LOAN AND SECURITY AGREEMENT
EXHIBIT 10.13
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective Date between
SILICON VALLEY BANK, a California corporation (“Bank”), and RAE SYSTEMS INC., a Delaware
corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower
shall repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1 Revolving Advances.
(a) Availability. Bank shall make Advances subject to the terms and conditions of
this Agreement; provided however, the aggregate amount of all outstanding Advances shall not exceed
(i) the lesser of (1) the Revolving Line or (2) the Borrowing Base minus (ii) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount
equal to the Letter of Credit Reserves, minus (iii) the FX Reserve, minus (iv) the outstanding
amounts used for Cash Management Services. Amounts borrowed under the Revolving Line may be repaid
and, so long as no Default has occurred and is continuing and prior to the Revolving Line Maturity
Date, reborrowed, subject to the applicable terms and conditions precedent herein.
(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all
other Obligations relating to the Revolving Line shall be immediately due and payable.
2.1.2 Letters of Credit Sublimit.
(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for
Borrower’s account. The face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed the (i) the lesser
of (1) the Revolving Line or (2) the Borrowing Base minus (ii) an amount equal to the Letter of
Credit Reserves, minus (iii) the FX Reserve, minus (iv) the outstanding principal balance of any
Advances (including any amounts used for Cash Management Services). Such aggregate amounts
utilized hereunder shall at all times reduce the amount otherwise available for Advances under the
Revolving Line. If, on the Revolving Maturity Date, there are any outstanding Letters of Credit,
then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the
face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due
in connection therewith (as estimated by Bank in its good faith business judgment), to secure all
of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and
substance acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit
Application”). Borrower agrees to execute any further documentation in connection with the Letters
of Credit as Bank may reasonably request.
(b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters
of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit
Application.
(c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If
a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection
therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco,
California, for sales of the Foreign Currency for transfer to the country issuing such Foreign
Currency.
(d) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter
of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit
Reserve”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate. The availability of funds under the
Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such
Letter of Credit remains outstanding.
2.1.3 Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may enter into
foreign exchange contracts with Bank under which Borrower commits to purchase from or sell to Bank
a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the
“Settlement Date”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX
Business Day after the contract date and shall be subject to a reserve of ten percent (10%) (in a
maximum aggregate amount equal to $5,000,000) of each outstanding FX Forward Contract (the “FX
Reserve”). The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10)
times the amount of the FX Reserve. The obligations of Borrower relating to this section may not
exceed the lesser of $5,000,000 or the (i) the lesser of (1) the Revolving Line or (2) the
Borrowing Base minus (ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, minus (iii)
the outstanding principal balance of any Advances (including any amounts used for Cash Management
Services).
2.1.4 Cash Management Services Sublimit. Borrower may use up to the (i) lesser of (1) the
Revolving Line or (2) the Borrowing Base minus (ii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit
Reserves, minus (iii) the FX Reserve, and minus (iv) the outstanding principal balance of any
Advances (the “Cash Management Services Sublimit”) of the Revolving Line for Bank’s cash management
services which may include merchant services, direct deposit of payroll, business credit card, and
check cashing services identified in Bank’s various cash management services agreements
(collectively, the “Cash Management Services”). Any amounts Bank pays on behalf of Borrower or any
amounts that are not paid by Borrower for any Cash Management Services will be treated as Advances
under the Revolving Line and will accrue interest at the interest rate applicable to Advances.
2.2 Overadvances. If, at any time, the Credit Extensions under Sections 2.1.1, 2.1.2, 2.1.3
and 2.1.4 exceed the lesser of either (a) the Revolving Line or (b) the Borrowing Base, Borrower
shall immediately pay to Bank in cash such excess.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding under
the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate minus
one half one percentage point (0.50%), which interest shall be payable monthly in accordance with
Section 2.3(f) below.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is five percentage
points above the rate effective immediately before the Event of Default (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Bank.
(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of any change to the
Prime Rate and to the extent of any such change.
(d) 360-Day Year. Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed.
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(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including
the Designated Deposit Account, for principal and interest payments or any other amounts Borrower
owes Bank when due. These debits shall not constitute a set-off.
(f) Payments. Unless otherwise provided, interest is payable monthly on the first
calendar day of each month. Payments of principal and/or interest received after 12:00 p.m.
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 the next Business Day and
additional fees or interest, as applicable, shall continue to accrue.
2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of $15,000, on the
Effective Date;
(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit issued, upon the issuance, each anniversary of the issuance, and the
renewal of such Letter of Credit;
(c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility
Fee”), payable quarterly, in arrears, on a calendar year basis, in an amount equal to one quarter
of one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined
by Bank. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving
Line Facility Fee previously earned by Bank pursuant to this Section notwithstanding any
termination of the Agreement or the suspension or termination of Bank’s obligation to make loans
and advances hereunder; and
(d) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses), plus expenses, for documentation and negotiation of this Agreement) incurred through and
after the Effective Date, when due. Bank shall notify Borrower when such expenses reach $5,000 and
each multiple thereof.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial
Credit Extension is subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:
(a) Borrower shall have delivered duly executed original signatures to the Loan Documents to
which it is a party;
(b) Borrower shall have delivered duly executed original signatures to the Control Agreement
by and among Borrower, Bank and First Bank & Trust;
(c) Borrower shall have delivered its Operating Documents and a good standing certificate of
Borrower certified by the Secretary of State of the State of Delaware;
(d) Borrower shall have delivered duly executed original signatures to the completed Borrowing
Resolutions for Borrower;
(e) Borrower shall have delivered a payoff letter from First Bank & Trust;
(f) Borrower shall have delivered evidence that (i) the Liens securing Indebtedness owed by
Borrower to First Bank & Trust will be terminated and (ii) the documents and/or filings evidencing
the perfection of such Liens, including without limitation any financing statements and/or control
agreements, have or will, concurrently with the initial Credit Extension, be terminated;
(g) Bank shall have received certified copies, dated as of a recent date, of financing
statement searches, as Bank shall request, accompanied by written evidence (including any UCC
termination statements) that
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the Liens indicated in any such financing statements either constitute
Permitted Liens or have been or, in connection with the initial Credit Extension, will be
terminated or released;
(h) Borrower shall have delivered the Perfection Certificate executed by Borrower;
(i) Borrower shall have delivered a legal opinion of Borrower’s counsel dated as of the
Effective Date together with the duly executed original signatures thereto;
(j) Borrower shall have delivered evidence satisfactory to Bank that the insurance policies
required by Section 6.5 hereof are in full force and effect, together with appropriate evidence
showing loss payable and/or additional insured clauses or endorsements in favor of Bank; and
(k) Borrower shall have delivered executed true and complete copies of the KLH selling
shareholders notes; and
(l) Borrower shall have paid the fees and Bank Expenses then due as specified in Section 2.4
hereof.
3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to make each Credit
Extension, including the initial Credit Extension, is subject to the following:
(a) except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance
Form;
(b) the representations and warranties in Section 5 shall be true in all material respects on
the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text thereof; and provided,
further that those representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no Default or Event of
Default shall have occurred and be continuing or result from the Credit Extension. Each Credit
Extension is Borrower’s representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and warranties that already
are qualified or modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be true, accurate and
complete in all material respects as of such date; and
(c) in Bank’s good faith judgment, there has not been a Material Adverse Change.
3.3 Covenant to Deliver.
Borrower agrees to deliver to Bank each item required to be delivered to Bank under this
Agreement as a condition to any Credit Extension. Borrower expressly agrees that the extension of
a Credit Extension prior to the receipt by Bank of any such item shall not constitute a waiver by
Bank of Borrower’s obligation to deliver such item, and any such extension in the absence of a
required item shall be in Bank’s sole discretion.
