LOAN AND SECURITY AGREEMENT
Exhibit 10.1
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective Date between
SILICON VALLEY BANK, a California corporation (“Bank”), and DOT HILL SYSTEMS CORP., 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 (except for non-compliance with FAS
123R in monthly reporting). Capitalized terms not otherwise defined in this Agreement shall have
the meanings set forth in Section 13. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meaning provided by the Code to the extent such terms are
defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1 Revolving Advances.
(a) Availability. Subject to the terms and conditions of this Agreement and, while
Borrower’s Net Cash is less than $20,000,000, to deduction of Reserves if reasonably required by
Bank, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed hereunder
may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable
terms and conditions precedent herein.
(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all
other Obligations relating to the Revolving Line shall be immediately due and payable.
(c) Early Termination. This Agreement may be terminated prior to the Revolving Line
Maturity Date. If this Agreement is terminated by Borrower for any reason (i) prior to the first
(1st) anniversary of the Effective Date, Borrower shall pay to Bank a termination fee in an amount
equal to eight tenths of one percent (0.80%) of the Revolving Line, or (ii) after the first (1st)
anniversary of the Effective Date, but prior to the second (2nd) anniversary of the Effective Date,
Borrower shall pay to Bank a termination fee in an amount equal to four tenths of one percent
(0.40%) of the Revolving Line; in either case, the “Early Termination Fee”. The Early Termination
Fee shall be due and payable on the effective date of such termination and thereafter shall bear
interest at a rate equal to the highest rate applicable to any of the Obligations.
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. Such aggregate amounts utilized hereunder shall at all times reduce the amount
otherwise available for Advances under the Revolving Line. The aggregate amount available to be
used for the issuance of Letters of Credit may not exceed (i) the lesser of (A) Thirty Million
Dollars ($30,000,000) or (B) the Borrowing Base, minus (ii) the outstanding principal amount of any
Advances (including the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). If, on the Revolving Line Maturity Date, there are any
outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in
an amount equal to one hundred five percent (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. Borrower further agrees to be bound by the regulations and interpretations of
the issuer of any Letters of Credit guarantied by Bank and opened for Borrower’s account or by
Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower
understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower’s instructions or those contained in the Letters
of Credit or any modifications, amendments, or supplements thereto.
(b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters
of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit
Application. Such reimbursement obligations may be satisfied in cash or, subject to availability
hereunder, through an Advance at Borrower’s option.
2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any
Advances, plus (b) the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) (such sum being an “Overadvance”) exceeds the lesser of either the
Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such
Overadvance. Without limiting Borrower’s obligation to repay Bank any amount of the Overadvance,
Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at
the Default Rate.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rate; Advances. Subject to Section 2.3(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a per annum rate equal to (i) one
percentage point (1.00%) above the Prime Rate while Borrower’s Net Cash is less than Twenty Million
Dollars ($20,000,000), or (ii) the Prime Rate at all other times; which interest shall, in either
case, be payable monthly.
(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 three percentage
points (3.00%) above the rate that is otherwise applicable thereto (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.
(e) Debit of Accounts. Bank may debit the Designated Deposit Account (and any of
Borrower’s other deposit accounts while any Event of Default has occurred and is continuing), for
principal and interest payments or any other amounts Borrower owes Bank when due. These debits
shall not constitute a set-off.
(f) Payment; Interest Computation; Float Charge. Interest is payable monthly on the
last calendar day of each month. In computing interest on the Obligations, all payments received
after 12:00 p.m. Pacific time on any day shall be deemed received on the next Business Day. In
addition, if Borrower’s Net Cash is less than Twenty Million Dollars ($20,000,000) at any time,
until Borrower’s Net Cash is greater than Twenty Million Dollars ($20,000,000), Bank shall be
entitled to charge Borrower a “float” charge in an amount equal to two (2) Business Days interest,
at the interest rate applicable to the Advances, on all payments received by Bank. The float
charge for each month shall be payable on the last day of the month. Bank shall not, however, be
required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory
to Bank in its good faith business judgment, and Bank may charge Borrower’s Designated Deposit
Account for the amount of any item of payment which is returned to Bank unpaid.
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2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of (i) Sixty
Thousand Dollars ($60,000), on the Effective Date, (ii) Forty-Five Thousand Dollars ($45,000) on
the first anniversary of the Effective Date, and (iii) fifteen hundredths of one percent (0.15%) of
the Revolving Line on the second anniversary of the Effective Date;
(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, a Letter of Credit Fee of one percent
(1.00%) per annum of the face amount of each Letter of Credit issued, upon the issuance, each
anniversary of the issuance, and the renewal of such Letter of Credit by Bank;
(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 three eighths
of one percent (0.375%) 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 suspension or termination of Bank’s obligation
to make loans and advances hereunder; provided that such Unused Revolving Line Facility Fee shall
cease to accrue upon termination of this Agreement;
(e) Collateral Monitoring Fee. If Borrower’s Net Cash is less than Twenty Million
Dollars ($20,000,000) at any time, until Borrower’s Net Cash is again greater than or equal to
Twenty Million Dollars ($20,000,000), a monthly collateral monitoring fee of Two Thousand Dollars
($2,000), payable in arrears on the last day of each month (prorated for any partial month in which
such fee shall be applicable); 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.
