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Accounts Receivable Financing Agreement

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SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION


ACCOUNTS RECEIVABLE FINANCING AGREEMENT


This ACCOUNTS RECEIVABLE FINANCING AGREEMENT (the "Agreement"), dated as of May 26, 2000 is between Silicon Valley Bank, Specialty Finance Division of ("Bank"), and AVISTAR SYSTEMS CORPORATION, a Delaware corporation, ("Borrower"), whose address is 555 Twin Dolphins Drive, Suite 360, Redwood Shores, California 94065 and with a FAX number of (650) 610-2901.


1. DEFINITIONS. In this Agreement:


"ACCOUNTS" are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing 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.


"ACCOUNT DEBTOR" is defined in the California Uniform Commercial Code and shall include any person liable on any Financed Receivable, such as, a guarantor of the Financed Receivable and any issuer of a letter of credit or banker's acceptance.


"ADJUSTED QUICK RATIO" is, as of the last day of each month, a ratio of Quick Assets to Current Liabilities minus Deferred Revenue minus current portion of long term debt of at least 1.25 to 1.00.


"ADJUSTMENTS" are all discounts, allowances, returns, disputes, counterclaims, offsets, defenses, rights of recoupment, rights of return, warranty claims, or short payments, asserted by or on behalf of any Account Debtor for any Financed Receivable.


"ADVANCE" is defined in Section 2.2.


"ADVANCE RATE" is (i) 80%, provided however, in the event Borrower is unable to maintain the Adjusted Quick Ratio, then effective the first day of the missed Adjusted Quick Ratio, the Advance Rate shall be 80% net of deferred revenue and offsets related to each specific Account Debtor; (ii) or another percentage as Bank establishes under Section 2.2.


"APPLICABLE RATE" is a rate per annum equal to the "Prime Rate" plus ONE (1) percentage point, provided however, if the Equity Event does not occur, then effective October 1, 2000 and thereafter, the Applicable Rate shall be the Prime Rate plus TWO AND ONE HALF (2.50) percentage points.


"BORROWER'S BOOKS" are all 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.


"CODE" is the California Uniform Commercial Code.


"COLLATERAL" is attached as Exhibit "A".


"COLLATERAL HANDLING FEE" is defined in Section 3.5.


"COLLECTIONS" are all funds received by Bank from or on behalf of an Account Debtor for Financed Receivables.


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"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total Liabilities which mature within one (1) year.


"COMPLIANCE CERTIFICATE" is attached as Exhibit "B".


"DEFERRED REVENUE" is all amounts received in advance of performance under contract and not yet recognized as revenue.


"EARLY TERMINATION FEE" is defined in Section 3.6.


"EQUITY EVENT" is a cash infusion into the Borrower in an amount no less than $2,000,000.00 on or before September 30, 2000.


"EVENT OF DEFAULT" is defined in Section 9.


"FACILITY" is an extension of credit by Bank to Borrower in order to finance receivables with an aggregate Account Balance not exceeding the Facility Amount.


"FACILITY AMOUNT" is $4,000,000.00.


"FACILITY FEE" is defined in Section 3.4.


"FACILITY PERIOD" is the period beginning on this date and continuing until MAY 25, 2001, unless the period is terminated sooner by Bank with notice to Borrower or by Borrower under Section 3.5.


"FINANCE CHARGES" is defined in Section 3.2.


"FINANCED RECEIVABLES" are all those accounts, receivables, chattel paper, instruments, contract rights, documents, general intangibles, letters of credit, drafts, bankers acceptances, and rights to payment, and all proceeds, including their proceeds (collectively, "receivables"), which Bank finances and make an Advance. A Financed Receivable stops being a Financed Receivable (but remains Collateral) when the Advance made for the Financed Receivable has been finally paid.


"FINANCED RECEIVABLE BALANCE" is the total outstanding amount, at any time, of all Financed Receivables.


"GUARANTOR" means any guarantor of the Obligations.


"INELIGIBLE RECEIVABLE" is any accounts receivable:


(A) that is unpaid (90) calendar days after the invoice date; or


(B) that is owed by an Account Debtor that has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of
creditors, receivership, or Insolvency Proceeding or who has become
insolvent (as defined in the United States Bankruptcy Code) or who is
generally not paying its debts as they become due; or


(C) for which there has been any breach of warranty or representation in
Section 6 or any breach of any covenant in this Agreement; or


(D) for which the Account Debtor asserts any discount, allowance, return,
dispute, counterclaim, offset, defense, right of recoupment, right of
return, warranty claim, or short payment.


