LOAN AND SECURITY AGREEMENT
Exhibit 10.1
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of September 13, 2010 (the
“Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and CRAY INC., a
Washington corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1 Revolving Advances.
(a) Availability. Subject to the terms and conditions of this Agreement and to
deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. No Advances
shall be permitted on the Effective Date. 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. In
addition, at Borrower’s option, Borrower shall have the option to terminate this Agreement without
penalty or premium, provided Borrower (i) provides written notice to Bank of its election to
terminate this Agreement at least fifteen (15) days prior to such termination, and (ii) pays, on
the date of the termination (A) all accrued and unpaid interest with respect to the Revolving Line
through the date of termination; (B) all remaining unpaid principal amount owing on the Revolving
Line as of the termination date; and (C) all other sums, if any, that shall have become due and
payable hereunder with respect to the Revolving Line.
2.1.2 Letters of Credit Sublimit.
(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit
denominated in Dollars or a Foreign Currency for Borrower’s account. The aggregate Dollar
Equivalent amount utilized for the issuance of Letters of Credit shall at all times reduce the
amount otherwise available for Advances under the Revolving Line. The aggregate Dollar Equivalent
of the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) may not exceed Fifteen Million Dollars ($15,000,000).
(b) If, on the Revolving Line Maturity Date (or the effective date of any termination of this
Agreement), there are any outstanding Letters of Credit, then on such date Borrower shall provide
to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent 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 such 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.
(c) 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.
(d) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If
a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrower of the Dollar Equivalent of the amount thereof (plus fees and charges in
connection therewith such as wire, cable, SWIFT or similar charges).
(e) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter
of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit
Reserve”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate. The availability of funds under the
Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such
Letter of Credit remains outstanding.
2.2 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 and any Letter of Credit Reserve), exceeds the lesser of either the
Revolving Line or the Borrowing Base (if applicable), Borrower shall immediately pay to Bank in
cash such excess.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rate.
(i) Advances.
(A) Each Advance shall, at Borrower’s option, in accordance with the terms of this Agreement,
be either in the form of a Prime Rate Advance or a LIBOR Advance; provided that in no event shall
Borrower maintain at any time LIBOR Advances having more than four (4) different Interest Periods.
(B) Each Advance shall bear interest on the outstanding principal amount thereof from the date
when made, continued or converted until paid in full at a rate per annum equal to (i) for Prime
Rate Advances, the Prime Rate plus the applicable Prime Rate Margin and (ii) for LIBOR Advances,
the LIBOR Rate plus the applicable LIBOR Rate Margin. On and after the expiration of any Interest
Period applicable to any LIBOR Advance outstanding on the date of occurrence of an Event of Default
or acceleration of the Obligations, the Effective Amount of such LIBOR Advance shall, during the
continuance of such Event of Default or after acceleration, bear interest at a rate per annum equal
to the rate applicable to Prime Rate Advances plus five percent (5.00%). Pursuant to the terms
hereof, interest on each Advance shall be paid in arrears on each Interest Payment Date. Interest
shall also be paid on the date of any prepayment of any Advance pursuant to this Agreement for the
portion of any Advance so prepaid and upon payment (including prepayment) in full thereof. All
accrued but unpaid interest on the Advances shall be due and payable on the Revolving Line Maturity
Date.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is five percentage
points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank
otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and
expenses which are required to be paid by Borrower pursuant to the Loan Documents (including,
without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a
rate equal to the highest rate applicable to the Obligations. 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) Prime Rate Advances. Each change in the interest rate of the Prime Rate Advances
based on changes in the Prime Rate shall be effective on the effective date of such change and to
the extent of such change. The Prime Rate Margin applicable to Prime Rate Advances shall be
determined on the basis of Borrower’s most
recent quarterly Leverage Ratio, as reported to Bank in Borrower’s financial statements
provided pursuant to Section 6.2(d), and such Prime Rate Margin shall be adjusted promptly upon
each receipt of such financial statements.
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(d) LIBOR Advances. The interest rate applicable to each LIBOR Advance shall be
determined in accordance with Section 3.7(a) hereunder. Subject to Sections 3.7 and 3.8, such rate
shall apply during the entire Interest Period applicable to such LIBOR Advance, and interest
calculated thereon shall be payable on the Interest Payment Date applicable to such LIBOR Advance.
The LIBOR Rate Margin applicable to LIBOR Advances shall be determined on the basis of Borrower’s
most recent quarterly Leverage Ratio, as reported to Bank in Borrower’s financial statements
provided pursuant to Section 6.2(d), and such LIBOR Rate Margin shall be adjusted promptly upon
each receipt of such financial statements.
(e) Computation; 360-Day Year. In computing interest, the date of the making of any
Credit Extension shall be included and the date of payment shall be excluded; provided, however,
that if any Credit Extension is repaid on the same day on which it is made, such day shall be
included in computing interest on such Credit Extension. Interest shall be computed on the basis
of a 365/366-day year for the actual number of days elapsed in the case of Prime Rate Advances, and
on the basis of a 360-day year for the actual number of days elapsed for all other interest and
fees hereunder.
(f) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including
the Designated Deposit Account, for principal and interest payments or any other amounts Borrower
owes Bank when due. These debits shall not constitute a set-off.
2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of $93,750 (equal
to three-eighths percent (0.375%) of the Revolving Line), on the Effective Date;
(b) Letter of Credit Fees. (i) Bank’s reasonable customary fees and expenses for the
issuance or renewal of Letters of Credit upon the issuance of such Letter of Credit, each
anniversary of the issuance during the term of such Letter of Credit, and upon the renewal of such
Letter of Credit by Bank, and (ii) a letter of credit fee equal to the LIBOR Rate Margin multiplied
by the undrawn amount of each Letter of Credit, due and payable upon the issuance of each Letter of
Credit;
(c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility
Fee”), payable quarterly, in arrears, on a calendar year basis, in an amount equal to (i)
three-eighths percent (0.375%) per annum of the average unused portion of the Revolving Line when
Borrower’s Leverage Ratio is less than or equal to 1.00:1.00 or when no Advances are outstanding,
and (ii) one-half percent (0.50%) per annum of the average unused portion of the Revolving Line
when Borrower’s Leverage Ratio is greater than 1.00:1.00 or if trailing twelve month EBITDA is less
than $1.00. The Unused Revolving Line Facility Fee shall be determined on the basis of Borrower’s
most recent quarterly Leverage Ratio, as reported to Bank in Borrower’s financial statements
provided pursuant to Section 6.2(d). Borrower shall not be entitled to any credit, rebate or
repayment of any Unused Revolving Line Facility Fee previously earned by Bank pursuant to this
Section notwithstanding any termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder; and
(d) Bank Expenses. Reasonable Bank Expenses (including reasonable attorneys’ fees and
expenses for documentation and negotiation of this Agreement) incurred through and after the
Effective Date until the termination of all Obligations, when due.