2.5 Lockbox; Account Collection Services. No later than sixty (60) days after the Effective
Date and at all time thereafter, Borrower shall direct each Account Debtor (and each depository
institution where proceeds of Accounts are on deposit) to thereafter remit payments with respect to
the Accounts to a lockbox account with Bank or to wire transfer payments to a cash collateral
account with Bank (collectively, the “Lockbox”). Subject to the repayment provisions of Section
2.1.1(b), Bank shall sweep all amounts from the Lockbox to the Designated Deposit Account on a
daily (or as soon thereafter as is practical) basis. Provided however, if Borrower’s Net Cash is
less than Twenty Million Dollars ($20,000,000) at any time, until Borrower’s Net Cash is again
greater than or equal to Twenty Million Dollars ($20,000,000), Bank shall first apply all amounts
from the Lockbox to the outstanding Obligations and any excess shall be swept into the Designated
Deposit Account. This Section does not impose any affirmative duty on Bank to perform any act
other than as specifically set forth herein. All Accounts and the proceeds thereof are Collateral
and upon the occurrence and during the continuance of an Event of Default or if Borrower’s Net Cash
is less than Twenty Million Dollars ($20,000,000) at any time, until Borrower’s Net Cash is again
greater than or equal to Twenty Million Dollars ($20,000,000), Bank may apply the proceeds of such
Accounts to the Obligations then due and owing.
2.6 Accordion Feature. At any time after the first anniversary of the Effective Date,
Borrower may request an increase in the Revolving Line to Fifty Million Dollars ($50,000,000), so
long as (i) Bank is able to find a participant lender acceptable to Bank in its sole discretion to
commit the additional Twenty Million Dollar ($20,000,000) increase, (ii) Borrower demonstrates a
minimum Borrowing Base of Forty Million Dollars ($40,000,000) for the ninety (90) day period
preceding such request, and (iii) Borrower pays to Bank for the benefit of Bank and any such other
lender a fee equal to two-tenths of one percent (0.20%) of the resulting increase in the Revolving
Line.
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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 Borrower shall consent to or have
delivered, in form and substance satisfactory to Bank, such documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed original signatures to the Loan Documents to which it is a party;
(b) duly executed original signatures to the Control Agreements;
(c) its Operating Documents and a good standing certificate of Borrower certified by the
Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to
the Effective Date;
(d) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(e) 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 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;
(f) the Perfection Certificate executed by Borrower;
(g) 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 lender loss payable and/or
additional insured clauses or endorsements in favor of Bank;
(h) the completion of the Initial Audit with results satisfactory to Bank in its sole and
absolute discretion, which Initial Audit shall be completed by Bank within sixty (60) days
following the Effective Date unless the Bank waives the right to complete the Initial Audit prior
to making the initial Credit Extension; and
(i) payment of 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 Transaction
Report;
(b) the representations and warranties in Section 5 shall be true in all material respects on
the date of the Transaction Report 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 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 reasonable discretion, there has not been a Material Adverse Change.
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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 a Credit
Extension made 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 Credit Extension in the absence of a
required item shall be made 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 2.1.3), 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. 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. Bank may rely on any telephone notice given by a person whom Bank believes is a
Responsible Officer or designee.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and
performance in full of all of the Obligations, a continuing security interest in, and pledges to
Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a first priority perfected
security interest in the Collateral (subject only to Permitted Liens that may have superior
priority to Bank’s Lien under this Agreement).
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations and cash collateralized Letters of Credit)
are repaid in full in cash. Upon payment in full in cash of the Obligations (other than inchoate
indemnity obligations and cash collateralized Letters of Credit) 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, Authorization; Power and Authority. Borrower is duly existing and in
good standing as a Registered Organization in its jurisdiction of formation and is qualified and
licensed to do business and is in good standing in any jurisdiction in which the conduct of its
business or its ownership of property requires that it be qualified except where the failure to do
so could not reasonably be expected to have a material adverse effect on Borrower’s business. In
connection with this Agreement, Borrower has delivered to Bank a completed certificate 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) 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 (it being
understood and agreed that Borrower may from time to time update
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certain information in the Perfection Certificate after the Effective Date to the extent
permitted by one or more specific provisions in this Agreement). 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 by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational
documents, (ii) contravene, conflict with, constitute a default under or violate any material
Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by which Borrower or any
its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any
action by, filing, registration, or qualification with, or Governmental Approval from, any
Governmental Authority (except such Governmental Approvals which have already been obtained and are
in full force and effect) or (v) 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. Borrower has no deposit accounts other than the deposit accounts
with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank
in connection herewith, or of which Borrower has given Bank notice and taken such actions as are
necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing
obligations of the Account Debtors.
5.3 Accounts Receivable; Inventory.
(a) For each Account with respect to which Advances are requested, on the date each Advance is
requested and made, such Account shall be an Eligible Account.
(b) All statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing the Eligible Accounts are and shall be true and correct and all such
invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all
respects what they purport to be. When an Event of Default has occurred and is continuing or while
Borrower’s Net Cash is less than Twenty Million Dollars ($20,000,000), Bank may notify any Account
Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such
Eligible Account. All sales and other transactions underlying or giving rise to each Eligible
Account shall comply in all material respects with all applicable laws and governmental rules and
regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any
Account Debtor whose accounts are Eligible Accounts in any Transaction Report. To Borrower’s
knowledge, all signatures and endorsements on all documents, instruments, and agreements relating
to all Eligible Accounts are genuine, and all such documents, instruments and agreements are
legally enforceable in accordance with their terms.