3.4 Procedures for Borrowing.
Subject to the prior satisfaction of all other applicable conditions to the making of an
Advance set forth in this Agreement, to obtain an Advance (other than Advances under Sections 2.1.2
or 2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail,
facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together
with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic
mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her
designee. Bank may rely on any telephone notice given by a person whom Bank believes is a
Responsible Officer or designee. Bank shall credit Advances to the Designated Deposit Account.
Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his
or her designee or without instructions if the Advances are necessary to meet Obligations which
have become due.
4 CREATION OF SECURITY INTEREST
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4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and
performance in full of all of the Obligations, a continuing security interest in, and pledges to
Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If Borrower
shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by
Borrower of the general details thereof and grant to Bank in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Bank.
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment
in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions
has terminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the
Collateral and all rights therein shall revert to Borrower.
4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file
financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or
protect Bank’s interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization. Borrower and each of its Subsidiaries are duly
existing and in good standing in their respective jurisdictions of formation and are qualified and
licensed to do business and are in good standing in any jurisdiction in which the conduct of their
business or their ownership of property requires that they be qualified except where the failure to
do so could not reasonably be expected to have a material adverse effect on Borrower’s business.
In connection with this Agreement, Borrower has delivered to Bank completed certificates in form
satisfactory to Bank signed by Borrower entitled “Perfection Certificate”. Borrower represents and
warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection
Certificate accurately sets forth Borrower’s organizational identification number or accurately
states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s
place of business, or, if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) other than its merger with Xxxxxxx.xxx
in 2002, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any organizational number assigned
by its jurisdiction; and (f) all other information set forth on the Perfection Certificate
pertaining to Borrower and each of its Subsidiaries is accurate and complete. If Borrower is not
now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such
occurrence and provide Bank with Borrower’s organizational identification number.
The execution, delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with Borrower’s organizational documents, nor constitute an event of default under
any material agreement by which Borrower is bound. Borrower is not in default under any agreement
to which it is a party or by which it is bound in which the default could reasonably be expected to
have a material adverse effect on Borrower’s business.
5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each
item of the Collateral upon which it purports to xxxxx x Xxxx hereunder, free and clear of any and
all Liens except Permitted Liens. Except to the extent permitted in Section 6.6(a), Borrower has
no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any,
described in the Perfection Certificate delivered to Bank in connection herewith, or of which
Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected
security interest therein except as set forth in Section 6.6(b). The Eligible Accounts included in
the Borrowing Base Certificate are bona fide, existing obligations of the Account Debtors.
The Collateral consisting of tangible personal property is not in the possession of any third
party bailee (such as a warehouse) except (i) as otherwise provided in the Perfection Certificate,
or (ii) as disclosed to Bank in writing and in accordance with this Section 5.2 below. In the
event that Borrower, after the date hereof, intends to
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store or otherwise deliver Collateral
consisting of tangible personal property with a fair market value in excess of $250,000 to a bailee
located in the United States (provided however, the aggregate fair market value of Collateral at
all locations not subject to a bailee agreement shall not exceed $1,000,000), then Borrower will
first receive from such bailee an executed bailee agreement in form and substance satisfactory to
Bank in its reasonably discretion.
Borrower is the sole owner of its intellectual property, except for non-exclusive licenses and
similar arrangements granted to its customers in the ordinary course of business, other
non-perpetual licenses that may be exclusive in some respects other than territory, but that do not
result in a legal transfer of Borrower’s title in the licensed property and licenses of
intellectual property from third parties. Each patent is valid and enforceable, and no part of the
intellectual property has been judged invalid or unenforceable, in whole or in part, and to the
best of Borrower’s knowledge, no claim has been made that any part of the intellectual property
violates the rights of any third party except to the extent such claim could not reasonably be
expected to have a material adverse effect on Borrower’s business. Except as noted on the
Perfection Certificate, as of the Effective Date, Borrower is not a party to, nor is bound by, any
material license or other agreement with respect to which Borrower is the licensee that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property (where such prohibition or restriction is enforceable
under applicable law, including Section 9408 of the Code).
5.3 Accounts Receivable. For any Eligible Domestic Account and Eligible Foreign Account in
any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Domestic Accounts and Eligible
Foreign Accounts are and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower’s Books are genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Eligible Domestic Account and
Eligible Foreign Account shall comply in all material respects with all applicable laws and
governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency
Proceeding of any Account Debtor whose accounts are an Eligible Domestic Account and Eligible
Foreign Account in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements relating to all Eligible
Domestic Accounts and Eligible Foreign Accounts are genuine, and all such documents, instruments
and agreements are legally enforceable in accordance with their terms.
5.4 Litigation. Except as disclosed to Bank from time to time pursuant to Section 6.2 and
which are reasonably satisfactory to Bank, there are no actions or proceedings pending or, to the
knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its
Subsidiaries involving more than $500,000.
5.5 No Material Deviation in Financial Statements. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.
There has not been any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.6 Solvency. The fair salable value of Borrower’s and each Guarantor’s assets (including
goodwill minus disposition costs) exceeds the fair value of its respective liabilities; Neither
Borrower nor any Guarantor is left with unreasonably small capital after the transactions in this
Agreement; and Borrower and each Guarantor are able to pay their debts (including trade debts) as
they mature.
5.7 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act. Borrower is not engaged as one of its
important activities in extending credit for margin stock (under Regulations T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair
Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of
which could reasonably be expected to have a material adverse effect on its business. None of
Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing,
storing, treating, or transporting any hazardous substance other than legally. Borrower and each
of its Subsidiaries have obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted.
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5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any
contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly
and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and
any material development in, the proceedings, (c) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of
the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to, any such plan which
could reasonably be expected to result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as
working capital and to fund its general business requirements, including acquisitions and capital
expenditures, each to the extent permitted hereunder.
5.11 Full Disclosure. No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank, as of the date such representations,
warranties, or other statements were made, taken together with all such written certificates and
written statements given to Bank, 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 or forecasted results).
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance. Borrower shall, and shall cause each of its Subsidiaries to,
maintain its legal existence and good standing in its jurisdiction of formation and each
jurisdiction in which the nature of its business requires them to be so qualified, except where the
failure to take such action would not reasonably be expected to have a material adverse effect on
Borrower’s and its Subsidiaries’ business or operations, taken as a whole; provided, that
(a) the legal existence of any Subsidiary that is not a Guarantor may be terminated or permitted to
lapse, and any qualification of such Subsidiary to do business may be terminated or permitted to
lapse, if, in the good faith judgment of Borrower, such termination or lapse is in the best
interests of Borrower and its Subsidiaries, taken as a whole, and (b) Borrower may not permit its
qualification to do business in the jurisdiction of its chief executive office to terminate or
lapse; and provided, further, that this Section 6.1 shall not be construed to
prohibit any other transaction that is otherwise permitted in Section 7 of this Agreement.
Borrower shall comply, and shall have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a material adverse effect
on Borrower’s business.