2.5 Payments. All payments (including prepayments) to be made by Borrower under any Loan
Document shall be made in immediately available funds in U.S. Dollars, without setoff or
counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or
interest received after 12:00 p.m. Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business Day, the payment
shall be due the next Business Day, and additional fees or interest, as applicable, shall continue
to accrue until paid.
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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 Bank shall have received, in form and
substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed original signatures to the Loan Documents;
(b) Borrower’s Operating Documents and a good standing certificate of Borrower certified by
the Secretary of State of the State of Washington as of a date no earlier than thirty (30) days
prior to the Effective Date;
(c) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(d) 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;
(e) the Perfection Certificates of Borrower, together with the duly executed original
signature thereto;
(f) the duly executed original signatures to the Guaranty;
(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 loss payable and/or
additional insured clauses or endorsements in favor of Bank; and
(h) 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 conditions
precedent:
(a) except as otherwise provided in Section 3.5(a), timely receipt of an executed Notice of
Borrowing;
(b) the representations and warranties in this Agreement shall be true, accurate, and complete
in all material respects on the date of the Notice of Borrowing 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 this Agreement remain true, accurate, and complete 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;
(c) if a Borrowing Base Period is in effect, receipt of a completed Borrowing Base Certificate
executed by a Responsible Officer of Borrower; and
(d) in Bank’s sole discretion, there has not been a Material Adverse Change.
3.3 Post-Closing Conditions.
(a) Borrower shall use reasonable efforts to assist Bank in obtaining a landlord’s consent in
favor of Bank, in form and substance satisfactory to Bank, for each of Borrower’s leased facilities
in Seattle, Washington, Chippewa Falls, Wisconsin, St. Xxxx, Minnesota and Austin, Texas by the
respective landlord thereof, together with the duly executed original signatures thereto;
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(b) within one Business Day of the Effective Date, delivery of original stock certificates,
together with duly executed assignments separate from certificate, for each Guarantor; and
(c) within five Business Days of the Effective Date, delivery of duly executed original
signatures to the Control Agreement with Xxxxx Fargo Bank, National Association; and
(d) within five Business Days of the Effective Date, delivery of duly executed original
signatures to the completed Borrowing Resolutions for each Guarantor.
3.4 Covenant to Deliver. Except as otherwise provided in Section 3.3, Borrower agrees to
deliver to Bank each item required to be delivered to Bank under this Agreement as a condition
precedent 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 the making of any Credit Extension in the absence of a required item
shall be in Bank’s sole discretion.
3.5 Procedures for Borrowing.
(a) Subject to the prior satisfaction of all other applicable conditions to the making of an
Advance set forth in this Agreement, each Advance shall be made upon Borrower’s irrevocable written
notice delivered to Bank in the form of a Notice of Borrowing, each executed by a Responsible
Officer of Borrower 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. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance. Such Notice of Borrowing must be received by Bank prior to
12:00 p.m. Pacific time, (i) at least three (3) Business Days prior to the requested Funding Date,
in the case of LIBOR Advances, and (ii) on the requested Funding Date, in the case of Prime Rate
Advances, specifying: (1) the amount of the Advance; (2) the requested Funding Date; (3) whether
the Advance is to be comprised of LIBOR Advances or Prime Rate Advances; and (4) the duration of
the Interest Period applicable to any such LIBOR Advances included in such notice; provided that if
the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Advance
comprised of LIBOR Advances, such Interest Period shall be one (1) month.
(b) The proceeds of all such Advances will then be made available to Borrower on the Funding
Date by Bank by transfer to the Designated Deposit Account and, subsequently, by wire transfer to
such other account as Borrower may instruct in the Notice of Borrowing.
3.6 Conversion and Continuation Elections.
(a) So long as (i) no Event of Default exists; (ii) Borrower shall not have sent any notice of
termination of this Agreement; and (iii) Borrower shall have complied with such customary
procedures as Bank has established from time to time for Borrower’s requests for LIBOR Advances,
Borrower may, upon irrevocable written notice to Bank:
(1) elect to convert on any Business Day, Prime Rate Advances into LIBOR Advances;
(2) elect to continue on any Interest Payment Date any LIBOR Advances maturing on such
Interest Payment Date; or
(3) elect to convert on any Interest Payment Date any LIBOR Advances maturing on such
Interest Payment Date into Prime Rate Advances.
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(b) Borrower shall deliver a Notice of Conversion/Continuation in accordance with Section 10
to be received by Bank prior to 12:00 p.m. Pacific time (i) at least three (3) Business Days in
advance of the Conversion Date or Continuation Date, if any Advances are to be converted into or
continued as LIBOR Advances; and (ii) on the Conversion Date, if any Advances are to be converted
into Prime Rate Advances, in each case specifying the:
(1) proposed Conversion Date or Continuation Date;
(2) aggregate amount of the Advances to be converted or continued;
(3) nature of the proposed conversion or continuation; and
(4) duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to any LIBOR Advances, Borrower
shall have timely failed to select a new Interest Period to be applicable to such LIBOR Advances,
Borrower shall be deemed to have elected to convert such LIBOR Advances into Prime Rate Advances.
(d) Any LIBOR Advances shall, at Bank’s option, convert into Prime Rate Advances in the event
that (i) an Event of Default shall exist, or (ii) the aggregate principal amount of the Prime Rate
Advances which have been previously converted to LIBOR Advances, or the aggregate principal amount
of existing LIBOR Advances continued, as the case may be, at the beginning of an Interest Period
shall at any time during such Interest Period exceed the Revolving Line. Borrower agrees to pay
Bank, upon demand by Bank (or Bank may, at its option, charge the Designated Deposit Account or any
other account Borrower maintains with Bank) any amounts required to compensate Bank for any loss
(including loss of anticipated profits), cost, or expense incurred by Bank, as a result of the
conversion of LIBOR Advances to Prime Rate Advances pursuant to this Section 3.6(d).
(e) Notwithstanding anything to the contrary contained herein, Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other applicable LIBOR
market to fund any LIBOR Advances, but the provisions hereof shall be deemed to apply as if Bank
had purchased such deposits to fund the LIBOR Advances.
3.7 Special Provisions Governing LIBOR Advances. Notwithstanding any other provision of this
Agreement to the contrary, the following provisions shall govern with respect to LIBOR Advances as
to the matters covered:
(a) Determination of Applicable Interest Rate. As soon as practicable on each
Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest
error in calculation, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the LIBOR Advances for which an interest rate is then being determined for the
applicable Interest Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to Borrower.