5.4 Litigation. 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 One Million Dollars ($1,000,000).
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 assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay
its debts (including trade debts) as they mature.
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5.7 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not
engaged as one of its important activities in extending credit for margin stock (under Regulations
X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries
is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a
“holding company” as each term is defined and used in the Public Utility Holding Company Act of
2005. 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 Governmental Authorities that are necessary to continue their
respective businesses as currently conducted.
5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower, except that 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 and not for personal, family,
household or agricultural purposes.
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 representation, warranty,
or other statement was 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.
(a) Maintain its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s
business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws,
ordinances and regulations to which it is subject, noncompliance with which could reasonably be
expected to have a material adverse effect on Borrower’s business.
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(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its
obligations under the Loan Documents to which it is a party and the grant of a security interest to
Bank in all of the Collateral. Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Bank.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower shall provide Bank with the following:
(i) within twenty (20) days after the end of each month (and while Borrower’s Net Cash is less
than Twenty Million Dollars ($20,000,000), no less than weekly) and with each request for an
Advance, a Transaction Report (and any schedules related thereto);
(ii) within twenty (20) days after the end of each month, (A) monthly accounts receivable
agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers, if any, (C) monthly reconciliations of accounts receivable
agings (aged by invoice date), transaction reports and general ledger, and (D) a report of
Borrower’s Cash balances; and
(iii) no later than March 31 of each calendar year, (A) annual operating budgets (including
income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year
of Borrower, and (B) annual financial projections 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.
(b) within five (5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission or a link thereto on Borrower’s or another website on the
Internet, along with a Compliance Certificate signed by a Responsible Officer, certifying that as
of the end of such quarter, Borrower was in full compliance with all of the terms and conditions of
this Agreement, and setting forth calculations showing compliance with the financial covenants set
forth in this Agreement and such other information as Bank shall reasonably request, including,
without limitation, a statement that at the end of such month there were no held checks.
(c) In accordance with Section 6.6, allow Bank to audit Borrower’s Collateral at Borrower’s
expense. Such audits shall be conducted no more often than twice per year if there are no Advances
outstanding (or three times per year when Advances outstanding) unless an Event of Default has
occurred and is continuing.
6.3 Accounts Receivable.
(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standard
forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect
or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to
advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein.
If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of
all contracts, orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts. In addition, Borrower shall deliver to Bank, on
its request, the originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Accounts, in the same form as received,
with all necessary indorsements, and copies of all credit memos.
(b) Disputes. Borrower shall promptly notify Bank of all disputes or claims in excess
of Three Hundred Thousand Dollars ($300,000) relating to Accounts. Borrower may forgive
(completely or partially), compromise, or settle any Account for less than payment in full, or
agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, in arm’s-length transactions, and reports
the same to Bank in the regular reports provided to Bank; (ii) no Default or Event of Default has
occurred and is continuing; and (iii) after taking into account all such discounts, settlements
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and forgiveness, the total outstanding Advances will not exceed the lesser of the Revolving
Line or the Borrowing Base.
(c) Collection of Accounts. Borrower shall have the right to collect all Accounts,
unless and until a Default or an Event of Default has occurred and is continuing. Whether or not
an Event of Default has occurred and is continuing, Borrower shall hold all payments on, and
proceeds of, Accounts in trust for Bank, and Borrower shall immediately deliver all such payments
and proceeds to Bank in their original form, duly endorsed, to be applied to the Obligations
pursuant to the terms of Section 9.4 hereof. As limited by Section 2.5 hereof, Bank may, in its
good faith business judgment, require that all proceeds of Accounts be deposited by Borrower into a
lockbox account, or such other “blocked account” as Bank may specify, pursuant to a blocked account
agreement in such form as Bank may specify in its good faith business judgment.
(d) Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory in excess of Three Hundred Thousand Dollars ($300,000) to
Borrower, Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit
memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit
memorandum to Bank, upon request from Bank. In the event any attempted return occurs after the
occurrence and during the continuance of any Event of Default, Borrower shall promptly notify Bank
of the return of the Inventory.
(e) Verification. While any Event of Default has occurred and is continuing, while
Borrower’s Net Cash is less than Twenty Million Dollars ($20,000,000) or with the consent of
Borrower, Bank may, from time to time, verify directly with the respective Account Debtors the
validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank
or such other name as Bank may choose.
(f) No Liability. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of
which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any Account, or for settling
any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence
or willful misconduct.
