation to make a Credit Extension during such periods).

8.3          Material

Adverse Change.

                There occurs (i) a material

adverse change in the business, operations or condition (financial or

otherwise) of the Borrower, (ii) a material impairment of the prospect of

repayment of any portion of the 

 

10

 

Obligations, or (iii) a material impairment to the value or

priority of Bank’s security interest in the Collateral (or any material portion

thereof), all as determined by Bank in good faith.

8.4          Attachment.

                Any material

portion of Borrower’s assets is attached, seized or levied on, or comes into possession

of a trustee or receiver, and the attachment, seizure or levy is not removed,

or the possession by a trustee or receiver is not terminated, in ten days; or

Borrower is enjoined, restrained or prevented by court order from conducting a

material part of its respective businesses; or a judgment or other claim

becomes a Lien on a material portion of Borrower’s assets; or a notice of lien,

levy or assessment is filed against a material portion of Borrower’s assets by

any government agency and not paid within ten days after Borrower receives

notice thereof.  None of the foregoing

is an Event of Default if stayed or if a bond is posted pending contest by

Borrower (but Bank shall have no obligation to make a Credit Extension during

such stay period or pending contest).

8.5          Insolvency.

                Borrower becomes

insolvent or begins an Insolvency Proceeding, or an Insolvency Proceeding is

begun against Borrower and is not dismissed or stayed within 30 days (but Bank

shall have no obligation to make a Credit Extension before any Insolvency

Proceeding is dismissed).

8.6          Other

Agreements.

                There is a default

in any agreement between Borrower and a third party that gives the third party

the right to accelerate any Indebtedness exceeding $100,000 or that could

reasonably be expected to cause a Material Adverse Change.

8.7          Judgments.

                A money

judgment(s) in the aggregate of at least $250,000 is rendered against Borrower

and is unsatisfied and unstayed for ten days (but Bank shall have no obligation

to make a Credit Extension before the judgment is stayed or satisfied).

8.8          Misrepresentations.

                Borrower or any

Person acting for Borrower, makes any material misrepresentation or material

misstatement now or later in any warranty or representation in this Agreement

or in any writing delivered to Bank or in order to induce Bank to enter this

Agreement or any Loan Document.

9.             BANK’S

RIGHTS AND REMEDIES.

9.1          Rights

and Remedies.

                When an Event of

Default occurs and any period for cure has expired Bank may, without notice or

demand, do any or all of the following:

                (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;

 

11

 

                (c)   Settle or adjust disputes and claims

directly with account debtors for amounts, on terms and in any order that Bank

considers advisable;

                (d)   Make any payments and do any acts that Bank

considers necessary or reasonable to protect its security interest in the

Collateral; and in furtherance thereof, (i) Borrower will assemble the

Collateral if Bank requires and make it available as Bank designates; (ii) Bank

may 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; and (iii) Borrower grants Bank a

license to enter and occupy any of its premises, without charge, to exercise

any of Bank’s rights or remedies;

                (e)   Apply to the Obligations any

(i) balances and deposits of Borrower that Bank holds, and

(ii) amounts held by Bank owing to or for the credit or the account of

Borrower;

                (f)   Ship, reclaim, recover, store, finish,

maintain, repair, prepare for sale, advertise for sale, and sell the

Collateral; and in furtherance thereof, (i) Bank is 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 (ii) Borrower’s rights

under all licenses and all franchise agreements inure to Bank’s benefit in

connection with the foregoing; and

                (g)   Dispose of the Collateral according to the

Code.

9.2          Power of

Attorney.