(b) Inability to Determine Applicable Interest Rate. In the event that Bank shall
have determined (which determination shall be final and conclusive and binding upon all parties
hereto), on any Interest Rate Determination Date with respect to any LIBOR Advance, that by reason
of circumstances affecting the London interbank market adequate and fair means do not exist for
ascertaining the interest rate applicable to such Advance on the basis provided for in the
definition of LIBOR, Bank shall on such date give notice (by facsimile or by telephone confirmed in
writing) to Borrower of such determination, whereupon (i) no Advances may be made as, or converted
to, LIBOR Advances until such time as Bank notifies Borrower that the circumstances giving rise to
such notice no longer exist, and (ii) any Notice of Borrowing or Notice of Conversion/Continuation
given by Borrower with respect to Advances in respect of which such determination was made shall be
deemed to be rescinded by Borrower.
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(c) Compensation for Breakage or Non-Commencement of Interest Periods. Borrower shall
compensate Bank, upon written request by Bank (which request shall set forth the manner and method
of computing such compensation), for all losses, expenses, unrealized gains and liabilities
(including any interest paid by Bank to lenders of funds borrowed by it to make or carry its LIBOR
Advances, any loss, expense or liability incurred by Bank in connection with the liquidation or
re-employment of such funds, and, in the case of complete or partial principal payments or
conversions of LIBOR Advances prior to the last day of the applicable Interest Period, any amount
by which (A) the additional interest which would have been payable on the amount so prepaid or
converted had it not been paid or converted until the last day of the applicable Interest Period
exceeds (B) the interest which would have been recoverable by Bank by placing the amount so
received on deposit in the certificate of deposit markets, the offshore currency markets, or United
States Treasury investment products, as the case may be, for a period starting on the date on which
it was so paid or converted and ending on the last day of such Interest Period at the interest rate
determined by Bank in its reasonable discretion), if any, that Bank may incur: (i) if for any
reason (other than a default by Bank or due to any failure of Bank to fund LIBOR Advances due to
impracticability or
illegality under Sections 3.8(c) and 3.8(d)) a borrowing or a conversion to or continuation of
any LIBOR Advance does not occur on a date specified in a Notice of Borrowing or a Notice of
Conversion/Continuation, as the case may be, or (ii) if for any reason (including voluntary or
mandatory prepayment or acceleration) any complete or partial principal payment or any conversion
of any of Borrower’s LIBOR Advances occurs on a date prior to the last day of an Interest Period
applicable to that Advance. Bank’s determination as to such amount shall be conclusive absent
manifest error. Borrower shall immediately notify Borrower’s account officer at Bank if any of the
situations described in (ii) above occur.
(d) Assumptions Concerning Funding of LIBOR Advances. Calculation of all amounts
payable to Bank under this Section 3.7 and under Section 3.8 shall be made as though Bank had
actually funded each of its relevant LIBOR Advances through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to the definition of LIBOR Rate in an amount equal
to the amount of such LIBOR Advance and having a maturity comparable to the relevant Interest
Period; provided, however, that Bank may fund each of its LIBOR Advances in any manner it sees fit
and the foregoing assumptions shall be utilized only for the purposes of calculating amounts
payable under this Section 3.7 and under Section 3.8.
(e) LIBOR Advances After Default. After the occurrence and during the continuance of
an Event of Default, (i) Borrower may not elect to have an Advance be made or continued as, or
converted to, a LIBOR Advance after the expiration of any Interest Period then in effect for such
Advance and (ii) subject to the provisions of Section 3.7(c), any Notice of Conversion/Continuation
given by Borrower with respect to a requested conversion/continuation that has not yet occurred
shall, at Bank’s option, be deemed to be rescinded by Borrower and be deemed a request to convert
or continue Advances referred to therein as Prime Rate Advances.
3.8 Additional Requirements/Provisions Regarding LIBOR Advances.
(a) Borrower shall pay Bank, upon demand by Bank, from time to time such amounts as Bank may
determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are
attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of
any LIBOR Advances relating thereto (such increases in costs and reductions in amounts receivable
being herein called “Additional Costs”), in each case resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to Bank under this Agreement in
respect of any LIBOR Advances (other than changes which affect taxes measured by or imposed on the
overall net income of Bank by the jurisdiction in which Bank has its principal office);
(ii) imposes or modifies any reserve, special deposit or similar requirements relating to any
extensions of credit or other assets of, or any deposits with, or other liabilities of Bank
(including any LIBOR Advances or any deposits referred to in the definition of LIBOR); or
(iii) imposes any other condition affecting this Agreement (or any of such extensions of
credit or liabilities).
Bank will notify Borrower of any event occurring after the Effective Date which will entitle
Bank to compensation pursuant to this Section 3.8(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a
statement setting forth the basis and amount of each request by Bank for compensation under this
Section 3.8(a). Determinations and allocations by Bank for purposes of this Section 3.8(a) of the
effect of any Regulatory Change on its costs of maintaining its obligations to make LIBOR Advances,
of making or maintaining LIBOR Advances, or on amounts receivable by it in respect of LIBOR
Advances, and of the additional amounts required to compensate Bank in respect of any Additional
Costs, shall be conclusive absent manifest error.
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(b) If Bank shall determine that the adoption or implementation of any applicable law, rule,
regulation, or treaty regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central bank, or comparable
agency charged with the interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank, or comparable agency, has or would
have the effect of reducing the rate of return on capital of Bank or any person or entity
controlling Bank (a “Parent”) as a consequence of its obligations hereunder to a level below that
which Bank
(or its Parent) could have achieved but for such adoption, change, or compliance (taking into
consideration policies with respect to capital adequacy) by an amount deemed by Bank to be
material, then from time to time, within five (5) days after demand by Bank, Borrower shall pay to
Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of
Bank claiming compensation under this Section 3.8(b) and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error.
(c) If, at any time, Bank, in its sole and absolute discretion, determines that (i) the amount
of LIBOR Advances for periods equal to the corresponding Interest Periods are not available to Bank
in the offshore currency interbank markets, or (ii) LIBOR does not accurately reflect the cost to
Bank of lending the LIBOR Advances, then Bank shall promptly give notice thereof to Borrower. Upon
the giving of such notice, Bank’s obligation to make the LIBOR Advances shall terminate; provided,
however, (i) LIBOR Advances shall not terminate if Bank and Borrower agree in writing to a
different interest rate applicable to LIBOR Advances; and (ii) existing LIBOR Advances shall
continue in full force and effect.
(d) If it shall become unlawful for Bank to continue to fund or maintain any LIBOR Advances,
or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the LIBOR
Advances in full with accrued interest thereon and all other amounts payable by Borrower hereunder
(including, without limitation, any amount payable in connection with such prepayment pursuant to
Section 3.7(c)(ii)). Notwithstanding the foregoing, to the extent a determination by Bank as
described above relates to a LIBOR Advance then being requested by Borrower pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, Borrower shall have the option, subject to the
provisions of Section 3.7(c)(ii), to (i) rescind such Notice of Borrowing or Notice of
Conversion/Continuation by giving notice (by facsimile or by telephone confirmed in writing) to
Bank of such rescission on the date on which Bank gives notice of its determination as described
above, or (ii) modify such Notice of Borrowing or Notice of Conversion/Continuation to obtain a
Prime Rate Advance or to have outstanding Advances converted into or continued as Prime Rate
Advances by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such
modification on the date on which Bank gives notice of its determination as described above.