6.4 Remittance of Proceeds. Except as otherwise provided or limited by Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the
original form in which received by Borrower not later than the following Business Day after receipt
by Borrower, to be applied to the Obligations pursuant to the terms of Section 9.4 hereof. Except
as otherwise provided or limited by Section 6.3(c), Borrower agrees that it will not commingle
proceeds of Collateral with any of Borrower’s other funds or property, but will hold such proceeds
separate and apart from such other funds and property and in an express trust for Bank. Nothing in
this Section limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
6.5 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports and timely pay, and require each of its Subsidiaries to timely
file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested 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 Access to Collateral; Books and Records. At reasonable times (but no more frequently than
set forth in Section 6.1(c), on two (2) Business Days’ notice (provided no notice is required if an
Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to
inspect the Collateral and the right to audit and copy Borrower’s Books. The foregoing inspections
and audits shall be at Borrower’s expense, and the charge therefor shall be $750 per person per day
(or such higher amount as shall represent Bank’s then-current standard charge for the same), plus
reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than five
(5) Business Days in advance, and Borrower cancels or seeks to reschedules the audit with less than
five (5) Business Days written notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrower
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shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate
Bank for the anticipated costs and expenses of the cancellation or rescheduling.
6.7 Insurance. Keep its business 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 policies shall
provide that the insurer shall endeavor to 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. If Borrower fails to obtain
insurance as required under this Section 6.7 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 6.7, and take any action under the policies Bank deems
prudent.
6.8 Operating Accounts.
(a) No later than sixty (60) days after the Effective Date and at all time thereafter,
maintain its primary and its domestic Subsidiaries’ primary operating and other deposit accounts
with Bank. No later than sixty (60) days after the Effective Date and at all times thereafter,
maintain at least one securities account with Bank or its Affiliates, which securities account or
securities accounts shall represent at least twenty five percent (25%) of the dollar value of
Borrower’s and such Subsidiaries securities accounts at all financial institutions.
(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 Bank’s Affiliates. 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.
6.9 Financial Covenants.
Borrower shall maintain at all times, to be tested as of the last day of each quarter, unless
otherwise noted:
(a) Minimum Net Worth. A minimum Net Worth of at least Fifty Five Million Dollars
($55,000,000), increasing by fifty percent (50%) of Net Income, fifty percent (50%) of issuances of
equity after the Effective Date and fifty percent (50%) of the principal amount of Subordinated
Debt.
6.10 Protection of Intellectual Property Rights. Borrower shall: (a) use commercially
reasonable efforts to protect, defend and maintain the validity and enforceability of its
Intellectual Property; (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 without Bank’s written consent.
6.11 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.
6.12 Further Assurances. Execute any further instruments and take further action as Bank
reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes
of this Agreement.
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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 the Collateral or
the Inventory or Intellectual Property of Borrower or its Subsidiaries, except for Transfers (a) of
Inventory in the ordinary course of business; (b) in connection with Permitted Liens and Permitted
Investments; (c) of non-exclusive licenses for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business, (d) exclusive licenses and Transfers to NetApp in
accordance with Borrower’s supply agreement with NetApp provided such supply agreement has been
provided to Bank and (e) other exclusive licenses which are limited by specified fields of use,
specific geographic location, or specific, limited periods of time.
7.2 Changes in Business; 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. Borrower will not, without prior written notice, change its jurisdiction of formation.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person except where (a) total
consideration including cash and the value of any non-cash consideration, for all such transactions
does not in the aggregate exceed Fifteen Million Dollars ($15,000,000) in any three hundred sixty
four (364) day period; (b) no Event of Default has occurred and is continuing or would exist after
giving effect to the transactions; and (c) Borrower is the surviving legal entity. A Subsidiary
may merge or consolidate into another Subsidiary or into Borrower.
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, allow, or suffer any Lien on any of the Collateral or any
Inventory or Intellectual Property of Borrower or its Subsidiaries, 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 Inventory or
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 6.8.(b) hereof.
7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock in excess of One Million Dollars ($1,000,000) per
fiscal year; provided that (i) Borrower may convert any of its convertible securities into other
securities pursuant to the terms of such convertible securities or otherwise in exchange thereof,
(ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock
of former employees or consultants pursuant to stock repurchase agreements so long as an Event of
Default does not exist at the time of such repurchase and would not exist after giving effect to
such repurchase; or (b) directly or indirectly make any Investment other than Permitted
Investments, or permit any of its Subsidiaries to do so.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, except for sales of equity securities and
transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms
that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a
non-affiliated Person.
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7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under
the terms of the subordination, intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or adversely affect the subordination
thereof to Obligations owed to Bank.
7.10 Compliance. Become an “investment company” or a company controlled by an “investment
company”, under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as defined in Regulation U
of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of
its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in,
permit partial or complete termination of, or permit the occurrence of any other event with respect
to, any present pension, profit sharing and deferred compensation plan which could reasonably be
expected to result in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days
after such Obligations are due and payable (which three (3) day grace period shall not apply to
payments due on the Revolving Line Maturity Date). During the cure period, the failure to cure the
payment default is not an Event of Default (but no Credit Extension will be made during the cure
period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.7, 6.8 or 6.9
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 or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within ten (10) days after
the occurrence thereof; provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10)
day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to cure the default shall not be
deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this section shall not apply, among other things, to financial covenants or
any other covenants set forth in subsection (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment; Levy; Restraint on Business. (a) (i) The service of process seeking to
attach, by trustee or similar process, any funds of Borrower or of any entity under control of
Borrower (including a Subsidiary) on deposit with Bank or any Bank Affiliate, or (ii) a notice of
lien, levy, or assessment is filed against any of Borrower’s assets by any government agency, and
the same under subclauses (i) and (ii) hereof are not, within twenty (20) days after the occurrence
thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided,
however, no Credit Extensions shall be made during any ten (10) day cure period; and (b) (i) any
material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a
trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from
conducting any part of its business;
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8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts) as they
become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty five (45)
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. There is a default in any agreement to which Borrower is a party with a
third party or parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Million
Dollars ($1,000,000) or that could reasonably be expected to have a material adverse effect on
Borrower’s business;
8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of at least One Million Dollars ($1,000,000) or (not
covered by independent third-party insurance as to which liability has been accepted by such
insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated, or
unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions
will be made prior to the satisfaction, vacation, or stay of such judgment, order, or decree);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and
any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement
with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such
agreement; or
8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a
full term or (b) subject to any decision by a Governmental Authority that designates a hearing with
respect to any applications for renewal of any of such Governmental Approval or that could result
in the Governmental Authority taking any of the actions described in clause (a) above, and such
decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could
reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal
qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal
could reasonably be expected to affect the status of or legal qualifications of Borrower or any of
its Subsidiaries to hold any Governmental Approval in any other jurisdiction.