                Borrower

irrevocably appoints and constitutes Bank as its lawful attorney-in-fact, with

full power and in the name of Borrower, to do all of the following upon the

occurrence and continuation of an Event of Default:  (i)  endorse Borrower’s name on any checks or other forms of

payment or security; (ii) sign Borrower’s name on any invoice or bill of lading

for any Account or drafts against account debtors, (iii) make, settle and

adjust all claims under Borrower’s insurance policies; (iv) settle and

adjust disputes and claims about the Accounts directly with account debtors,

for amounts and on terms Bank determines reasonable; and (v) transfer the

Collateral into the name of Bank or a third party as the Code permits.  Notwithstanding the foregoing, Bank may

exercise the power of attorney to sign Borrower’s name on any documents necessary

to perfect or continue the perfection of any security interest regardless of

whether an Event of Default has occurred. 

Bank’s appointment as Borrower’s attorney-in-fact, and all of Bank’s

rights and powers, are coupled with an interest and irrevocable until all

Obligations have been fully repaid and performed and Bank’s obligation to

provide Credit Extensions terminates.

9.3          Accounts

Collection.

                When an Event of

Default occurs and continues, Bank may notify any Person owing Borrower money

of Bank’s security interest in the funds and verify the amount of the

Account.  Borrower must collect all

payments in trust for Bank and, if requested by Bank, immediately deliver the

payments to Bank in the form received from the account debtor, with proper

endorsements for deposit.

9.4          Bank Expenses.

                If Borrower fails to pay any

amount or furnish any required proof of payment to third persons, Bank may make

all or part of the payment or obtain insurance policies required in

Section 6.5, and take any action under the policies that Bank deems

prudent.  Any amounts paid by Bank are

Bank Expenses and immediately due and payable, bearing interest at the

then-applicable rate and secured by the 

 

12

 

Collateral.  No payments by Bank

are deemed an agreement to make similar payments in the future or constitute

Bank’s waiver of any Event of Default.

9.5          Bank’s

Liability for Collateral.

                If Bank complies

with reasonable banking practices and the Code, except as required by

applicable law, it shall not be liable for: (i) the safekeeping of the

Collateral; (ii) any loss or damage to the Collateral; (iii) any

diminution in the value of the Collateral; or (iv) any act or default of any

carrier, warehouseman, bailee, or other person.  Borrower bears all risk of loss, damage or destruction of the

Collateral.

9.6          Remedies

Cumulative.

                Bank’s rights and

remedies under this Agreement, the other Loan Documents and all other

agreements are cumulative.  Bank has all

rights and remedies provided under the Code, by law and 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 is not a waiver,

election or acquiescence. No waiver is effective unless signed by Bank, and

then is only effective for the specific instance and purpose for which it was

given.

9.7          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 guaranties

held by Bank on which Borrower is liable.

10.          NOTICES.

                All notices or

demands by any party about this Agreement or any other related agreement must

be in writing and be personally delivered or sent by an overnight delivery

service, by certified mail, (postage prepaid, return receipt requested) or by

telefacsimile to the addresses set forth at the beginning of this

Agreement.  A party may change its

notice address by giving the other party written notice thereof.

11.          CHOICE OF LAW , VENUE AND JURY TRIAL

WAIVER.

                California 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 Santa Clara

County, California.

BORROWER

AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION

ARISING OUT OF ANY OF 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 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 

 

13

 

notice to Borrower, to sell, transfer, negotiate or grant

participations in all or any part of, or any interest in, Bank’s obligations,

rights and benefits under this Agreement.

12.2        Indemnification.

                Borrower will

indemnify, defend and hold harmless Bank and its officers, employees, and

agents against:  (i) all obligations,

demands, claims, and liabilities asserted by any other party in connection with

the transactions contemplated by the Loan Documents; and (ii) all losses and

Bank Expenses incurred or paid by Bank from, following or consequential to

transactions between Bank and Borrower (including reasonable attorneys fees and

expenses), except for losses 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 Provision.