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.
4.2 Priority of Security Interest. Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens that may have
superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial
tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general
details thereof and grant to Bank in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to Bank.
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment
in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions
has terminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the
Collateral and all rights therein shall revert to Borrower.
4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file
financing statements, and will provide a copy of such financing statements 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. Such financing statements may indicate the
Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank’s discretion.
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5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization; Power and Authority. Each Credit Party 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 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
of 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, those described in the Perfection Certificate delivered to Bank in connection herewith,
or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a
perfected security interest therein. The Accounts are bona fide, existing obligations of the
Account Debtors.
The Collateral is not in the possession of any third party bailee (such as a warehouse) except
as otherwise provided in the Perfection Certificate. None of the components of the Collateral
shall be maintained at locations other than as provided in the Perfection Certificate or as
permitted pursuant to Section 7.2.
All Inventory is in all material respects of good and marketable quality.
Except as set forth in Schedule 5.2 hereto, Borrower is the sole owner of the Intellectual
Property which it owns or purports to own except for (a) non-exclusive licenses granted to its
customers in the ordinary course of business, (b) over-the-counter software that is commercially
available to the public, and (c) material Intellectual Property licensed to Borrower and noted on
the Perfection Certificate. Each Patent which it owns or purports to own and which is material to
Borrower’s business is valid and enforceable, and no part of the Intellectual Property which
Borrower owns or purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has
been made that any part of the Intellectual Property violates the rights of any third party except
to the extent such claim would not reasonably be expected to have a material adverse effect on
Borrower’s business.
Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by,
any Restricted License.
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5.3 Accounts Receivable; Inventory. For any Eligible Account in any Borrowing Base
Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing such Eligible Accounts are and shall be true and correct and all such
invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all
respects what they purport to be. Whether or not an Event of Default has occurred and is
continuing, 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
Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements
on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in accordance with their
terms.
For any item of Inventory consisting of “Eligible Inventory” in any Borrowing Base
Certificate, such Inventory (a) consists of finished goods, in good, new, and salable condition,
which is not perishable, returned, consigned, obsolete, not sellable, damaged, or defective, and is
not comprised of demonstrative or custom inventory, works in progress, packaging or shipping
materials, or supplies, or consists of raw materials considered saleable by Bank in its sole
discretion; (b) meets all applicable governmental standards; (c) has been manufactured in
compliance with the Fair Labor Standards Act; (d) is not subject to any Liens, except the first
priority Liens granted or in favor of Bank under this Agreement or any of the other Loan Documents;
(e) does not consist of Inventory sold on consignment, (f) is not over one year old; and (g) is
located at the locations identified by Borrower in the Perfection Certificate where it maintains
Inventory (or at any location permitted under Section 7.2).
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 that
are reasonably likely to have a Material Adverse Change, but in any event there are no such actions
or proceedings with affirmatively stated damages claims exceeding One Million Dollars ($1,000,000).
5.5 Financial Statements; Financial Condition. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.
There has not been any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.6 Solvency. The fair salable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay
its debts (including trade debts) as they mature.
5.7 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act of 1940, 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 Government 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.
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5.9 Tax Returns and Payments; Pension Contributions. As of the date hereof, Borrower has no
knowledge of nor has it received a notice from any applicable governmental authority of the
delinquency of any required tax returns or reports or any foreign, federal, state and local taxes,
assessments, deposits or contributions
owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower
(a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any
material development in, the proceedings, (c) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of
the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any material 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 for general corporate 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).
5.12 Definition of “Knowledge.” For purposes of the Loan Documents, whenever a representation
or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or
with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable
investigation, of the Responsible Officers.
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 have a material
adverse effect on Borrower’s business.
(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 its property. Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Bank.
6.2 Financial Statements, Reports, Certificates. Deliver to Bank:
(a) Borrowing Base Reports. Within forty-five (45) days after the last day of each
quarter, (i) aged listings of accounts receivable and accounts payable (by invoice date) (ii)
perpetual inventory reports for the Inventory valued on a first-in, first-out basis at the lower of
cost or market (in accordance with GAAP) or such other inventory reports as are requested by Bank
in its good faith business judgment; and (iii) a deferred revenue report (collectively, the
“Borrowing Base Reports”);
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(b) Borrowing Base Certificate. Within forty-five (45) days after the last day of
each quarter during a Borrowing Base Period only, and together with the Borrowing Base Reports, a
duly completed Borrowing Base Certificate signed by a Responsible Officer.
(c) Quarterly Financial Statements. As soon as available, but no later than
forty-five (45) days after the last day of each of each quarter of Borrower’s fiscal year, a
company prepared consolidated financial statements prepared under GAAP without footnotes and final
audit adjustments, consistently applied, certified by a Responsible Officer and in a form
acceptable to Bank;
(d) Annual Audited Financial Statements. As soon as available, but no later than
ninety (90) days after the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm acceptable to Bank in its
reasonable discretion;
(e) Compliance Certificates. Concurrently with the delivery of any financial
statements pursuant to clause (c), a duly completed Compliance Certificate signed by a Responsible
Officer, certifying that as of the end of such period, 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;
(f) Other Statements. Within five (5) days of delivery, copies of all statements,
reports and notices made available to Borrower’s security holders or to any holders of Subordinated
Debt;
(g) SEC Filings. Within five (5) days of filing, copies of all periodic and other
reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental
Authority succeeding to any or all of the functions of the SEC or with any national securities
exchange, or distributed to its shareholders, as the case may be. Documents required to be
delivered pursuant to the terms hereof (to the extent any such documents are included in materials
otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed
to have been delivered on the date on which Borrower posts such documents, or provides a link
thereto, on Borrower’s website on the Internet at Borrower’s website address;
As to any information contained in the materials furnished pursuant to this clause (g),
Borrower shall not be required separately to furnish such information under clauses (c), (d) and
(f), but the foregoing shall not be in derogation of the obligation of Borrower to furnish the
information and materials described in such clauses (c), (d) and (f) at the times specified
therein; provided, that Borrower shall provide paper copies to Bank of the Compliance
Certificates required by Section 6.2(e).