6.2 Financial Statements, Reports, Certificates.
(a) Deliver to Bank: (i) as soon as available, but no later than the earlier of (A) five (5)
days after filing with the Securities Exchange Commission or (B) fifty (50) days after the end of
each fiscal quarter, the Borrower’s 10Q; (ii) as soon as available, but no later than the earlier
of (A) five (5) days after filing with the Securities Exchange Commission or (B) ninety (90) days
after the end of each fiscal year, the Borrower’s 10K and an unqualified opinion of the financial
statements prepared by an independent certified public accounting firm reasonably acceptable to
Bank; (iii) as soon as available, but no later than five (5) days after filing with the Securities
Exchange Commission, the Borrower’s 8K reports; (iv) within 45 days after the end of each fiscal
year, annual financial projections (which shall include projected balance sheets, income statements
and cash flow
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statements) for the following fiscal year (on a quarterly basis) as approved by
Borrower’s board of directors, together with any related business forecasts used in the preparation
of such annual financial projections; (v) 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 $1,000,000 or more; and (vi) budgets, sales projections, operating plans or other
financial information Bank reasonably requests.
Borrower’s 10K, 10Q, and 8K reports required to be delivered pursuant to Section 6.2(a) shall
be deemed to have been delivered on the date on which Borrower posts such report or provides a link
thereto on Borrower’s or another website on the Internet; provided, that Borrower shall
provide paper copies to Bank of the Compliance Certificates required by Section 6.2(d).
(b) Within 30 days after the last day of each month, Borrower will deliver to Bank a cash
balance report detailing investment type and maturity dates.
(c) When the outstanding Obligations under Section 2.1 are equal to or greater than $3,000,000
for longer than 3 consecutive Business Days during any calendar month, within thirty (30) days
after the last day of such month, deliver to Bank a duly completed Borrowing Base Certificate
signed by a Responsible Officer, with aged listings of accounts receivable and accounts payable (by
invoice date).
(d) Within five (5) days after filing the 10Q and 10K, as applicable, with the Securities
Exchange Commission or (B) fifty (50) days after the end of each fiscal quarter, deliver to Bank
with the quarterly financial statements, a duly completed Compliance Certificate signed by a
Responsible Officer setting forth calculations showing compliance with the financial covenants set
forth in this Agreement.
(e) The initial field examination shall be completed within 60 days of the Effective Date.
Thereafter, allow Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits shall be
conducted no more often than once every twelve (12) months unless a Default or an Event of Default
has occurred and is continuing. Bank shall notify Borrower when such expenses reach $2,500 and
each multiple thereof.
6.4 Post closing item. Borrower shall obtain Comerica Bank’s authorization to file the
executed Reassignment and Release of Security Interest of Security Interest dated as of January 23,
2007 with the Patent and Trademark Office or Bank shall have received evidence of such filing by
Comerica Bank reasonably satisfactory to Bank, within 30 days of the Effective Date.
6.5 Taxes; Pensions. Make, and cause each of its Subsidiaries to make, timely payment of all
foreign, federal, state, and local taxes or assessments (other than taxes and assessments which
Borrower is contesting pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in accordance with their terms.
6.6 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All
property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee
and waive subrogation against Bank, and all liability policies shall show, or have endorsements
showing, Bank as an additional insured. All policies (or the loss payable and additional insured
endorsements) shall provide that the insurer must give Bank at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At Bank’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. Proceeds payable under any
policy shall, at Bank’s option, be payable to Bank on account of the Obligations. Notwithstanding
the foregoing, (a)(x) 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 up to $1,000,000, in the aggregate,
toward the replacement or repair of destroyed or damaged property; provided that any such replaced
or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and
(ii) shall be deemed Collateral in which Bank has been granted a first priority security interest
(subject to Permitted Liens), and (b)(y) after the occurrence and during the continuance of an
Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be
payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required
under this Section 6.5 or to pay any amount or furnish any required proof of payment to third
persons and Bank, Bank may make all or part of such payment or obtain such insurance policies
required in this Section 6.5, and take any action under the policies Bank deems prudent.
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6.7 Operating Accounts.
(a) Within 3 months of the Effective Date, maintain a significant portion of its and its
Domestic Subsidiaries’ domestic depository and operating accounts and domestic securities accounts
with Bank and Bank’s affiliates.
(b) Provide Bank five (5) days prior written notice before establishing any Collateral Account
at or with any bank or financial institution other than Bank or its Affiliates. In addition, for
each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable
bank or financial institution (other than Bank) at or with which any Collateral Account is
maintained to execute and deliver a Control Agreement or other appropriate instrument with respect
to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the
terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts
exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such.
6.8 Financial Covenants.
Borrower shall maintain at all times, unless otherwise noted, on a consolidated basis with
respect to Borrower and its Subsidiaries:
(a) Quick Ratio. Tested as of the last day of each fiscal quarter, a ratio of Quick
Assets to Current Liabilities of at least 1.0 to 1.0.
(b) Tangible Net Worth. Tested as of the last day of each fiscal quarter, a Tangible
Net Worth of at least $35,000,000, increasing by 50% of Net Income and 50% of net cash proceeds of
equity issuances after the Effective Date.
6.9 Protection of Intellectual Property Rights. Borrower shall: (a) protect, defend and
maintain the validity and enforceability of its intellectual property material to its business
consistent with reasonable business practices for companies similar to Borrower, in Borrower’s
industry; (b) promptly advise Bank in writing of material infringements of its intellectual
property; and (c) not allow any intellectual property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public unless Borrower’s Board of Directors determines
that such abandonment, forefeiture or dedication is reasonable.
6.10 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Bank, without expense to Bank, Borrower and its officers,
employees and agents and Borrower’s books and records, to the extent that Bank may deem them
reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or
against Bank with respect to any Collateral or relating to Borrower.
6.11 Designated Senior Indebtedness. Borrower shall designate all principal of, interest
(including all interest accruing after the commencement of any bankruptcy or similar proceeding,
whether or not a claim for post-petition interest is allowable as a claim in any such proceeding),
and all fees, costs, expenses and other amounts accrued or due under this Agreement as “Designated
Senior Indebtedness”, or such similar term, in any future Subordinated Debt incurred by Borrower
after the date hereof, if such Subordinated Debt contains such term or similar term and if the
effect of such designation is to grant to Bank the same or similar rights as granted to Bank as a
holder of “Designated Senior Indebtedness” under any indenture.
6.12 Further Assurances. Borrower shall execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to
effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent:
7.1 Dispositions. Convey, sell, lease, transfer 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:
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(a) Transfers in the ordinary course of business for reasonably equivalent consideration,
including Transfers with Foreign Subsidiaries that are not prohibited by Section 7.8;
(b) Transfers (i) to Borrower, (ii) to any Guarantor, (iii) between any Subsidiaries that are
not Guarantors or (iv) from Borrower or any Guarantor to any of their Subsidiaries that are not
Guarantors in an aggregate amount (when added together with Investments under item (m) of the definition of
“Permitted Investments”), does not exceed $10,000,000 in the aggregate during fiscal year 2007 or
$5,000,000 in the aggregate during fiscal year 2008;
(c) Transfers of property for fair market value, including Transfers with Foreign Subsidiaries
that are not prohibited by Section 7.8;
(d) Transfers of property in connection with sale-leaseback transactions;
(e) Transfers of property to the extent such property is exchanged for credit against, or
proceeds are promptly applied to, the purchase price of other property used or useful in the
business of Borrower or its Subsidiaries;
(f) Transfers constituting non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of business and other non-perpetual
licenses that may be exclusive in some respects other than territory but that do not result in a
legal transfer of Borrower’s title in the licensed property;
(g) Transfers otherwise permitted by the Loan Documents;
(h) sales or discounting of delinquent accounts in the ordinary course of business;
(i) Transfers associated with the making or disposition of a Permitted Investment;
(j) Transfers in connection with a permitted acquisition of a portion of the assets or rights
acquired; and
(k) Transfers not otherwise permitted in this Section 7.1, provided, that the aggregate book
value of all such Transfers by Borrower and its Subsidiaries, together, shall not exceed (when
added together with the amount of Investments pursuant to item (o) of the definition of “Permitted
Investments”) in any fiscal year, $1,000,000.