                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 and signed by Borrower and Bank.  This Agreement represents the entire

agreement about this subject matter, and supersedes prior negotiations or

agreements, including, without limitation, the Original Agreement and the

Amendments and Modifications.  All prior

agreements, understandings, representations, warranties and negotiations

between the parties about the subject matter of this Agreement, including,

without limitation, the Original Agreement and the Amendments and

Modifications, merge into this Agreement and the other 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, are an original, and

all of which, taken together, constitute one Agreement.

12.7        Survival.

                All covenants,

representations and warranties made in this Agreement continue in full force while  any Obligations remain outstanding.  The obligations of Borrower in

Section 12.2 to indemnify Bank will survive until all statutes of

limitations for actions that may be brought against Bank have run.

12.8        Confidentiality.

                In handling any confidential

information, Bank will exercise the same degree of care that it exercises for

its own proprietary information, and disclosure of information may be made by

Bank: (i) to Bank’s subsidiaries or affiliates in connection with their

business with Borrower; (ii) to prospective transferees or purchasers of

any interest in the Loan Documents; (iii) as required by law, regulation,

subpoena or other order; (iv) as required in connection with Bank’s

examination or audit; and (v) 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 

 

14

 

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        Attorneys’

Fees, Costs and Expenses.

In any action or proceeding between Borrower and Bank

arising out of the Loan Documents, the prevailing party will be entitled to

recover its reasonable attorneys’ fees and other reasonable costs and expenses

incurred, in addition to any other relief to which it may be entitled.

13.          DEFINITIONS.

13.1        Definitions.

                In this Agreement:

                “Accounts”

are all existing and later arising accounts, contract rights and other

obligations owed to Borrower in connection with its sale or lease of goods

(including the licensing of software and other technology) or provision of

services,all credit insurance, guaranties, other security and all merchandise

returned or reclaimed by Borrower, and Borrower’s Books relating to any of the

foregoing.

                “Advances”

are the aggregate of (i) all amounts utilized under the Cash Management

Services Sublimit, (ii) the then-outstanding principal balance of all Revolving

Advances, (iii) all amounts utilized under the FX Sublimit, and (iv) Letters of

Credit.

                “Affiliate”

of a Person is a Person that owns or directly or indirectly controls 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.

                “Amendments

and Modifications” is defined in the recital section hereto.

                “Bank

Expenses” are all audit fees and expenses and reasonable costs and

expenses (including reasonable attorneys’ fees and expenses) for preparing,

negotiating, administering, defending and enforcing the Loan Documents

(including appeals and Insolvency Proceedings).

                “Borrower’s

Books” are all of Borrower’s books and records, including ledgers,

records regarding Borrower’s assets or liabilities, the Collateral, business

operations or financial condition and all computer programs or discs or any

equipment containing the information.

                “Business Day”

is any day that is not a Saturday, Sunday or other day on which the Bank is

closed.

                “Cash Management Services” are defined in Section 2.1.2.

                “Cash

Management Services Sublimit” is defined in Section 2.1.2.

                “Closing Date”

is the date of this Agreement.

                “Code”

is the Uniform Commercial Code, as applicable.

                “Collateral” is the property

described on Exhibit A.

 

15

 

                “Committed

Revolving Line” is $25,000,000.

                “Commitment

Fee” is $50,000.

                “Contingent

Obligation” is, for any Person, any direct or indirect liability,

contingent or not, of that Person for (i) 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; (ii) any obligations for undrawn letters of credit for

the account of that Person; and (iii) 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 the guarantee or other support

arrangement.

                “Copyrights”

are all copyright rights, applications or registrations and like protections in

each work or authorship or derivative work, whether published or not (whether

or not it is a trade secret) now or later existing, created, acquired or held.

                “Credit

Extension” is each Revolving Advance, Cash Management Service, FX

Forward Contract, Letter of Credit, term loan or any other extension of credit

made by Bank to Borrower or for Borrower’s benefit.

                “Dollars”

and “$”

is United States dollars.

                “Equipment”

is all present and future machinery, equipment, tenant improvements, furniture,

fixtures, vehicles, tools, parts and attachments in which Borrower has any

interest.