(h) Annual Financial Projections. Within 90 days after the end of each fiscal year,
annual financial projections, together with any related business forecasts used in the preparation
of such financial projections, for the following fiscal year (on a quarterly basis);
(i) Legal Action Notice. A prompt report of any legal actions pending or threatened
in writing against Borrower or any of its Subsidiaries that are reasonably likely to have a
Material Adverse Change;
(j) Intellectual Property Notice. Prompt written notice of (i) any material change in
the composition of the Intellectual Property, (ii) the registration of any copyright, including any
subsequent ownership right of Borrower in or to any copyright, patent or trademark not shown in the
IP Security Agreement, and (iii) Borrower’s knowledge of an event that could reasonably be expected
to materially and adversely affect the value of the Intellectual Property; and
(k) Other Financial Information. Budgets, sales projections, operating plans and
other related financial information reasonably requested by Bank.
6.3 Reserved.
6.4 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
pay, 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.
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6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All
property policies shall have a lender’s loss payable endorsement showing Bank as loss payee and
waive subrogation against Bank. All liability policies shall show, or have endorsements showing,
Bank as an additional insured. All policies (or the loss payable and additional insured
endorsements) shall provide that the insurer shall 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 6.5 or to pay any amount or furnish any required
proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain
such insurance policies required in this Section 6.5, and take any action under the policies Bank
deems prudent.
6.6 Operating Accounts.
(a) Maintain its primary securities accounts with Bank and Bank’s Affiliates which accounts
shall represent at least 50% of the dollar value of Borrower’s cash and Cash Equivalents.
(b) 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 which Control Agreement may not be terminated without the prior written
consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts
exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such.
6.7 Financial Covenants. Maintain as of the last day of each quarter, unless otherwise noted,
on a consolidated basis with respect to Borrower and its Subsidiaries:
(a) Adjusted Quick Ratio. A ratio of Quick Assets to Current Liabilities minus the
current portion of Deferred Revenue of at least 1.15 to 1.0.
(b) Trailing Twelve Month EBITDA. Maintain, measured as of the end of each fiscal
quarter, trailing 12 month EBITDA of at least the following:
| Period | Minimum EBITDA | |
September 30, 2010 |
$(25,000,000) | |
December 31, 2010 |
$0 | |
March 31, 2011 and thereafter |
$5,000,000 or as established by Bank based on projections provided by Borrower |
EBITDA shall be deemed to be $3,379,000 for the fiscal quarter ending September 30, 2009,
$6,237,000 for the fiscal quarter ending December 31, 2009, and ($7,803,000) for the fiscal quarter
ending March 31, 2010.
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6.8 Protection and Registration of Intellectual Property Rights.
(a) (i) Protect, defend and maintain the validity and enforceability of its Intellectual
Property; (ii) promptly advise Bank in writing of material infringements of its Intellectual
Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.
(b) If Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered
mask work, or any pending application for any of the foregoing, whether as owner, licensee or
otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall
immediately provide written notice
thereof to Bank and shall execute such intellectual property security agreements and other
documents and take such other actions as Bank shall request in its good faith business judgment to
perfect and maintain a first priority perfected security interest in favor of Bank in such
property. If Borrower decides to register any Copyrights or mask works in the United States
Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written
notice of Borrower’s intent to register such Copyrights or mask works together with a copy of the
application it intends to file with the United States Copyright Office (excluding exhibits
thereto); (y) execute an intellectual property security agreement and such other documents and take
such other actions as Bank may request in its good faith business judgment to perfect and maintain
a first priority perfected security interest in favor of Bank in the Copyrights or mask works
intended to be registered with the United States Copyright Office; and (z) record such intellectual
property security agreement with the United States Copyright Office contemporaneously with filing
the Copyright or mask work application(s) with the United States Copyright Office. Borrower shall
promptly provide to Bank copies of all applications that it files for Patents or for the
registration of Trademarks, Copyrights or mask works, together with evidence of the recording of
the intellectual property security agreement necessary for Bank to perfect and maintain a first
priority perfected security interest in such property.
(c) Provide written notice to Bank within ten (10) days of entering or becoming bound by any
Restricted License (other than over-the-counter software that is commercially available to the
public).
6.9 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Bank, without expense to Bank, Borrower and its officers,
employees and agents and Borrower’s books and records, to the extent that Bank may deem them
reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or
against Bank with respect to any Collateral or relating to Borrower.
6.10 Reserved.
6.11 Reserved.
6.12 Access to Collateral; Books and Records. Allow Bank, or its agents, at reasonable times,
on one (1) Business Day’s notice (provided no notice is required if an Event of Default has
occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books. Such
inspections or audits shall be conducted no more often than once every twelve (12) months unless an
Event of Default has occurred and is continuing. The foregoing inspections and audits shall be at
Borrower’s expense, and the charge therefor shall be $850 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 ten (10) days in advance, and
Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to
Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of
$1,000 plus reasonable out-of-pocket expenses incurred by Bank to compensate Bank for the
anticipated costs and expenses of the cancellation or rescheduling.
6.13 Formation or Acquisition of Subsidiaries. At the time that Borrower forms any direct or
indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date,
Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to the Guaranty, together
with such appropriate financing statements and/or Control Agreements, all in form and substance
satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to
Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to
Bank appropriate certificates and powers and financing statements, pledging all of the direct or
beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank,
and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, which
in its opinion is appropriate with respect to the execution and delivery of the applicable
documentation referred to above. Any document, agreement, or instrument executed or issued
pursuant to this Section 6.13 shall be a Loan Document.
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6.14 Further Assurances. Execute any further instruments and take further action as Bank
reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes
of this Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent, which shall
not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of
(collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its
business or property, except for the following, all of which are permitted:
(a) Transfers in the ordinary course of business for reasonably equivalent consideration;
(b) Transfers to Borrower or any of its Subsidiaries from Borrower or any of its Subsidiaries;
(c) Transfers of property in connection with sale-leaseback transactions, provided that the
book value of all such property so Transferred shall not exceed $1,000,000 in any fiscal year;
(d) Transfers of property to the extent such property is exchanged for credit against, or
proceeds are promptly applied to, the purchase price of other property used or useful in the
business of Borrower or its Subsidiaries;
(e) Transfers constituting non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of business and other non-perpetual
licenses that could not result in a legal transfer of title of the licensed property but that may
be exclusive in respects other than territory and that may be exclusive as to territory only as to
discreet geographical areas outside of the United States;
(f) Transfers otherwise permitted by the Loan Documents;
(g) sales or discounting of delinquent accounts in the ordinary course of business;
(h) Transfers associated with the making or disposition of a Permitted Investment; and
(i) Transfers in connection with a permitted acquisition of a portion of the assets or rights
acquired for reasonably equivalent consideration.