7.2 Changes in Business; Change in Control; Jurisdiction of Formation.
Engage in any material line of business other than those lines of business conducted by
Borrower and its Subsidiaries on the date hereof and any businesses reasonably related,
complementary or incidental thereto or reasonable extensions thereof; permit or suffer any Change
in Control. Borrower will not, without prior written notice, change its jurisdiction of formation.
7.3 Mergers or Acquisitions.
(a) Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any
Person; provided however,
(i) any Subsidiary that is not a Guarantor may merge or consolidate into Borrower or any
Subsidiary,
(ii) any Guarantor may merge or consolidate with another Guarantor or into the Borrower; and
(iii) nothing in this clause (a) shall prohibit any merger or consolidation if (A) (1) no
Event of Default has occurred and is continuing or would result from such action during the term of
this Agreement,
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or (2) if Borrower or a Guarantor is a party to such transaction, Borrower or such
Guarantor, as the case maybe, is the surviving or successor entity business or (B) such merger or
consolidation is a Transfer otherwise permitted pursuant to Section 7.1 hereof; or
(b) acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of a Person; provided however nothing in this clause (b) above shall
prohibit any acquisition if (1) no Event of Default has occurred and is continuing or would result from such action during the term of
this Agreement, or (2) such acquisition is a Transfer otherwise permitted pursuant to Section 7.1
hereof.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey
any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries
to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority
security interest granted herein, or enter into any agreement, document, instrument or other
arrangement (except with or in favor of Bank) with any Person which directly or indirectly
prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging,
pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s intellectual property, except as is otherwise permitted in Section 7.1 hereof and the
definition of “Permitted Lien” herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.6.(b) hereof.
7.7 Distributions; Investments. (a) 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 (b) pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock other than Permitted Distributions.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions that are in the
ordinary course of Borrower’s business, upon fair and reasonable terms (when viewed in the context
of any series of transactions of which it may be a part, if applicable) that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make or permit any payment on or amendments of any Subordinated Debt,
except (a) payments pursuant to the terms of the applicable Subordination Agreement; (b) payments
made with Borrower’s capital stock or other Subordinated Debt; or (c) amendments to Subordinated
Debt so long as such Subordinated Debt remains subordinated in right of payment to this Agreement
and any Liens securing such Subordinated Debt remain subordinate in priority to Bank’s Lien
hereunder and such amendment is not adverse to the rights of Bank.
7.10 Compliance. Become an “investment company” or a company controlled by an “investment
company”, under the Investment Company Act of 1940 or undertake as one of its important activities
extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the violation could reasonably be expected
to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any present pension,
profit sharing and deferred compensation plan which could reasonably be expected to result in any
liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:
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8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Credit Extension on its due date, or (b) pay any other Obligations within five (5) Business Days
after such Obligations are due and payable. During the cure period, the failure to cure the
payment default is not an Event of Default (but no Credit Extension will be made during the cure
period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.6, 6.7, 6.10, 6.11
or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any
default (other than those specified in Section 8 below) under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure the default within ten (10)
days after the occurrence thereof; provided, however, that if the default cannot by its nature be
cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within
such ten (10) day period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure to cure the
default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such
cure period). Grace periods provided under this section shall not apply, among other things, to
financial covenants or any other covenants set forth in subsection (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment. (a) Any material portion of Borrower’s assets is attached, seized, levied on,
or comes into possession of a trustee or receiver and the attachment, seizure or levy is not
removed in ten (10) days; (b) the service of process upon Borrower seeking to attach, by trustee or
similar process, any funds of Borrower on deposit with Bank, or any entity under control of Bank
(including a subsidiary); (c) Borrower is enjoined, restrained, or prevented by court order from
conducting a material part of its business; (d) a judgment or other claim in excess of $750,000
becomes a Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed
against any material portion of Borrower’s assets by any government agency and not paid within ten
(10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond
is posted pending contest by Borrower (but no Credit Extensions shall be made during the cure
period);
8.5 Insolvency. Borrower is unable to pay its debts (including trade debts) as they become
due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days
(but no Credit Extensions shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If Borrower fails to (a) make any payment that is due and payable with
respect to any Material Indebtedness and such failure continues after the applicable grace or
notice period, if any, specified in the agreement or instrument relating thereto, or (b) perform or
observe any other condition or covenant, or any other event shall occur or condition exist under
any agreement or instrument relating to any Material Indebtedness, and such failure continues after
the applicable grace or notice period, if any, specified in the agreement or instrument relating
thereto and the effect of such failure, event or condition is to cause the holder or holders of
such Material Indebtedness to accelerate the maturity of such Material Indebtedness or cause the
mandatory repurchase of any Material Indebtedness;
8.7 Judgments. A judgment or judgments for the payment of money in an amount, individually or
in the aggregate, of at least $750,000 (not covered by independent third-party insurance) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days
after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction
or stay of such judgment);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material respect when made;
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8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and
any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement
with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such
agreement; or
8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any reason to be
in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any
guaranty of the Obligations; (c) any circumstance described in Sections 8.4, 8.5, 8.7, or 8.8. occurs with
respect to any Guarantor, or (d) the liquidation, winding up, or termination of existence of any
Guarantor.
9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without
notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Bank;
(c) demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate
amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;
(d) terminate any FX Contracts;
(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s
security interest in such funds, and verify the amount of such account;
(f) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Bank requests and make it available as Bank designates. 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. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank’s rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Bank owing to or for the credit or the account of Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or
any similar property as it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this
Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(i) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to any Control
Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of Borrower’s Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).
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9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or xxxx of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of any security interest regardless of whether an Event of Default has
occurred until all Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney in fact,
and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions
terminates.
9.3 Accounts Verification; Collection. Whether or not an Event of Default has occurred and is
continuing, Bank may notify any Person owing Borrower money of Bank’s security interest in such
funds and verify the amount of such account. After the occurrence of an Event of Default, any
amounts received by Borrower shall be held in trust by Borrower for Bank, and, if requested by
Bank, Borrower shall immediately deliver such receipts to Bank in the form received from the
Account Debtor, with proper endorsements for deposit.
9.4 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5
or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to
pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such
payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest applicable rate, and secured by the Collateral. Bank will make
reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it
is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to
make similar payments in the future or Bank’s waiver of any Event of Default.
9.5 Application of Payments and Proceeds. Unless an Event of Default has occurred and is
continuing, Bank shall apply any funds in its possession, whether from Borrower account balances,
payments, or proceeds realized as the result of any collection of Accounts or other disposition of
the Collateral, first, to Bank Expenses, including without limitation, the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of its
rights under this Agreement; second, to the interest due upon any of the Obligations; and third, to
the principal of the Obligations and any applicable fees and other charges, in such order as Bank
shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If an Event of
Default has occurred and is continuing, Bank may apply any funds in its possession, whether from
Borrower account balances, payments, proceeds realized as the result of any collection of Accounts
or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank
shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its
good faith business judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable
at any time, of either reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
9.6 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under the control of
Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act
or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral.
9.7 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict
performance by Borrower of any provision of this Agreement or any other Loan Document shall not
waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance
herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is
only effective for the specific instance and purpose for which it is given. Bank’s rights and
remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one
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right or remedy is
not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s
delay in exercising any remedy is not a waiver, election, or acquiescence.