                “ERISA” is the Employment Retirement Income

Security Act of 1974, and its regulations.

                “Event of

Default” is the occurrence of any event described in Article 8 but

does not include any cure period provided therein.

                “FX Forward

Contract” is defined in Section 2.1.3.

                “FX Sublimit”

is defined in Section 2.1.3.

                “GAAP”

is generally accepted accounting principles, consistently applied over the

period(s) in question.

                “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 Proceedings” are

proceedings 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.

 

16

 

                “Intellectual

Property”

is:

                (a)   Copyrights, Trademarks, Patents and Mask

Works, including all amendments, renewals, extensions and licenses or other

rights to use same, and all license fees and royalties from the use of same;

                (b)   Any trade secrets and any intellectual

property rights in computer software and computer software products now or

later existing, created, acquired or held;

                (c)   All design rights which may be available to

Borrower now or later created, acquired or held;

                (d)   Any claims for damages (past, present or

future) for infringement of any of the rights above, with the right, but not

the obligation, to sue and collect damages for use or infringement of the intellectual

property rights above; and

                (e)   All proceeds and products of the foregoing,

including all insurance, indemnity and warranty payments.

                “Inventory”

is present and future inventory in which Borrower has any interest, including

merchandise, raw materials, parts, supplies, packing and shipping materials,

work in process and finished products intended for sale or lease or to be

furnished under a contract of service, of every kind and description now or

later owned by or in the custody or possession, actual or constructive, of

Borrower, including inventory temporarily out of its custody or possession or

in transit and including returns on any accounts or other proceeds (including

insurance proceeds) from the sale or disposition of any of the foregoing and

any documents of title.

                “Investment”

is any beneficial ownership (including stock, partnership interest or other

securities)  of any Person, or any loan,

advance or capital contribution to any Person.

                “Letter of

Credit” is described in Section 2.1.4.

                “Lien”

is a mortgage, lien, deed of trust, charge, pledge, security interest or other

encumbrance.

                “Loan

Documents” are, collectively, this Agreement, any note or notes and

any other present or future agreement between Borrower to or for the benefit of

Bank in connection with this Agreement, all as amended, extended or restated.

                “Mask Works”

are all mask works or similar rights available for the protection of

semiconductor chips, now owned or later acquired.

                “Material

Adverse Change” is described in Section 8.3.

                “Obligations”

are debts, principal, interest, Bank Expenses and other amounts that Borrower

owes to Bank now or later, including cash management services, letters of

credit and foreign exchange contracts (if any) and including interest accruing

after Insolvency Proceedings begin, and debts, liabilities or obligations of

Borrower assigned to Bank.

                “Original

Agreement” is defined in the recital section hereto.

                “Overadvance” is described in

Section 2.2.

                “Patents” are patents, patent applications and

like protections, including improvements, divisions, continuations, renewals,

reissues, extensions and continuations–in–part of the same.

 

17

 

                “Permitted Indebtedness” is:

                (a)   Borrower’s indebtedness to Bank under this

Agreement or any other Loan Document;

                (b)   Indebtedness existing on the Closing Date

that is acceptable to Bank and shown on the Schedules;

                (c)   Subordinated Debt;

                (d)   Indebtedness to trade creditors incurred in

the ordinary course of business;

                (e)   Indebtedness secured by Permitted Liens;

                (f)   Extensions, refinancings, modifications,

amendments and restatements of any items of Permitted Indebtedness, 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 Subsidiaries, as

the case may be;

                (g)   Indebtedness of Borrower to any Subsidiary

and Contingent Obligations of any Subsidiary with respect to obligations of

Borrower (provided that the primary obligations are not prohibited hereby), and

Indebtedness of any Subsidiary to any other Subsidiary and Contingent

Obligations of any Subsidiary with respect to obligations of any other

Subsidiary (provided that the primary obligations are not prohibited hereby),

provided that the aggregate of all such amounts does not exceed $1,000,000; and

                (h)   Other Indebtedness not exceeding $1,000,000

in the aggregate outstanding at any one time.