7.2 Changes in Business; Change in Control; Jurisdiction of Formation. Engage in any material
line of business other than those lines of business conducted by Borrower and its Subsidiaries on
the date hereof and any businesses reasonably related, complementary or incidental thereto or
reasonable extensions thereof; or permit or suffer any Change in Control. Borrower will not,
without prior written notice to Bank: (i) change its jurisdiction of organization, (ii) change its
organizational structure or type, (iii) change its legal name, (iv) change any organizational
number (if any) assigned by its jurisdiction of organization, or add any new offices or business
locations, including warehouses (unless such new offices or business locations contain less than
Five Hundred Thousand Dollars ($500,000) in Borrower’s assets or property) or deliver any portion
of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand
Dollars ($100,000) to a bailee at a location other than to a bailee and at a location already
disclosed in the Perfection Certificate; provided that Collateral that is in-transit shall not be
considered held with a bailee. If Borrower intends to deliver any portion of the Collateral
valued, individually or in the aggregate, in excess of Five Hundred Thousand Dollars ($500,000) to
a bailee, except with respect to those locations disclosed on the Perfection Certificate, and Bank
and such bailee are not already parties to a bailee agreement governing both the Collateral and the
location to which Borrower intends to deliver the Collateral, then Borrower will first receive the
written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and
substance satisfactory to Bank in its sole discretion.
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7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any Person, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of a Person, except where no Event of Default
has occurred and is continuing or would result from such action during the term of this Agreement:
(a) any Subsidiary may merge or consolidate with (i) Borrower provided that Borrower is the
surviving entity, and (ii) one or more other Subsidiaries;
(b) Borrower or any Subsidiary may acquire, all or substantially all of the capital stock or
property of another Subsidiary; or
(c) such merger, consolidation or acquisition is a Transfer otherwise permitted pursuant to
Section 7.1.
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 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.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.6(b) hereof.
7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock other than Permitted Distributions; or (b) directly or
indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, except for (a) transactions that are in the
ordinary course of Borrower’s business, upon fair and reasonable terms (when viewed in the context
of any series of transactions of which it may be a part, if applicable); or (b) transactions among
Borrower and its Subsidiaries and among Borrower’s Subsidiaries so long as no Event of Default
exists or could result therefrom.
7.9 Subordinated Debt. Make or permit any payment on or amendments of any Subordinated Debt,
except (a) payments pursuant to the terms of the Subordinated Debt; (b) payments made with
Borrower’s capital stock or other Subordinated Debt; or (c) amendments to Subordinated Debt so long
as such Subordinated Debt remains subordinated in right of payment to this Agreement and any Liens
securing such Subordinated Debt remain subordinate in priority to Bank’s Lien hereunder to the same
extent as originally contemplated by 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) Business Day cure period shall not
apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to
make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but
no Credit Extension will be made during the cure period);
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8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7,
6.11, 6.12, 6.13 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). Cure
periods provided under this section shall not apply, among other things, to financial covenants or
any other covenants set forth in clause (a) above.
8.3 Reserved.
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 the control of Borrower (including a Subsidiary) on deposit or
otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed
against any of Borrower’s assets by any government agency, and the same under subclauses (i) and
(ii) hereof are not, within ten (10) 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; or
(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 material part of its business;
8.5 Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become
due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days
(but no Credit Extensions shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If (a) Borrower fails to (i) make any payment that is due and payable
with respect to any Material Indebtedness and such failure continues after the applicable grace or
notice period, if any, specified in the agreement or instrument relating thereto, or (ii) perform
or observe any other condition or covenant, or any other event shall occur or condition exist under
any agreement or instrument relating to any Material Indebtedness, and such failure continues after
the applicable grace or notice period, if any, specified in the agreement or instrument relating
thereto and the effect of such failure, event or condition is to cause, or to permit (whether or
not exercised), the holder or holders of such Material Indebtedness to accelerate the maturity of
such Material Indebtedness or cause, or permit (whether or not exercised), the mandatory repurchase
of any Material Indebtedness; or (b) there is a default in any Material Contract that could
reasonably have a material adverse effect on Borrower’s business;
8.7 Judgments. One or more final 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) (not covered
by independent third-party insurance as to which liability has been accepted by such insurance
carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the
entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments
are not discharged prior to the expiration of any such stay (provided that no Credit Extensions
will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);
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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. Any document, instrument, or agreement evidencing any Subordinated
Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and
effect, any Person shall be in breach thereof or contest in any manner the validity or
enforceability thereof or deny that it has any further liability
or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not
have the priority contemplated by this Agreement; or
8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any reason to be
in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any
guaranty of the Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.6, 8.7, or
8.8 occurs with respect to any Guarantor, (d) the liquidation, winding up, or termination of
existence of any Guarantor; or (e) (i) a material impairment in the perfection or priority of
Bank’s Lien in the collateral provided by Guarantor or in the value of such collateral or (ii) a
material adverse change in the general affairs, management, results of operation, condition
(financial or otherwise) or the prospect of repayment of the Obligations occurs with respect to any
Guarantor.
9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without
notice or demand, do any or all of the following:
(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) deposit cash with Bank in an amount equal to 105% of the Dollar
Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (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 such Letters of
Credit, as collateral security for the repayment of any future drawings under such Letters of
Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all
letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of
Credit;
(d) 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, 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;
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(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; and
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, only 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 that
may come into Bank’s possession; (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 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 subject to the limitations described above, and all of
Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been
fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5
or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to
pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such
payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest rate applicable to the Obligations, and secured by the Collateral.
Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance
at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.
9.4 Application of Payments and Proceeds Upon Default. If an Event of Default has occurred
and is continuing, Bank may apply any funds in its possession, whether from Borrower account
balances, payments, proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its good
faith business judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable
at any time, of either reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
9.5 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 the party granting
the waiver 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 shall not preclude Bank from exercising any other remedy
under this Agreement or other remedy available at law or in equity, 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.
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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.
| If to Borrower: | Cray Inc. 000 Xxxxx Xxxxxx, Xxxxx 0000 Xxxxxxx, XX 00000 Attn: Xxxxx Xxxxx, Chief Financial Officer Fax: (000) 000-0000 Email: xxxxxx@xxxx.xxx |
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| If to Bank: | Silicon Valley Bank 0000 Xxxxxx Xxxxx Xxxxx Xxxxx, XX 00000 Attn: Xxxx Xxxxxx Fax: (000) 000-0000 Email: xxxxxxx@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, or subsequently provided by Borrower in accordance with,
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.
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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 enforce all discovery rules and
orders 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 California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the
right of any party at any time to exercise self-help remedies, foreclose against collateral, or
obtain provisional remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors
and permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Bank’s prior written consent (which may be granted or withheld in
Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell,
transfer, assign, negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.
12.2 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors,
officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank
(each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and
liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank
Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of,
following from, or arising from transactions between Bank and Borrower contemplated by the Loan
Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or losses
directly caused by such Indemnified Person’s gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.
12.4 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.5 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in
the Loan Documents consistent with the agreement of the parties.