"INSOLVENCY PROCEEDING" 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.


"INVOICE TRANSMITTAL" shows accounts receivable which Bank may finance and, for each receivable, includes the Account Debtor's name, address, invoice amount, invoice date and invoice number and is signed by Borrower's authorized representative.


"LOCKBOX" is described in Section 6.2.


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"MINIMUM FINANCE CHARGE" is $20,000.00.


"OBLIGATIONS" are all advances, liabilities, obligations, covenants and duties owing, arising, due or payable by Borrower to Bank now or later under this Agreement or any other document, instrument or agreement, account (including those acquired by assignment) primary or secondary, such as all Advances, Finance Charges, Collateral Handling Fees, interest, fees, expenses, professional fees and attorneys' fees or other.


"PRIME RATE" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate.


"QUICK ASSETS" is, on any date, the Borrower's consolidated, unrestricted cash, cash equivalents, net billed accounts receivable and investments with maturities of fewer than 12 months determined according to GAAP.


"RECONCILIATION DAY" is the last calendar day of each month.


"RECONCILIATION PERIOD" is each calendar month.


"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's indebtedness owed to Bank and which is reflected in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing.


"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt.


2. FINANCING OF ACCOUNTS RECEIVABLE.


2.1 REQUEST FOR ADVANCES. During the Facility Period, Borrower may offer accounts receivable to Bank, if there is not an Event of Default. Borrower will deliver an Invoice Transmittal for each accounts receivable it offers. Bank may rely on information on or with the Invoice Transmittal.


2.2 ACCEPTANCE OF ACCOUNTS RECEIVABLE. Bank is not obligated to finance any accounts receivable. Bank may approve any Account Debtor's credit before financing any receivable. When Bank accepts a receivable, it will pay Borrower the Advance Rate times the face amount of the receivable (the "Advance"). Bank may, in its discretion, change the percentage of the Advance Rate. When Bank makes an Advance, the receivable becomes a "Financed Receivable." All representations and warranties in Section 6 must be true as of the date of the Invoice Transmittal and of the Advance and no Event of Default exists would occur as a result of the Advance. The aggregate amount of all Financed Receivables outstanding at any time may not exceed the Facility Amount.


3. COLLECTIONS, FINANCE CHARGES, REMITTANCES AND FEES. The Obligations shall be subject to the following fees and Finance Charges. Fees and Finance Charges may, in Bank's discretion, be charged as an Advance, and shall thereafter accrue fees and Finance Charges as described below. Bank may, in its discretion, charge fee and Finance Charges to Borrower's deposit account maintained with Bank.


3.1 COLLECTIONS. Collections will be credited to the Financed Receivables Balance, but if there is an Event of Default, Bank may apply Collections to the Obligation in any order it chooses. If Bank receives a payment for both Financed Receivable and a non Financed Receivable, the funds will first be applied to the Financed Receivable and, if there is not an Event of Default, the excess will be remitted to the Borrower, subject to Section 3.10.


3.2 FINANCE CHARGES. In computing Finance Charges on the Obligations, all Collections received by Bank shall be deemed applied by Bank on account of the Obligations 3 Business Days after receipt of the Collections. Borrower will pay a finance charge (the "Finance Charge"), which is the greater of (i) the Applicable Rate times the number of days in the Reconciliation Period times the outstanding average daily Financed Receivable Balance for that Reconciliation Period or (ii) the Minimum Finance Charge. After an Event of Default, Obligations accrue interest at 5 percent above the Applicable Rate effective immediately before the Event of Default.


3.3 INTENTIONALLY OMITTED.


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3.4. FACILITY FEE. A fully earned, non-refundable facility fee of
$40,000.00 is due upon execution of this Agreement.


3.5. COLLATERAL HANDLING FEE. On each Reconciliation Day, Borrower will
pay to Bank a collateral handling fee, equal to .25% per month of the
average daily Financed Receivable Balance outstanding during the applicable
Reconciliation Period. After an Event of Default, the Collateral Handling
Fee will increase an additional .50% effective immediately before the Event
of Default.


3.6. EARLY TERMINATION FEE. A fully earned, non-refundable early
termination fee of $80,000.00 is due upon voluntary or involuntary full
payment of the Obligations and termination of this Facility prior to APRIL
26, 2001 unless the Obligations are paid in full from an initial advance
from a loan agreement with Silicon Valley Bank.


3.7. ACCOUNTING. After each Reconciliation Period, Bank will provide an
accounting of the transactions for that Reconciliation Period, including
the amount of all Financed Rece
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