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;
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(d) 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;
(e) 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;
(f) 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;
(g) 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;
(h) 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;
(i) demand and receive possession of Borrower’s Books in respect of the Collateral; and
(j) exercise all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or 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 Bank’s security interest in the Collateral regardless of whether an
Event of Default has occurred until all Obligations (other than inchoate indemnity obligations and
cash collateralized Letters of Credit) 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 (other than inchoate indemnity obligations and cash collateralized Letters of
Credit) have been fully repaid and performed and Bank’s obligation to provide Credit Extensions
terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.7
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.
- 14 -
9.4 Application of Payments and Proceeds. Borrower shall have no right to specify the order
or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower
to Bank or otherwise received by Bank under this Agreement when any such allocation or application
is not specified elsewhere in this Agreement. 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 by credit to the Designated Deposit Account or
to 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.
9.5 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.
9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict
performance by Borrower of any provision of this Agreement or any other Loan Document shall not
waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance
herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is
only effective for the specific instance and purpose for which it is given. Bank’s rights and
remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is
not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s
delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by
Bank on which Borrower is liable.
10 NOTICES
All notices, consents, requests, approvals, demands, or other 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 mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance with the terms of
this Section 10.
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| If to Borrower: | Dot Hill Systems Corp. | |||||
| 0000 Xxxxxxx Xxxxxx, Xxxxx 000 | ||||||
| Xxxxxxxx, XX 00000 | ||||||
| Attn: Chief Financial Officer | ||||||
| Fax: | ||||||
| Email: | ||||||
| If to Bank: | Silicon Valley Bank | |||||
| 00 Xxxxxxxxxx Xxxxx, Xxxxx 000 | ||||||
| Xxxxxx, XX 00000 | ||||||
| Attn: Xxxxx Xxxx | ||||||
| Fax: (000) 000-0000 | ||||||
| Email: xxxxx@xxx.xxx |
11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE
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 FULLEST 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 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
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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 Termination Prior to Revolving Line Maturity Date. This Agreement may be terminated
prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after
written notice of termination is given to Bank. Notwithstanding any such termination, Bank’s lien
and security interest in the Collateral shall continue until Borrower fully satisfies its
Obligations. (other than inchoate indemnity obligations and cash collateralized Letters of
Credit). If such termination is at Borrower’s election, Borrower shall pay to Bank the Early
Termination Fee in accordance with Section 2.1.1(c) hereof.
12.2 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.
12.3 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
(each, an “Indemnified Person”) 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 such Indemnified Person from, following, or arising from transactions between Bank and
Borrower (including reasonable attorneys’ fees and expenses), except for Claims, losses and/or Bank
Expenses directly caused by such Indemnified Person’s gross negligence or willful misconduct.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.
12.5 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.6 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in
this Agreement and the other Loan Documents consistent with the agreement of the parties.
12.7 Amendments in Writing; Integration. All amendments to this Agreement must be in writing
and 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.
12.8 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.
12.9 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2
to indemnify Bank shall survive until the statute of limitations with respect to such claim or
cause of action shall have run.
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12.10 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; (e) as Bank considers
appropriate in exercising remedies under the Loan Documents; and (f) to third-party service
providers of Bank so long as such service providers have executed a confidentiality agreement with
Bank with terms no less restrictive than those contained herein. 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 through no fault of 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.
Bank may use confidential information for any purpose, including, without limitation, for the
development of client databases, reporting purposes, and market analysis, so long as Bank does not
disclose Borrower’s identity or the identity of any person associated with Borrower unless
otherwise expressly permitted by this Agreement. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.
12.11 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.
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available
under the Borrowing Base minus (b) the amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit), and minus (c) the outstanding principal balance of any
Advances.
“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, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
“Borrower” is defined in the preamble hereof
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“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state
tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.
“Borrowing Base” is eighty five percent (85%) of Eligible Accounts, as determined by Bank from
Borrower’s most recent Transaction Report; provided, however, that Bank may decrease the foregoing
percentage in its good faith business judgment based on events, conditions, contingencies, or risks
which, as determined by Bank, could reasonably be expected to materially adversely affect
Collateral.
“Borrowing Resolutions” are, with respect to any Person, those resolutions substantially in
the form attached hereto as Exhibit D.
“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.