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12.6 Amendments in Writing; Waiver; Integration. No purported amendment or modification of
any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document,
shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing
signed by the party against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure
to require performance or course of conduct shall operate as, or evidence, an amendment, supplement
or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to
the specific circumstance expressly described in it, and shall not apply to any subsequent or other
circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or
commitment to grant any further waiver. 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 the Loan Documents merge into the Loan Documents.
12.7 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, is an
original, and all taken together, constitute one Agreement.
12.8 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 paid in full and satisfied. The obligation of
Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with
respect to such claim or cause of action shall have run.
12.9 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 (such Subsidiaries and Affiliates, together
with Bank, collectively, “Bank Entities”); (b) to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however, that any prospective transferee or purchaser
shall have entered into an agreement containing provisions substantially the same as those in this
Section); (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 is either: (i) in the public domain or becomes part of the public domain
after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the
third party is prohibited from disclosing the information.
Bank Entities may use the confidential information for reporting purposes and the development
and distribution of databases and market analyses so long as such confidential information is
aggregated and anonymized prior to distribution unless otherwise expressly prohibited by Borrower.
The provisions of the immediately preceding sentence shall survive the termination of this
Agreement.
12.10 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.
12.11 Electronic Execution of Documents. The words “execution,” “signed,” “signature” and
words of like import in any Loan Document shall be deemed to include electronic signatures or the
keeping of records in electronic form, each of which shall be of the same legal effect, validity
and enforceability as a manually executed signature or the use of a paper-based recordkeeping
systems, as the case may be, to the extent and as provided for in any applicable law, including,
without limitation, any state law based on the Uniform Electronic Transactions Act.
12.12 Captions. The headings used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
12.13 Construction of Agreement. The parties mutually acknowledge that they and their
attorneys have participated in the preparation and negotiation of this Agreement. In cases of
uncertainty this Agreement shall be construed without regard to which of the parties caused the
uncertainty to exist.
12.14 Relationship. The relationship of the parties to this Agreement is determined solely by
the provisions of this Agreement. The parties do not intend to create any agency, partnership,
joint venture, trust, fiduciary or other relationship with duties or incidents different from those
of parties to an arm’s-length contract.
12.15 Third Parties. Nothing in this Agreement, whether express or implied, is intended to:
(a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons
other than the express parties to it and their respective permitted successors and assigns; (b)
relieve or discharge the obligation or liability of any person not an express party to this
Agreement; or (c) give any person not an express party to this Agreement any right of subrogation
or action against any party to this Agreement.
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13 DEFINITIONS
13.1 Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word
“may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not
limiting, the singular
includes the plural, and numbers denoting amounts that are set off in brackets are negative.
As used in this Agreement, the following capitalized 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, either a
Prime Rate Advance or a LIBOR Advance.
“Affiliate” is, with respect to any Person, each other 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 the lesser of (a) the Revolving Line and (b) the greater of (i)
$15,000,000 and (ii) the amount available under the Borrowing Base, minus (x) the Dollar Equivalent
amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit)
plus an amount equal to the Letter of Credit Reserve, minus (y) 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 the Credit Parties.
“Borrower” is defined in the preamble hereof.
“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state
tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.
“Borrowing Base” is (a) 85% of Eligible Accounts plus (b) the lesser of 50% of the value of
Borrower’s Eligible Inventory (valued at the lower of cost or wholesale fair market value) or
$8,250,000, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided,
however, that Bank may decrease the foregoing amount and percentages in its good faith business
judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may
adversely affect Collateral.
“Borrowing Base Certificate” is that certain certificate in the form attached hereto as
Exhibit E.
“Borrowing Base Period” is any time, and only during such time period, Advances (plus the sum
of undrawn Letters of Credit, drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) exceed $15,000,000.
“Borrowing Base Report” is defined in Section 6.2(a).
-23-
“Borrowing Resolutions” are, with respect to any Person, those resolutions substantially in
the form attached hereto as Exhibit F.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed
except that if any determination of a “Business Day” shall relate to a LIBOR Advance, the term
“Business Day” shall also mean a day on which dealings are carried on in the London interbank
market.
“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; (d) money market funds that comply with Rule 2a-7 and are rated AAA; and
(e) Xxxxx Fargo WFQXX fund so long as the investment policy of the aforementioned does not
materially change from the existing policy.
“Change in Control” means any event, transaction, or occurrence as a result of which (a) any
“person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than
a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or
becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of Borrower, representing twenty-five percent (25%) or more
of the combined voting power of Borrower’s then outstanding securities; or (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such period constituted the
Board of Directors of Borrower (together with any new directors whose election by the Board of
Directors of Borrower was approved by a vote of not less than two-thirds of the directors then
still in office who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California; provided, that, to the extent that the Code is used to define
any term herein or in any Loan Document and such term is defined differently in different Articles
or Divisions of the Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the
State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in
effect in such other jurisdiction solely for purposes of 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.
“Committed Availability” means, as the date of determination, an amount equal to the sum of
the Availability Amount minus all outstanding Credit Extensions.
“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 D.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation, in each case, 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.
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“Continuation Date” means any date on which Borrower continues a LIBOR Advance into another
Interest Period.
“Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower
maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which
Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities
Account, or Commodity Account.
“Conversion Date” means any date on which Borrower converts a Prime Rate Advance to a LIBOR
Advance or a LIBOR Advance to a Prime Rate Advance.
“Copyrights” are any and all copyright rights, copyright applications, copyright registrations
and like protections in each work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret.
“Credit Extension” is any Advance, Letter of Credit, or any other extension of credit by Bank
for Borrower’s benefit.
“Credit Party” means Borrower, and each Guarantor.
“Current Assets” are amounts that under GAAP should be included on that date as current assets
on Borrower’s consolidated balance sheet.
“Current Liabilities” are all obligations and liabilities of Borrower to Bank, including but
not limited to all obligations under the Revolving Line regardless of date of maturity, plus,
without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one
(1) year.
“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 3300555413,
maintained with Bank.
“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and
not any other currency, regardless of whether that currency uses the “$” sign to denote its
currency or may be readily converted into lawful money of the United States.
“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars,
such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent
amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing
rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to
the country issuing such Foreign Currency.
“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any
state or territory thereof or the District of Columbia.
“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted
in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income
tax expense, plus (e) to the extent deducted in the calculation of Net Income, other non-cash items
including, but not limited to, stock-based compensation, changes in inventory and unrealized
foreign exchange losses, and plus (f) other items approved by bank in writing.
-25-
“Effective Amount” means with respect to any Advances on any date, the aggregate outstanding
principal amount thereof after giving effect to any borrowing and prepayments or repayments thereof
occurring on such date.