9.8 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by
Bank on which Borrower is liable.
10 NOTICES
All notices, consents, requests, approvals, demands, or other communication (collectively,
“Communication”) by any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when
sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or Borrower may change its address or
facsimile number by giving the other party written notice thereof in accordance with the terms of
this Section 10.
| If to Borrower: | RAE Systems Inc. 3700 Xxxxx Xxxxx Xxxxxx Xxx Xxxx, Xxxxxxxxxx 00000 Xttn: Chief Financial Officer Fax: (000) 000-0000 |
|||
| If to Bank: | Silicon Valley Bank 3900 Xxxxxxx Xxxxxx, Xxxxx 000 Xxxxx Xxxxx, Xxxxxxxxxx 00000 Xttn: Xxx Xxxxx Fax: (000) 000-0000 |
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 Xxxxx County, California; provided, however, that nothing in this Agreement shall be deemed
to operate to preclude Bank from bringing suit or taking other legal action in any other
jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce
a judgment or other court order in favor of Bank. Borrower expressly submits and consents in
advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby
waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or
forum non conveniens and hereby consents to the granting of such legal or equitable relief as is
deemed appropriate by such court. Borrower hereby waives personal service of the summons,
complaints, and other process issued in such action or suit and agrees that service of such
summons, complaints, and other process may be made by registered or certified mail addressed to
Borrower at the address set forth in Section 10 of this Agreement and that service so made shall be
deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR
ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS
REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A
TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties
hereto agree that any and all disputes or controversies of any nature between them arising at any
time
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shall be decided by a reference to a private judge, mutually selected by the parties (or, if
they cannot agree, by the Presiding Judge of the Santa Xxxxx County, California Superior Court)
appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the
exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Xxxxx County,
California; and the parties hereby submit to the jurisdiction of such court. The reference
proceedings shall be conducted pursuant to and in accordance with the provisions of California Code
of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among
others, to grant provisional relief, including without limitation, entering temporary restraining
orders, issuing preliminary and permanent injunctions and appointing receivers. All such
proceedings shall be closed to the public and confidential and all records relating thereto shall
be permanently sealed. If during the course of any dispute, a party desires to seek provisional
relief, but a judge has not been appointed at that point pursuant to the judicial reference
procedures, then such party may apply to the Santa Xxxxx County, California Superior Court for such
relief. The proceeding before the private judge shall be conducted in the same manner as it would
be before a court under the rules of evidence applicable to judicial proceedings. The parties
shall be entitled to discovery which shall be conducted in the same manner as it would be before a
court under the rules of discovery applicable to judicial proceedings. The private judge shall
oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings
in the same manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or proceeding, whether of
fact or of law, and shall report a statement of decision thereon pursuant to the California Code of
Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time
to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The
private judge shall also determine all issues relating to the applicability, interpretation, and
enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors
and permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Bank’s prior written consent (which may be granted or withheld in
Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell,
transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s
obligations, rights, and benefits under this Agreement and the other Loan Documents.
12.2 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors,
officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank
harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”)
asserted by any other party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or arising from
transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except
for Claims and/or losses directly caused by Bank’s gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.
12.4 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.5 Amendments in Writing; Integration. All amendments to this Agreement must be in writing
signed by both Bank and Borrower. This Agreement and the Loan Documents represent the entire
agreement about this subject matter and supersede prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations between the parties about
the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan
Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.
12.7 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have
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been satisfied. The obligation of Borrower in Section 12.2
to indemnify Bank shall survive until the statute of limitations with respect to such claim or
cause of action shall have run.
12.8 Confidentiality. In handling any confidential information, Bank shall exercise the same
degree of care that it exercises for its own proprietary information, but disclosure of information
may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers
of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable
efforts to obtain such prospective transferee’s or purchaser’s agreement to the terms of this
provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators
or as otherwise required in connection with Bank’s examination or audit; and (e) as Bank considers
appropriate in exercising remedies under this Agreement. Confidential information does not include
information that either: (i) is in the public domain or in Bank’s possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (ii) is disclosed to Bank
by a third party, if Bank does not know that the third party is prohibited from disclosing the
information.
12.9 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and
Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.
13 DEFINITIONS
13.1 Definitions. As used in this Agreement, the following terms have the following meanings:
“Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person,
any Person that controls or is controlled by or is under common control with the Person, and each
of that Person’s senior executive officers, directors, partners and, for any Person that is a
limited liability company, that Person’s managers and members.
“Agreement” is defined in the preamble hereof.
“Bank” is defined in the preamble hereof.
“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing
the Loan Documents (including, without limitation, those incurred in connection with appeals or
Insolvency Proceedings) or otherwise incurred with respect to Borrower.
“Bankruptcy-Related Defaults” is defined in Section 9.1.
“Borrower” is defined in the preamble hereof
“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state
tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.
“Borrowing Base” is (a) $7,000,000 plus (b) 80% of Eligible Accounts, as determined by Bank
from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may decrease
the foregoing percentages in its good faith business judgment based on events (including without
limitation, the initial field audit examination and the on-going periodic examinations),
conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.
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“Borrowing Base Certificate” is that certain certificate in the form attached hereto as
Exhibit C.
“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such
Person’s Board of Directors and delivered by such Person to Bank approving the Loan Documents to
which such Person is a party and the transactions contemplated thereby, together with a certificate
executed by its secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the Loan Documents to
which it is a party, (b) that attached to such certificate is a true, correct, and complete copy of
the resolutions then in full force and effect authorizing and ratifying the execution, delivery,
and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the
Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample
of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such
certificate unless and until such Person shall have delivered to Bank a further certificate
canceling or amending such prior certificate.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or any agency or any State thereof having maturities of not more
than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1)
year after its creation and having the highest rating from either Standard & Poor’s Ratings Group
or Xxxxx’x Investors Service, Inc., (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the
assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of
this definition.
“Cash Management Services” is defined in Section 2.1.4.
“Cash Management Services Sublimit” is defined in Section 2.1.4.
“Change in Control” means any event, transaction, or occurrence as a result of which (a) any
“person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding
securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the
meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of
Borrower, representing fifty percent (50%) or more of the combined voting power of Borrower’s then
outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals
who at the beginning of such period constituted the Board of Directors of Borrower (together with
any new directors whose election by the Board of Directors of Borrower was approved or ratified by
at least a majority of the directors then still in office who either were directions at the
beginning of such period or whose election or nomination for election was previously so approved)
cease for any reason other than death or disability to constitute a majority of the directors then
in office.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California; provided, that, to the extent that the Code is used to define
any term herein or in any Loan Document and such term is defined differently in different Articles
or Divisions of the Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the
State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in
effect in such other jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions relating to such
provisions.
“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit
A.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account
maintained by Borrower or a Domestic Subsidiary where such account is located in the United States.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.
“Communication” is defined in Section 10.
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“Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit D.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or indirectly liable;
(b) any obligations for undrawn letters of credit for the account of that Person; and (c) all
obligations from any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower maintains a Securities Account or a Commodity account, Borrower, and Bank
pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
“Credit Extension” is any Advance, Letter of Credit, FX Forward Contract, amount utilized for
Cash Management Services or any other extension of credit by Bank for Borrower’s benefit.
“Current Liabilities” are all obligations and liabilities of Borrower to Bank, plus, without
duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.
“Default” means any event which with notice or passage of time or both, would constitute an
Event of Default.
“Default Rate” is defined in Section 2.3(b).
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.
“Designated Deposit Account” is Borrower’s deposit account, account number 3300556715,
maintained with Bank.