“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.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.
“Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit B.
“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
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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 or any other extension of credit by Bank
for Borrower’s benefit.
“Default Rate” is defined in Section 2.3(b).
“Deferred Revenue” is all amounts received or invoiced in advance of performance under
contracts and not yet recognized as revenue.
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.
“Designated Deposit Account” is Borrower’s deposit account, account number ,
maintained with Bank.
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
“Effective Date” is the date Bank executes this Agreement as indicated on the signature page
hereof.
“Eligible Accounts” means 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 after the Effective Date, upon written notice to Borrower, to adjust any of the criteria
set forth below and to establish new criteria in its good faith business judgment. Eligible
Accounts shall not include:
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;
(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) Accounts billed in the United States and owing from an Account Debtor which does not have
its principal place of business in the United States or Canada unless such Accounts are otherwise
Eligible Accounts and (i) covered in full by credit insurance satisfactory to Bank, less any
deductible, (ii) supported by letter(s) of credit acceptable to Bank, (iii) supported by a guaranty
from the Export-Import Bank of the United States, or (iv) that Bank otherwise approves of in
writing;
(d) Accounts billed and payable outside of the United States unless the Bank has a first
priority, perfected security interest or other enforceable Lien in such Accounts; notwithstanding
the foregoing, otherwise eligible accounts owing from Fujitsu-Siemens which are billed and payable
outside of the United States may be counted towards the Borrowing Base in an amount not to exceed
Five Million Dollars ($5,000,000);
(e) 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;
(f) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(g) Accounts with credit balances over ninety (90) days from invoice date;
(h) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed twenty-five (25%) of all Accounts, except for (i) SUN and NetApp, for which such
percentage is
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fifty percent (50%), (ii) Hewlett-Packard for which such percentage is seventy percent (70%)
and (iii) Jabil for which such percentage is forty percent (40%), for the amounts that exceed that
foregoing percentages, unless Bank approves in writing;
(i) Accounts owing from an Account Debtor which is a United States government entity or any
department, agency, or instrumentality thereof unless 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;
(j) Accounts for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account
Debtor’s payment may be conditional;
(k) Accounts owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called memo xxxxxxxx or
pre-xxxxxxxx);
(l) Accounts subject to contractual arrangements between Borrower and an Account Debtor where
payments shall be scheduled or due according to completion or fulfillment requirements where the
Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to
perform in accordance with the contract (sometimes called contracts accounts receivable, progress
xxxxxxxx, milestone xxxxxxxx, or fulfillment contracts);
(m) Accounts owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the
extent of the amount withheld; sometimes called retainage xxxxxxxx);
(n) Accounts subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;
(o) Accounts owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an
agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that
(i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the
goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from
Borrower (sometimes called “xxxx and hold” accounts);
(p) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred
Revenue (but only to the extent of such Deferred Revenue);
(q) Accounts for which the Account Debtor has not been invoiced;
(r) Accounts that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;
(s) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;
(t) Accounts subject to chargebacks or others payment deductions taken by an Account Debtor
(but only to the extent the chargeback is determined invalid and subsequently collected by
Borrower);
(u) 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; and
(v) Accounts for which Bank in its good faith business judgment determines collection to be
doubtful.
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“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Funding Date” is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.
“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.
“Governmental Approval” is any consent, authorization, approval, order, license, franchise,
permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or
other act by or in respect of, any Governmental Authority.
“Governmental Authority” is any nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions
of or pertaining to government, any securities exchange and any self-regulatory organization.
“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.
“Indemnified Person” is defined in Section 12.3.
“Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral and Borrower’s
Books.
“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.
“Intellectual Property” is (a) the manufacturing information and technology needed to produce
Borrower ‘s most current version(s) of its RAID Controllers, including (i) specifications,
software, schematics, designs, drawings, or other materials needed to manufacture the RAID
Controllers; and (ii) firmware and microcode of the RAID stack comprising the storage controller,
management controller, events controllers, software, firmware and microcode and (b) any other
intellectual property which is material to the operation of Borrower’s core business.
“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.
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“Letter of Credit” means a standby letter of credit issued by Bank or another institution
based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set
forth in Section 2.1.2.
“Letter of Credit Application” is defined in Section 2.1.2(a).
“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other
encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise
against any property.
“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, any note, or
notes or guaranties executed by Borrower, and any other present or future agreement between
Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended,
restated, or otherwise modified.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s
Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment
of the prospect of repayment of any portion of the Obligations or (d) Bank determines, based upon
information available to it and in its reasonable judgment, that there is a reasonable likelihood
that Borrower shall fail to comply with the financial covenant in Section 6.9 during the next
succeeding financial reporting period.
“Net Cash” means, at a given time, Borrower’s Cash and Cash Equivalents, minus all
Indebtedness owing from Borrower to Bank; provided however, for so long as Borrower’s Net Cash held
at Bank is greater than Five Million Dollars ($5,000,000) at all times after the Effective Date,
measured on a daily basis, for all other purposes under this Agreement, Net Cash shall be measured
on an average trailing three (3) month basis as of the last calendar day of each of the prior three
(3) calendar months.
“Net Income” means, as calculated on a consolidated basis for Borrower for any period as at
any date of determination, the net profit (or loss), after provision for taxes, of Borrower for
such period taken as a single accounting period.