                “Permitted Investments” are:

                (a)   Investments existing on the Closing Date

that are acceptable to Bank and shown on the Schedules;

                (b)   (i)  marketable direct obligations

issued or unconditionally guaranteed by the United States or its agency or any

State maturing within two years from its acquisition, (ii) commercial

paper maturing no more than 1 year after its creation and having the highest

rating from either Standard & Poor’s Corporation or Moody’s Investors

Service, Inc., and (iii) Bank’s certificates of deposit issued maturing no

more than 1 year after issue;

                (c)   individual Investments not exceeding

$300,000 which, in the aggregate for such year, do not  exceed $1,000,000 provided, however, that

Borrower must notify Bank before making any such Investment and such Investment

must not result in the occurrence of an Event of Default; and

                (d)   checking, savings, money market and

investment accounts with Bank or an Affiliate of Bank.

                (e)   Investments consisting of notes receivable

of, or prepaid royalties and other credit extensions, to customers and suppliers

who are not Affiliates, in the ordinary course of business; provided that this

paragraph shall not apply to Investments of Borrower in any Subsidiary;

                (f)   Investments of Subsidiaries in or other

Subsidiaries to Borrower and Investments by Borrower in Subsidiaries not to

exceed $1,000,000 in the aggregate in any fiscal year;

                (g)   Investments, in the aggregate not to exceed $1,000,000,

consisting of loans to employees, officers or directors relating to (i) the

purchase of equity securities of Borrower or its Subsidiaries pursuant 

 

18

 

to Borrower’s employee stock purchase plans or agreements or (ii)

Borrower’s compensation or relocation plans or agreements, each as approved in

good faith by Borrower’s board of directors;

                (h)   Investments consisting of the endorsement

of negotiable instruments for deposit or collection or similar transactions in

the ordinary course of Borrower’s business;

                (i)   Joint venture or strategic alliances in the

ordinary course of Borrower’s business consisting of the licensing of

technology, the development of technology or the providing of technical

support, provided that any cash investments by Borrower do not exceed

$1,000,000 in the aggregate in any fiscal year; and

                (j)   Investments (including debt obligations)

received in connection with the bankruptcy or reorganization of customers or

suppliers and in settlement of delinquent obligations of, and other disputes

with, customers or suppliers arising in the ordinary course of business.

                “Permitted Liens” are:

                (a)   Liens existing on the Closing Date that are

acceptable to Bank and shown on the Schedules or arising under this Agreement

or 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 its Books, if

they have no priority over any of Bank’s security interests;

                (c)   Purchase money Liens (i) on Equipment

acquired or held by Borrower or its Subsidiaries, or (ii) existing on

equipment when acquired, if the Lien is confined to the property and

improvements and the proceeds of the equipment;

                (d)   Licenses or sublicenses granted in the

ordinary course of Borrower’s business and any interest or title of a licensor

or under any license or sublicense, if the licenses and sublicenses

permit granting Bank a security interest;

                (e)   Leases or subleases granted in the ordinary

course of Borrower’s business, including in connection with Borrower’s leased

premises or leased property;

                (f)   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 so

secured may not increase.

                (g)   Liens arising from judgments, decrees and

attachments not constituting an Event of Default;

                (h)   Liens in connection with equipment leases;

                (i)   Liens securing claims or demands of

materialmen, mechanics, carriers, warehousemen, landlords and other like

persons or entities imposed without action of such parties, provided

that the payment thereof is not yet required;

                (j)   Liens incurred or deposits made in the

ordinary course of Borrower’s business in connection with worker’s

compensation, unemployment insurance, social security and other like laws;

                (k)   Easements, reservations, rights-of-way, restrictions, minor

defects or irregularities in title and other similar charges or encumbrances

affecting real property not interfering in any material respect with the

ordinary conduct of Borrower’s business;

 

19

 

                (l)   Liens in favor of customs and revenue

authorities arising as a matter of law to secure payment of customs duties in

connection with the importation of goods;

                (m)   Liens in connection with Subordinated Debt;

and

                (n)   Other Liens not described above arising in

the ordinary course of business and not having or not reasonably likely to have

a material adverse effect on Borrower and its Subsidiaries taken as a whole.