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any
state or territory thereof or the District of Columbia.
“Effective Date” is the date Bank executes this Agreement and as indicated on the signature
page hereof.
“Eligible Accounts” are Accounts which arise in the ordinary course of Borrower’s business
that meet all Borrower’s representations and warranties in Section 5.3. Bank reserves the right at
any time and from time to time after the Effective Date, to adjust any of the criteria set forth
below and to establish new criteria in its good faith business judgment. Unless Bank agrees
otherwise in writing, Eligible Accounts shall not include:
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date;
(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have
not been paid within ninety (90) days of invoice date;
(c) Credit balances over ninety (90) days from invoice date;
(d) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed twenty-five (25%) of all Accounts, for the amounts that exceed that percentage,
unless Bank approves in writing;
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(e) Accounts owing from an Account Debtor which does not have its principal place of business
in the United States except for Eligible Foreign Accounts;
(f) Accounts owing from an Account Debtor which is a federal, state or local government entity
or any department, agency, or instrumentality thereof except for Accounts of the United States if
Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the
Federal Assignment of Claims Act of 1940, as amended;
(g) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated
in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise — sometimes called
“contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;
(h) Accounts for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “xxxx and hold”, or other terms
if Account Debtor’s payment may be conditional;
(i) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(j) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding,
or becomes insolvent, or goes out of business;
(k) Accounts owing from an Account Debtor with respect to which Borrower has received deferred
revenue (but only to the extent of such deferred revenue);
(l) Accounts for which Bank in its good faith business judgment determines collection to be
doubtful; and
(m) other Accounts Bank deems ineligible in the exercise of its good faith business judgment.
“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not have its
principal place of business in the United States but are otherwise Eligible Accounts that are (a)
either covered by credit insurance satisfactory to Bank, less any deductible or supported by
letter(s) of credit acceptable to Bank; and (b) approved by Bank in writing.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Foreign Currency” means lawful money of a country other than the United States.
“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.
“Funding Date” is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.
“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its
normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to
Bank from the entity from which Bank shall buy or sell such Foreign Currency.
“FX Forward Contract” is defined in Section 2.1.3.
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“FX
Reserve” is defined in Section 2.1.3.
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date of determination.
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims,
income and other tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any kind.
“Guarantor” is any present or future guarantor of the Obligations.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.
“Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of Borrower’s custody
or possession or in transit and including any returned goods and any documents of title
representing any of the above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.
“Letter of Credit” means a standby letter of credit issued by Bank or another institution
based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set
forth in Section 2.1.2.
“Letter of Credit Application” is defined in Section 2.1.2(a).
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).
“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
“Loan Amount” in respect of each Equipment Advance is the original principal amount of such
Equipment Advance.
“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, the
Subordination Agreement, any note, or notes or guaranties executed by Borrower or any Guarantor,
and any other present or future agreement between Borrower any Guarantor and/or for the benefit of
Bank in connection with this Agreement, all as amended, restated, or otherwise modified.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s
Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower and the Guarantors, taken
as a whole; or (c) a material impairment of
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the prospect of repayment of any portion of the
Obligations or (d) Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more
of the financial covenants in Section 6 during the next succeeding financial reporting period.
“Material Indebtedness” is any Indebtedness the principal amount of which is equal to or
greater than $1,000,000.
“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries
for any period as at any date of determination, the net profit (or loss), after provision for
taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.
“Obligations” are Borrower’s obligation to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating to letters of
credit, cash management services, and foreign exchange contracts, if any, and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower
assigned to Bank, and the performance of Borrower’s duties under the Loan Documents.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation, and, (a) if such Person is a
corporation, its bylaws in current form, (b) if such Person is a limited liability company, its
limited liability company agreement (or similar agreement), and (c) if such Person is a
partnership, its partnership agreement (or similar agreement), each of the foregoing with all
current amendments or modifications thereto.
“Payment/Advance Form” is that certain form attached hereto as Exhibit B.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Distributions” means:
(a) purchases of capital stock from former employees, consultants and directors pursuant to
repurchase agreements or other similar agreements in an aggregate amount not to exceed $500,000 in
any fiscal year provided that at the time of such purchase no Default or Event of Default has
occurred and is continuing;
(b) distributions or dividends consisting solely of Borrower’s capital stock;
(c) purchases for value of any rights distributed in connection with any stockholder rights
plan;
(d) purchases of capital stock or options to acquire such capital stock with the proceeds
received from a substantially concurrent issuance of capital stock or convertible securities;
(e) purchases of capital stock pledged as collateral for loans to employees;
(f) purchases of capital stock in connection with the exercise of stock options or stock
appreciation rights by way of cashless exercise or in connection with the satisfaction of
withholding tax obligations;
(g) purchases of fractional shares of capital stock arising out of stock dividends, splits or
combinations or business combinations; and
(h) the settlement or performance of such Person’s obligations under any equity derivative
transaction, option contract or similar transaction or combination of transactions.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement or any other Loan Document;
(b) any Indebtedness shown on the Perfection Certificate and satisfactory to Bank;
(c) Subordinated Debt;
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(d) unsecured Indebtedness to trade creditors and with respect to surety bonds and similar
obligations incurred in the ordinary course of business;
(e) guaranties of Permitted Indebtedness;
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(g) Indebtedness consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements designated to protect a Person against fluctuations
in interest rates, currency exchange rates, or commodity prices;
(h) Indebtedness between Borrower and any of its Subsidiaries or among any of Borrower’s
Subsidiaries;
(i) capitalized leases and purchase money Indebtedness not to exceed $1,000,000 in the
aggregate in any fiscal year secured by Permitted Liens;
(j) Indebtedness incurred by a Foreign Subsidiary that is not a Guarantor;
(k) refinanced Permitted Indebtedness, provided that the amount of such Indebtedness is not
increased except by an amount equal to a reasonable premium or other reasonable amount paid in
connection with such refinancing and by an amount equal to any existing, but unutilized, commitment
thereunder; and
(l) other Indebtedness, if, on the date of incurring any Indebtedness pursuant to this clause
(l), the outstanding aggregate amount of all Indebtedness incurred pursuant to this clause (l) does
not exceed $1,000,000.