“Net Worth” means stockholder’s equity as calculated in accordance with GAAP.
“Obligations” are Borrower’s obligation to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating to letters of
credit (including reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank,
and the performance of Borrower’s duties under the Loan Documents.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, 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.
“Overadvance” is defined in Section 2.2.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
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(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(f) Indebtedness in an aggregate principal amount not to exceed One Million Dollars
($1,000,000) secured by Permitted Liens;
(g) unsecured convertible notes having stated maturities no sooner than ninety (90) days after
the Revolving Line Maturity Date;
(h) other unsecured Indebtedness not otherwise permitted by Section 7.4 not exceeding One
Million Dollars ($1,000,000) in the aggregate outstanding at any time; and
(i) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (h) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
“Permitted Investments” are:
(a) Investments shown on the Perfection Certificate and existing on the Effective Date;
(b) (i) Cash Equivalents, and (ii) any Investments permitted by Borrower’s investment policy,
as amended from time to time, provided that such investment policy (and any such amendment thereto)
has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;
(d) Investments consisting of deposit accounts in which Bank has a perfected security
interest;
(e) Investments accepted in connection with Transfers permitted by Section 7.1 or Section 7.3;
(f) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries not to exceed Five Million Dollars ($5,000,000) in the aggregate;
(g) Investments consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;
(h) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of business;
(i) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary;
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(j) Joint ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the licensing of technology, the development of technology or the providing of
technical support, provided that any cash Investments by Borrower do not exceed Two Million Five
Hundred Thousand Dollars ($2,500,000) in the aggregate in any fiscal year; and
(k) Other Investments not otherwise permitted hereunder not exceeding One Million Dollars
($1,000,000) in the aggregate outstanding at any time.
“Permitted Liens” are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains adequate reserves on
its Books, provided that no notice of any such Lien has been filed or recorded under the
Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than One Million Dollars ($1,000,000) in the
aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is
confined to the property and improvements and the proceeds of the Equipment;
(d) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature
arising in the ordinary course of business so long as such Liens attach only to Inventory, securing
liabilities in the aggregate amount not to exceed One Million Dollars ($1,000,000) and which are
not delinquent or remain payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of
the property subject thereto;
(e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business (other than
Liens imposed by ERISA);
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase;
(g) 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;
(h) non-exclusive license of Intellectual Property granted to third parties in the ordinary
course of business;
(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 and 8.7; and
(j) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Bank has a perfected
security interest in the amounts held in such deposit and/or securities accounts.
“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.
- 25 -
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made
“Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.
“Reserves” means, as of any date of determination, such amounts as Bank may from time to time
establish and revise in its good faith business judgment, reducing the amount of Advances and other
financial accommodations which would otherwise be available to Borrower (a) to reflect events,
conditions, contingencies or risks which, as determined by Bank in its good faith business
judgment, do or could reasonably be expected to adversely affect (i) the Collateral or any other
property which is security for the Obligations or its value (including without limitation any
increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any
Guarantor, or (iii) the security interests and other rights of Bank in the Collateral (including
the enforceability, perfection and priority thereof); or (b) to reflect Bank’s good faith belief
that any collateral report or financial information furnished by or on behalf of Borrower to Bank
is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which Bank determines in good faith constitutes an Event of Default or could
reasonably be expected to, with notice or passage of time or both, constitute an Event of Default.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.
“Revolving Line” is an Advance or Advances in an amount equal to Thirty Million Dollars
($30,000,000), subject to Section 2.6.
“Revolving Line Maturity Date” is the date three (3) years after the Effective Date.
“Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.
“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now
or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Bank entered into between Bank and the other
creditor), on terms acceptable to Bank.
“Subsidiary” means, with respect to any Person, any Person of which more than fifty percent
(50%) of the voting stock or other equity interests (in the case of Persons other than
corporations) is owned or controlled directly or indirectly by such Person or one or more of
Affiliates of such Person.
“Transaction Report” is that certain report of transactions and schedule of collections in the
form attached hereto as Exhibit C.
“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: |
|||||
| DOT HILL SYSTEMS CORP. | |||||
By
|
/s/
Xxxxx X. Xxxxx
|
||||
Name: |
Xxxxx X. Xxxxx | ||||
Title: |
Senior Vice President Chief Financial Officer, and Treasurer | ||||
BANK: |
|||||
| SILICON VALLEY BANK | |||||
By
|
/s/
Xxxxx Xxxx
|
||||
Name: |
Xxxxx Xxxx | ||||
Title: |
Deal Team Leader | ||||
Effective Date: July 21, 2008
EXHIBIT A — COLLATERAL DESCRIPTION
The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:
All Accounts (including health-care receivables), contract rights or rights to payment of
money, cash, Cash Equivalents, Deposit Accounts, Commodities Accounts and Securities Accounts
whether now owned or hereafter acquired, wherever located; and
all Borrower’s Books, instruments (including any promissory notes), chattel paper (whether
tangible or electronic) and supporting obligations 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.
Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed
not to encumber any of its Inventory or Intellectual Property (except for Permitted Liens), 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.
All defined terms above shall have the meanings ascribed to such terms in that certain Loan
and Security Agreement between Borrower and Silicon Valley Bank dated as of July 21, 2008, as may
be amended from time to time.