                “Person”

is any individual, sole proprietorship, partnership, limited liability company,

joint venture, company association, 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 the lowest

rate at which Bank makes loans or otherwise extends credit.

                “Responsible

Officer”

is each of the Chief Executive Officer and the Chief Financial Officer of

Borrower.

                “Revolving

Advance” or “Revolving Advances” is a principal advance

(or advances) of funds under the Committed Revolving Line.

                “Revolving

Maturity Date” is March 2, 2003.

                “Schedules”

are the attached schedules of exceptions.

                “Subordinated

Debt” is debt incurred by Borrower that is subordinated to

Borrower’s Indebtedness owed to Bank and that is reflected in a written

agreement in a manner and form acceptable to Bank and approved by Bank in

writing.

                “Subsidiary”

is, for Borrower, any business entity of which more than 20% of the voting

stock or other equity interests is owned or controlled, directly or indirectly,

by Borrower or one or more Affiliates of Borrower.

                “Term Loan #1”

is defined in Section 2.1.5(a).

                “Term Loan #2”

is defined in Section 2.1.5(b).

                “Term Loan #1

Maturity Date” is March 31, 2005.

                “Term Loan #2

Maturity Date” is September 30, 2006.

                “Trademarks”

are trademark and servicemark rights, registered or not, applications to

register and registrations and like protections, and the entire goodwill of the

business of Borrower connected with the trademarks.

                “Unrestricted Cash” is all

cash that (i) is not subject to any Lien or (ii) does not otherwise fall within

the definition of “restricted cash” as determined under GAAP.

 

20

 

                                IN

WITNESS WHEREOF, each of the parties hereto has caused its duly authorized

representative to execute and deliver this Agreement on the date first set

forth above.

 

	

  BANK: 

  	

   

  	

  BORROWER: 

  
	

   

  	

   

  	

   

  
	

  SILICON VALLEY

  BANK,

  	

   

  	

  BROADVISION,

  INC.

  
	

  a

  California-chartered bank

  	

   

  	

  a Delaware

  corporation

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  By:

  	

  /s/ Heather

  Hamilton

  	

   

  	

  By:

  	

  /s/ Terence A.

  Davis

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Name:

  	

   

  	

   

  	

  Name:

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Title:

  	

  Senior Vice

  President

  	

   

  	

  Title:

  	

  V.P. Finance,

  Treasurer

  

 

21

 

EXHIBIT A

                The Collateral

consists of all of Borrower’s right, title and interest in and to the

following:

                All goods and

equipment now owned or hereafter acquired, including without limitation all

machinery, fixtures, vehicles (including motor vehicles and trailers), and any

interest in any of the foregoing, and all attachments, accessories, accessions,

replacements, substitutions, additions, and improvements to any of the

foregoing, wherever located;

                All inventory, now

owned or hereafter acquired, including without limitation all merchandise, raw

materials, parts, supplies, packing and shipping materials, work-in-process and

finished products, including such inventory as is temporarily out of Borrower’s

custody or possession or in transit and also including any returns upon any

accounts or other proceeds (including insurance proceeds) resulting from the

sale or disposition of any of the foregoing, and any documents of title

representing any of the above;