“Permitted Investments” are:
(a) Investments existing on the Effective Date;
(b) (i) marketable direct obligations issued or unconditionally guaranteed by the United
States or its agencies or any State maturing within 1 year from its acquisition, (ii) commercial
paper maturing no more than 2 years after its creation and having the highest rating from either
Standard & Poor’s Corporation or Xxxxx’x Investors Service, Inc., and (iii) Bank’s certificates of
deposit maturing no more than 2 years after issue;
(c) Investments approved by the Borrower’s Board of Directors or otherwise pursuant to a
Board-approved investment policy;
(d) Investments in or to Borrower or any of its Subsidiaries existing on the date hereof and
any Investment by Borrower in any Guarantor after the date hereof;
(e) Investments consisting of Collateral Accounts in the name of Borrower or any Subsidiary so
long as Bank has a first priority, perfected security interest in such Collateral Accounts;
(f) Investments consisting of extensions of credit to Borrower’s or its Subsidiaries’
customers in the nature of accounts receivable, prepaid royalties or notes receivable arising from
the sale or lease of goods, provision of services or licensing activities of Borrower;
(g) Investments received in satisfaction or partial satisfaction of obligations owed by
financially troubled obligors;
(h) Investments acquired in exchange for any other Investments in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization;
(i) Investments acquired as a result of a foreclosure with respect to any secured Investment;
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(j) Investments consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements designated to protect a Person against fluctuations
in interest rates, currency exchange rates, or commodity prices;
(k) Investments consisting of loans and advances to employees in an aggregate amount not to
exceed $250,000 at any time;
(l) (i) Investments by any Subsidiary in or to the Borrower or any Guarantor; and (ii)
Investments by any Subsidiary that is not a Guarantor in or to any other Subsidiary that is not a
Guarantor;
(m) (i) (A) Investments by Borrower or any Guarantor in or to any Subsidiary that is not a
Guarantor and (B) Investments by RAE Systems (Asia) Limited or its Subsidiaries in a Chinese joint
venture; provided however, the sum of (1) the amounts invested under clause (A) that are not
related (directly or indirectly) to the funding or reimbursement of amounts necessary to fund
Investments of the type described in clause (B), plus (2) the amount invested under clause
(B), plus (3) the amount of Transfers under Section 7.1(b)(iv), does not exceed $10,000,000
in the aggregate during fiscal year 2007 and (ii) Investments by Borrower or any Guarantor in or to
any Subsidiary that is not a Guarantor, in an aggregate amount (when added together with Transfers
under Section 7.1(b)(iv)), does not exceed $5,000,000 in the aggregate during fiscal year 2008;
(n) other Investments in joint ventures, strategic alliances, licensing and similar
arrangements customary in Borrower’s industry; provided that such Investments do not require
Borrower or Subsidiary to transfer assets with a value in excess of $1,000,000 in any fiscal year;
and
(o) Investments not otherwise permitted hereunder, provided, that the aggregate book value of
all such Investments by Borrower and its Subsidiaries, together, shall not exceed (when added
together with the amount of Transfers pursuant to Section 7.1(k) $1,000,000 in any fiscal year.
“Permitted Liens” are:
(a) (i) Liens securing Permitted Indebtedness described under clause (b) of the definition of
“Permitted Indebtedness” or (ii) Liens 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 Liens;
(c) Liens (including with respect to capital leases) (i) on property (including accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds
thereof) acquired or held by Borrower or its Subsidiaries incurred for financing such property
(including accessions, additions, parts, replacements, fixtures, improvements and attachments
thereto, and the proceeds thereof), or (ii) existing on property (and accessions, additions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) when
acquired, if the Lien is confined to such property (including accessions, additions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds thereof);
(d) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited
to the property encumbered by the existing Lien and the principal amount of the indebtedness it
secures may not increase;
(e) leases or subleases of real property granted in the ordinary course of business, and
leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of Borrower’s business, if the
leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;
(f) non-exclusive license of intellectual property granted to third parties in the ordinary
course of business,and licenses of intellectual property that could not result in a legal transfer
of title of the licensed property
that may be exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas outside of the United States;
-24-
(g) leases or subleases granted in the ordinary course of Borrower’s business, including in
connection with Borrower’s leased premises or leased property;
(h) Liens in favor of custom and revenue authorities arising as a matter of law to secure the
payment of custom duties in connection with the importation of goods;
(i) Liens on insurance proceeds securing the payment of financed insurance premiums;
(j) customary Liens granted in favor of a trustee to secure fees and other amounts owing to
such trustee under an indenture or other similar agreement;
(k) Liens consisting of pledges of cash, cash equivalents or government securities to secure
swap or foreign exchange contracts or letters of credit;
(l) Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Sections 8.4 or 8.7;
(m) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit or securities accounts held at such institutions;
(n) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business which are not overdue for a period of more than 30 days
or which are being contested in good faith and by appropriate proceeding if adequate reserves with
respect thereto are maintained on the books of the applicable Person;
(o) Liens on property of Foreign Subsidiaries that are not Guarantors;
(p) pledges or deposits in the ordinary course of business in connection with workers’
compensation, unemployment insurance and compliance with other social security requirements
applicable to Borrower; and
(q) deposits to secure the performance of bids, trade contracts (other than for borrowed
money), contracts for the purchase of property, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each case, incurred in the
ordinary course of business and not representing an obligation for borrowed money.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Quick Assets” is, on any date, Borrower’s consolidated, unrestricted cash, Cash Equivalents,
net billed accounts receivable and short and long term investments.
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer, Treasurer and Controller of Borrower.
“Revolving Line” is an Advance or Advances in an aggregate amount of up to $15,000,000
outstanding at any time.
“Revolving Line Maturity Date” is March 14, 2008.
-25-
“Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.
“Settlement Date” is defined in Section 2.1.3.
“Subordinated Debt” is (a) Indebtedness incurred by Borrower subordinated to Borrower’s
Indebtedness owed to Bank and which is reflected in a written agreement in a manner and form
reasonably acceptable to Bank and approved by Bank in writing, and (b) to the extent the terms of
subordination do not change adversely to Bank, refinancings, refundings, renewals, amendments or
extensions of any of the foregoing.
“Subsidiary” means, with respect to any Person, any Person of which more than 50% of the
voting stock or other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its
Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items
including unamortized debt discount and expense, patents, trade and service marks and names,
copyrights and research and development expenses except prepaid expenses, and (iii) reserves not
already deducted from assets, minus (b) Total Liabilities including all Subordinated Debt.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all Indebtedness.
“Transfer” is defined in Section 7.1.
“Unused Revolving Line Facility Fee” is defined in Section 2.4(c).
[Signature page follows.]
-26-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
| BORROWER: | ||||
| RAE SYSTEMS INC. | ||||
By
|
/s/ Xxxxxxx X. Xxxxxxx | |||
| Title: Chief Financial Officer | ||||
| BANK: | ||||
| SILICON VALLEY BANK | ||||
By
|
/s/ Xxxxxx Xxxxx
|
|||
| Title: Senior Relationship Manager | ||||
| Effective Date: March 14, 2007 | ||||
[Signature page to Loan and Security Agreement]
EXHIBIT A
The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles (except as provided below), commercial tort claims, documents, instruments (including
any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts,
fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing),
securities, and all other investment property, supporting obligations, and financial assets,
whether now owned or hereafter acquired, wherever located; and
all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
Notwithstanding the foregoing, the Collateral does not include any of the following, whether
now owned or hereafter acquired: (a) to the extent a pledge of the capital stock owned by Borrower
or any Guarantor of any Foreign Subsidiary results in material adverse tax circumstances, such
pledge shall not exceed 65% of the presently existing and hereafter arising issued and outstanding
shares of capital stock owned by Borrower or any Guarantor of any Foreign Subsidiary which shares
entitle the holder thereof to vote for directors or any other matter or (b) any copyright rights,
copyright applications, copyright registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, any patents, patent applications and like
protections, including improvements, divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or not, and the goodwill of the
business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade
secret rights, rights to unpatented inventions, and any claims for damage by way of any past,
present, or future infringement of any of the foregoing; provided, however, the Collateral shall
include all Accounts, license and royalty fees and other revenues, proceeds, or income arising out
of or relating to any of the foregoing.
Borrower has agreed not to encumber any of its copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and derivative work,
whether published or unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part
of the same, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, and the goodwill of the business of Borrower
connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing, without Bank’s prior written consent.
1
EXHIBIT B
Loan Payment/Advance Request Form
Deadline for same day processing is Noon P.S.T.