Exhibit B — Loan Payment/Advance Request Form
Deadline for same day processing is Noon P.S.T.
Fax To:
|
Date: | |||||
LOAN PAYMENT:
| DOT HILL SYSTEMS CORP. | ||||||||||
From Account #
|
To 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 # | |||||||||
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.
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.): | |||||||||
| (For International Wire Only) | ||||||||||
Intermediary Bank:
|
Transit (ABA) #: | |||||||||
For Further Credit to:
|
||||||||||
Special Instruction: |
||||||||||
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be
processed in accordance with and subject to the terms and conditions set forth in the agreements(s)
covering funds transfer service(s), which agreements(s) were previously received and executed by me
(us).
Authorized Signature:
|
2nd Signature (if required): | |||||||||
Print Name/Title:
|
Print Name/Title: | |||||||||
Telephone #:
|
Telephone #: | |||||||||
1
EXHIBIT C
Transaction Report
[EXCEL spreadsheet to be provided separately from lending officer.]
EXHIBIT D
BORROWING RESOLUTIONS
CORPORATE BORROWING CERTIFICATE
| Borrower: DOT HILL SYSTEMS CORP. Bank: Silicon Valley Bank |
Date: July 21, 2008 |
I hereby certify as follows, as of the date set forth above:
1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My title is as set
forth below.
2. Borrower’s exact legal name is set forth above. Borrower is a corporation existing under the
laws of the State of
.
[print name of state]
3. Attached hereto are true, correct and complete copies of Borrower’s Certificate of
Incorporation (including amendments), as filed with the Secretary of State of the state in which
Borrower is incorporated as set forth in paragraph 2 above. Such Certificate of Incorporation have
not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect
as of the date hereof.
4. The following resolutions were duly and validly adopted by Borrower’s Board of Directors at a
duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized
corporate action). Such resolutions are in full force and effect as of the date hereof and have
not been in any way modified, repealed, rescinded, amended or revoked, and Bank may rely on them
until Bank receives written notice of revocation from Borrower.
Resolved, that any one of the following officers or employees of Borrower, whose names,
titles and signatures are below, may act on behalf of Borrower:
| Authorized to | ||||||
| Add or Remove | ||||||
| Name | Title | Signature | Signatories | |||
| o | ||||||
| o | ||||||
| o | ||||||
| o | ||||||
Resolved Further, that any one of the persons designated above with a checked box
beside his or her name may, from time to time, add or remove any individuals to and from the
above list of persons authorized to act on behalf of Borrower.
Resolved Further, that such individuals may, on behalf of Borrower:
Borrow Money. Borrow money from Silicon Valley Bank (“Bank”).
Execute Loan Documents. Execute any loan documents Bank requires.
Grant Security. Grant Bank a security interest in any of Borrower’s assets.
Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or
other indebtedness in which Borrower has an interest and receive cash or otherwise use the
proceeds.
Letters of Credit. Apply for letters of credit from Bank.
Further Acts. Designate other individuals to request advances, pay fees and costs and
execute other documents or agreements (including documents or agreement that waive Borrowers
right to a jury trial) they believe to be necessary to effectuate such resolutions.
Resolved Further, that all acts authorized by the above resolutions and any prior acts
relating thereto are ratified.
5. The persons listed above are Borrower’s officers or employees with their titles and signatures
shown next to their names.
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
*** If the Secretary, Assistant Secretary or other certifying officer executing above is
designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers,
this Certificate must also be signed by a second authorized officer or director of Borrower.
I, the of Borrower, hereby certify as to paragraphs 1 through 5
above, as of the date set forth above.
[print title]
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
EXHIBIT E — COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
|
Date: | |||||
FROM: DOT HILL SYSTEMS CORP.
|
The undersigned authorized officer of DOT HILL SYSTEMS CORP. (“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 5.12 of the Agreement, and (5) no Liens have been levied or claims made
against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank. Attached are the required
documents supporting the certification. The undersigned certifies that these are prepared in
accordance with GAAP consistently applied from one period to the next except as explained in an
accompanying letter or footnotes or as permitted in the Agreement. 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 | ||
Transaction Report
|
Weekly if Net Cash is less than $20,000,000 and with each Advance | Yes No | ||
10-Q, 10-K and 8-K
|
Within 5 days after filing with SEC | Yes No | ||
Compliance Certificate
|
With 10-Q or 10-K | Yes No | ||
Cash Balance report, A/R & A/P Agings
|
Monthly within 20 days | Yes No | ||
Annual Board of Director-approved projections
|
March 31 of each year | Yes No |
| Financial Covenant | Required | Actual | Complies | |||
Maintain on a Quarterly Basis: |
||||||
Minimum Net Worth
|
$ * | $ | Yes No |
* ($55,000,000) increasing quarterly by fifty percent (50%) of Net Income and monthly by fifty
percent (50%) of issuances of equity after the Effective Date and the principal amount of
Subordinated Debt.
The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)
| DOT HILL SYSTEMS CORP. | BANK USE ONLY | |||||||||
| By: | Received by: | |||||||||
Name:
|
authorized signer | |||||||||
Title:
|
Date: | |||||||||
| Verified: | ||||||||||
| authorized signer | ||||||||||
| Date: | ||||||||||
Compliance Status: Yes No