                All contract

rights and general intangibles now owned or hereafter acquired, including without

limitation goodwill, trademarks, servicemarks, trade styles, trade names,

patents, patent applications, leases, license agreements, franchise agreements,

blueprints, drawings, purchase orders, customer lists, route lists,

infringements, claims, computer programs, computer discs, computer tapes,

literature, reports, catalogs, design rights, income tax refunds, payments of

insurance and rights to payment of any kind;

                All now existing

and hereafter arising accounts, contract rights, royalties, license rights and

all other forms of obligations owing to Borrower arising out of the sale or

lease of goods, the licensing of technology or the rendering of services by

Borrower, whether or not earned by performance, and any and all credit

insurance, guaranties and other security therefor, as well as all merchandise

returned to or reclaimed by Borrower;

                All documents,

cash, deposit accounts, securities, securities entitlements, securities

accounts, investment property, financial assets, letters of credit, certificates

of deposit, instruments and chattel paper now owned or hereafter acquired, and

Borrower’s Books relating to the foregoing;

                All copyright

rights, copyright applications, copyright registrations and like protections in

each work of authorship and derivative work thereof, whether published or

unpublished, now owned or hereafter acquired; all trade secret rights,

including all rights to unpatented inventions, know–how, operating

manuals, license rights and agreements and confidential information, now owned or

hereafter acquired; all mask work or similar rights available for the

protection of semiconductor chips, now owned or hereafter acquired; all claims

for damages by way of any past, present and future infringement of any of the

foregoing;

                All of Borrower’s

Intellectual Property; and

                All of 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 and accessions to and proceeds

thereof.

 

 

EXHIBIT B

Loan Payment/Advance Request Form

 

	

  Fax

  To: 

  	

   

  	

   

  	

  Date:

  	

   

  

 

 

o   Loan Payment:

BROADVISION, INC.

 

	

  From Account #

  	

   

  	

   

  	

  To Account #

  	

   

  
	

   

  	

  (Deposit Account

  #)

  	

   

  	

   

  	

  (Loan Account #)

  

 

	

  Principal $

  	

   

  	

  and/or Interest

  $

  	

   

  

 

All Borrower’s representation and warranties in the

Loan and Security Agreement are true, correct and complete in all material

respects to on the date of the telephone transfer request for and advance, but

those representations and warranties expressly referring to another date shall

be true, correct and complete in all material respects as of the date:

 

	

  Authorized Signature:

  	

   

  	

   

  	

  Phone Number:

  	

   

  

 

 

o  

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

  Revolving Advance $

  	

   

  

 

All Borrower’s representation and warranties in the

Loan and Security Agreement  are true,

correct and complete in all material respects to on the date of the telephone

transfer request for and advance, but those representations and warranties

expressly referring to another date shall be true, correct and complete in all

material respects as of the date:

 

	

  Authorized Signature:

  	

   

  	

   

  	

  Phone Number:

  	

   

  

 

 

 

Outgoing

Wire Request

Complete only if all or a portion of funds from the loan advance

above are to be wired.

Deadline for same day processing is 12:00 p.m., P.T.

 

	

  Beneficiary Name:

  	

   

  	

   

  	

  Amount of Wire: $

  	

   

  
	

  Beneficiary Bank:

  	

   

  	

   

  	

  Account Number:

  	

   

  
	

  City and Sate:

  	

   

  	

   

  	

   

  	

   

  
	

  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 #

  	

   

  
									

 

 

 

22

 

EXHIBIT C

COMPLIANCE CERTIFICATE

	

  TO:

  	

   

  	

  SILICON VALLEY BANK

  
	

  FROM:

  	

   

  	

  BROADVISION,

  INC.

  
	

  DATED:

  	

   

  	

   

  

 

                The undersigned authorized

officer of Broadvision, Inc. (“Borrower”) certifies that under the terms and

conditions of the Amended and Restated Loan and Security Agreement dated as of

March    , 2002 between Borrower and Bank (the “Agreement”),

(i) Borrower is in complete compliance for the period ending on the date

first set forth above with all required covenants except as noted below and

(ii) all representations and warranties in the Agreement are true and

correct in all material respects on this date. 