Fax To:
|
Date: |
| LOAN PAYMENT: | |||||||
| [RAE SYSTEMS INC.] | |||||||
From Account #
|
To Account # | ||||||
| (Deposit Account #) | (Loan Account #) | ||||||
| Principal $ | and/or Interest $ | ||||||
| Authorized Signature: | Phone Number: | ||||||
| Print Name/Title: | |||||||
| Loan Advance: | ||||||
| Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire. | ||||||
From Account #
|
To Account # | |||||
| (Loan Account #) | (Deposit Account #) | |||||
| Amount of Advance $ | ||||||
| All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date: | ||||||
| Authorized Signature: | Phone Number: | |||||
| Print Name/Title: | ||||||
| Outgoing Wire Request: | ||||||
| Complete only if all or a portion of funds from the loan advance above is to be wired. Deadline for same day processing is noon, P.S.T. |
||||||
| Beneficiary Name: | Amount of Wire: $ | |||||
Beneficiary Bank:
|
Account Number: | |||||
City and State: |
||||||
| Beneficiary Bank
Transit (ABA) #:
|
Beneficiary Bank Code (Swift, Sort, Chip, etc.): | |||||
| Intermediary Bank: | (For International Wire Only) | |||||
| 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 #: | |||||
1
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: RAE Systems Inc. |
||||
Lender:Silicon Valley Bank |
||||
Commitment Amount: $15,000,000 |
||||
ACCOUNTS RECEIVABLE |
||||
1. Accounts Receivable Book Value as of ____________
|
$ | |||
2. Additions (please explain on reverse)
|
$ | |||
3. TOTAL ACCOUNTS RECEIVABLE
|
$ | |||
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) |
||||
4. Amounts over 90 days due
|
$ | |||
5. Balance of 50% over 90 day accounts
|
$ | |||
6. Credit balances over 90 days
|
$ | |||
7. Concentration Limits
|
$ | |||
8. Foreign Accounts
|
$ | |||
9. Governmental Accounts
|
$ | |||
10. Contra Accounts
|
$ | |||
11. Promotion or Demo Accounts
|
$ | |||
12. Intercompany/Employee Accounts
|
$ | |||
13. Disputed Accounts
|
$ | |||
14. Deferred Revenue
|
$ | |||
15. Other (please explain on reverse)
|
$ | |||
16. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
|
$ | |||
17. Eligible Accounts (#3 minus #16)
|
$ | |||
18. ELIGIBLE AMOUNT OF ACCOUNTS ( 80% of #17)
|
$ | |||
BALANCES
|
||||
19. Maximum Loan Amount
|
$15,000,000 | |||
20. Total Funds Available [Lesser of #19 or #18 plus
$7,000,000)]
|
$ | |||
21. Present balance owing on Line of Credit
|
$ | |||
22. Outstanding under Sublimits
|
$ | |||
23. RESERVE POSITION (#20 minus #21 and #22)
|
$ | |||
The undersigned represents and warrants that this is true, complete and correct, and that the
information in this Borrowing Base Certificate complies with the representations and warranties in
the Loan and Security Agreement between the undersigned and Silicon Valley Bank.
| COMMENTS: | ||
By: |
||
| Authorized Signer | ||
Date: |
||
| BANK USE ONLY |
||||
| Received by: | ||||
| authorized signer | ||||
Date: |
||||
Verified: |
||||
| authorized signer |
||||
Date: |
||||
| Compliance Status: Yes No | ||||
1
EXHIBIT D
COMPLIANCE CERTIFICATE
TO:
|
SILICON VALLEY BANK | Date: | ||||||
FROM:
|
RAE SYSTEMS INC. |
The undersigned authorized officer of RAE Systems Inc. (“Borrower”) certifies that under the
terms and conditions of the Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (1) Borrower is in complete compliance for the period ending with all
required covenants except as noted below, (2) there are no Events of Default, (3) all
representations and warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in all material
respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to
the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against
Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank. Attached are the required
documents supporting the certification. The undersigned certifies that these are prepared in
accordance with generally GAAP consistently applied from one period to the next except as explained
in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be
requested at any time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given
them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | ||
Quarterly financial statements with Compliance Certificate |
Quarterly within earlier of 5 days of filing 10Q or 50 days of quarter end | Yes No | ||
Annual financial statement (CPA Audited) + CC
|
within earlier of 5 days of filing 10K or 90 days of FYE | Yes No | ||
8-K
|
Within 5 days after filing with SEC | Yes No | ||
Borrowing Base Certificate A/R & A/P Agings
|
When the outstanding Obligations under Section 2.1 are equal to or greater than $3,000,000 for longer than 3 consecutive Business Days within a calendar month, monthly within 30 days | Yes No | ||
Projections
|
Within 45 days of FYE | Yes No | ||
Cash balance report
|
Within 30 days of end of month | Yes No |
| Financial Covenant | Required | Actual | Complies | |||||||||
Maintain at all times: |
||||||||||||
Tested as of
the last day of each fiscal quarter, a Minimum Quick Ratio |
1.0:1.0 | :1.0 | Yes No | |||||||||
Tested as of the last day of each fiscal
quarter, a Minimum Tangible Net Worth plus
50% of Net Income plus
50% of net cash proceeds of equity issuances |
$ | 35,000,000 | $ | Yes No | ||||||||
1
The following financial covenant analys[is][es] and information set forth in Schedule 1
attached hereto are true and accurate as of the date of this Certificate.
The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)
| RAE SYSTEMS INC. | BANK USE ONLY | |||||||||||||
| Received by: | ||||||||||||||
| AUTHORIZED SIGNER | ||||||||||||||
By:
|
Date: | |||||||||||||
Name:
|
Verified: | |||||||||||||
| AUTHORIZED SIGNER | ||||||||||||||
Title:
|
Date: | |||||||||||||
| Compliance Status: Yes No | ||||||||||||||
2
Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
Dated:
I. Quick Ratio (Section 6.7(a))
Required: 1.00:1.00
Actual:
A. |
Aggregate value of the unrestricted cash and cash equivalents of Borrower and its Subsidiaries | $ | ||||||
B. |
Aggregate value of the net billed accounts receivable of Borrower and its Subsidiaries | $ | ||||||
C. |
Aggregate value of the Investments (short and long term) of Borrower and it Subsidiaries | $ | ||||||
D. |
Quick Assets (the sum of lines A through C) | $ | ||||||
E. |
Aggregate value of Obligations to Bank | $ | ||||||
F. |
Aggregate value of liabilities of Borrower and its Subsidiaries (including all Indebtedness) | |||||||
| that matures within one (1) year and current portion of Subordinated Debt permitted by Bank | ||||||||
| to be paid by Borrower | $ | |||||||
G. |
Current Liabilities (the sum of lines E and F) | $ | ||||||
H. |
Quick Ratio (line D divided by line G) | |||||||
Is line H equal to or greater than ___:1:00?
| No, not in compliance | Yes, in compliance | |||||||
II. Tangible Net Worth plus 50% of Net Income plus 50% of net cash proceeds of equity issuances (Section 6.7(b))
Required: $35,000,000
Actual:
A. |
Aggregate value of total assets of Borrower and its Subsidiaries | $ | ||||||
B. |
Aggregate value of goodwill of Borrower and its Subsidiaries | $ | ||||||
C. |
Aggregate value of intangible assets of Borrower and its Subsidiaries | $ | ||||||
D. |
Aggregate value of any reserves not already deducted from assets | $ | ||||||
E. |
Aggregate amount of Total Liabilities including Subordinated Debt | $ | ||||||
F. |
Tangible Net Worth (line A minus line B minus line C minus line D minus line E) | $ | ||||||
3
G. |
New net cash proceeds of equity issuances | $ | ||||||
H. |
Net Income | $ | ||||||
I. |
Line F plus line 50% of line G plus 50% of line H | $ | ||||||
Is line I equal to or greater than $35,000,000?
| No, not in compliance | Yes, in compliance | |||||||