Attached are the required documents supporting the certification.  The Officer certifies that these are

prepared in accordance with Generally Accepted Accounting Principles (GAAP)

consistently applied from one period to the next except as explained in an

accompanying letter or footnotes.  The

Officer 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.

Please indicate compliance status by

circling Yes/No under “Complies” column.

	

  Reporting

  Covenants

  	

   

  	

   

  	

  Required

  	

   

  	

   

  	

  Complies

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Interim

  financial statements + CC

  	

   

  	

  Quarterly

  within 45 days

  	

   

  	

  Yes

  	

   

  	

  No

  
	

  Annual

  audited financial statements + CC

  	

   

  	

  Within

  90 days of FYE

  	

   

  	

  Yes

  	

   

  	

  No

  
	

  Annual

  financial projections

  	

   

  	

  Within

  45 days of FYE

  	

   

  	

  Yes

  	

   

  	

  No

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Financial

  Covenants

  	

   

  	

   

  	

  Required

  	

   

  	

   

  	

  Complies

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Minimum balance of Unrestricted Cash and cash

  equivalents 

  	

   

  	

  $80,000,000 

  	

   

  	

  Yes 

  	

   

  	

  No 

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Have there been updates to Borrower’s

  intellectual property?

  	

   

  	

   

  	

   

  	

  Yes

  	

   

  	

  No

  

 

 

	

  Comments

  Regarding Exceptions:  See Attached.

  	

   

  	

  BANK USE ONLY

  
	

   

  	

   

  	

   

  
	

  Sincerely,

  	

   

  	

  Received by:

  	

   

  
	

   

  	

   

  	

   

  	

  authorized signer

  
	

  Broadvision,

  Inc.,

  	

   

  	

   

  
	

  a Delaware

  corporation

  	

   

  	

  Date:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Verified:

  	

   

  
	

   

  	

   

  	

   

  	

  authorized signer

  
	

  SIGNATURE

  	

   

  	

   

  
	

   

  	

   

  	

  Date:

  	

   

  
	

   

  	

   

  	

   

  
	

  TITLE

  	

   

  	

  Compliance

  Status:

  	

  Yes

  	

  No

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  DATEWRITTEN CONSENT OF THE SOLE DIRECTOR
                                       OF
                       P.D.C. INNOVATIVE INDUSTRIES, INC.

         The undersigned, being the sole director of P.D.C. Innovative
Industries, Inc., a Nevada corporation, (the "Corporation"), hereby adopts the
following resolutions pursuant to Section 78.315 of the Nevada General
Corporation Law:

         WHEREAS, in accordance with applicable Nevada corporate law, the Board
of Directors deem it to be in the best interests of the Corporation to
authorize: (i) the issuance of 600,000 shares of the Corporation's common stock
to certain employees of the Corporation in lieu of salary for having provided
and continuing to provide services to the Corporation as an employee of a
non-capital raising nature; and (ii) the issuance of 400,000 shares of the
Corporation's common stock to legal counsel to the Corporation for having
provided and continuing to provide legal consulting services to the Corporation
of a non-capital raising nature (all of such shares, aggregating 1,000,000, are
collectively referred to herein as the "Shares");

         NOW, THEREFORE, BE IT RESOLVED, that the Corporation cause the issuance
of the Shares to such persons pursuant to a Form S-8 Registration Statement to
be filed by the Corporation's legal counsel with the U.S. Securities and
Exchange Commission; and that each and every officer of the Corporation is
authorized to do and perform, or cause to be done and performed, any and all
actions and things which may be necessary, desirable or convenient to effectuate
the purposes and intents of the foregoing resolution.

Dated as of April 12, 2002

                                                     /s/Sandra Sowers
                                                     ---------------------------
                                                     Sandra Sowers, Director

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