“Effective Date” is defined in the preamble 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 to adjust any of the criteria set forth below and to establish new criteria in its good
faith business judgment. Unless Bank otherwise agrees in writing, Eligible Accounts shall not
include:
(a) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;
(c) Accounts with credit balances over ninety (90) days from invoice date;
(d) Accounts owing from an Account Debtor, in which twenty-five percent (25%) or more of the
Accounts have not been paid within ninety (90) days of invoice date;
(e) Accounts 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;
(f) Accounts billed and/or payable outside of the United States unless Bank has a first
priority, perfected security interest or other enforceable Lien in such Accounts under all
applicable laws, including foreign laws (sometimes called foreign invoiced accounts);
(g) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated
in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise — sometimes called
“contra” accounts, accounts payable, customer deposits, or credit accounts).
(h) Accounts owing from an Account Debtor (excluding accounts under Subsection (i) hereof),
whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for the
amounts that exceed that percentage, 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;
-26-
(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 for which the Account Debtor has not been invoiced;
(q) Accounts that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;
(r) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;
(s) Accounts arising from chargebacks, debit memos or others payment deductions taken by an
Account Debtor (but only to the extent the chargeback is determined invalid and subsequently
collected by Borrower);
(t) Accounts arising from product returns and/or exchanges (sometimes called “warranty” or
“RMA” accounts);
(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, including, without limitation, accounts represented by “refreshed” or “recycled”
invoices.
“Eligible Inventory” means Inventory that meets all of Borrower’s representations and
warranties in Section 5.3 and is otherwise acceptable to Bank in all respects.
“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. For clarity,
Equipment shall not be classified as Inventory for purposes of GAAP.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Exchange Act” is the Securities Exchange Act of 1934, as amended.
“Foreign Currency” means lawful money of a country other than the United States.
“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.
“Funding Date” is any date on which a Credit Extension is made to or for the 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.
-27-
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all Intellectual Property, claims, income and other tax refunds, security and other
deposits, payment intangibles, contract rights, options to purchase or sell real or personal
property, rights in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any kind.
“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.
“Guarantors” is any present or future guarantor of the Obligations, including Cray Brazil,
Inc., Cray Japan, Inc., Cray Korea, Inc. and Cray Taiwan, Inc.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.
“Indemnified Person” is defined in Section 12.2.
“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” means all of a Credit Party’s right, title, and interest in and to the
following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any
rights to unpatented inventions, know-how, operating manuals;
(c) any and all source code;
(d) any and all design rights which may be available to a Borrower;
(e) any and all claims for damages by way of past, present and future infringement of any of
the foregoing, with the right, but not the obligation, to xxx for and collect such damages for said
use or infringement of the Intellectual Property rights identified above; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash)
determined in accordance with GAAP for the relevant period ending on such date, including, in any
event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower and
its Subsidiaries, including, without limitation or duplication, all commissions, discounts, or
related amortization and other fees and charges with respect to letters of credit and bankers’
acceptance financing and the net costs associated with interest rate swap, cap, and similar
arrangements, and the interest portion of any deferred payment obligation (including leases of all
types).
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“Interest Payment Date” means, with respect to any LIBOR Advance, the last day of each
Interest Period applicable to such LIBOR Advance, but in no event less frequently than quarterly,
and with respect to Prime Rate Advances, the first day of each month (or, if that day of the month
does not fall on a Business Day, then on the first Business Day following such date), and each date
a Prime Rate Advance is converted into a LIBOR Advance to the extent of the amount converted to a
LIBOR Advance.
“Interest Period” means, as to any LIBOR Advance, the period commencing on the date of such
LIBOR Advance, or on the conversion/continuation date on which the LIBOR Advance is converted into
or continued as a LIBOR Advance, and ending on the date that is 1, 2, 3 or 6 months thereafter, in
each case as Borrower may elect in the applicable Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that (a) no Interest Period with respect to any LIBOR
Advance shall end later than the Revolving Line Maturity Date, (b) the last day of an Interest
Period shall be determined in accordance with the practices of the LIBOR interbank market as from
time to time in effect, (c) if any Interest Period would otherwise end on a day that is not a
Business Day, that Interest Period shall be extended to the following Business Day unless, in the
case of a LIBOR Advance, the result of such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day, (d) any Interest Period pertaining to a LIBOR Advance
that begins on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest Period) shall end
on the last Business Day of the calendar month at the end of such Interest Period, and (e) interest
shall accrue from and include the first Business Day of an Interest Period but exclude the last
Business Day of such Interest Period.
“Interest Rate Determination Date” means each date for calculating the LIBOR for purposes of
determining the interest rate in respect of an Interest Period. The Interest Rate Determination
Date shall be the second Business Day prior to the first day of the related Interest Period for a
LIBOR Advance.
“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.
“IP Agreement” is that certain Intellectual Property Security Agreement executed and delivered
by Borrower to Bank dated as of the Effective Date.
“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(b).
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(e).
“Leverage Ratio” is, as of the last day of any period, the ratio of (a) total Indebtedness on
such day to (b) trailing twelve month EBITDA for such period.
“LIBOR” means, for any Interest Rate Determination Date with respect to an Interest Period for
any Advance to be made, continued as or converted into a LIBOR Advance, the rate of interest per
annum determined by Bank to be the per annum rate of interest at which deposits in United States
Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the
nearest 0.0001%) in which Bank customarily participates at 11:00 a.m. (local time in such interbank
market) two (2) Business Days prior to the first day of such Interest Period for a period
approximately equal to such Interest Period and in an amount approximately equal to the amount of
such Advance.
“LIBOR Advance” means an Advance that bears interest based at the LIBOR Rate.
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“LIBOR Rate” means, for each Interest Period in respect of LIBOR Advances comprising part of
the same Advances, an interest rate per annum (rounded upward, if necessary, to the nearest
0.0001%) equal to LIBOR for such Interest Period divided by one (1) minus the Reserve Requirement
for such Interest Period.
“LIBOR Rate Margin” means, from time to time, the following percentages per annum, based upon
the Borrower’s Leverage Ratio, as set forth below:
| Applicable Margin for | ||||
| Leverage Ratio | LIBOR Advances and Letter of Credit Fees |
|||
Less than or equal to 1.00:1.00 |
3.25 | % | ||
Greater than 1.00:1.00 |
3.75 | % | ||
“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 Certificates, the IP
Agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other
present or future agreement between Borrower any Guarantor and/or for the benefit of Bank in
connection with this Agreement, all as amended, restated, or otherwise modified.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s
Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower; or (c) a material
impairment of the prospect of repayment of any portion of the Obligations.
“Material Contract” means (a) any contract or other written agreement described in the
Perfection Certificate; (b) any contract or other agreement of Borrower and any Subsidiary
involving monetary liability of or to any such Person in an amount in excess of Seventy-Five
Million Dollars ($75,000,000); and (c) any other contract, agreement, permit or license, written or
oral, of Borrower and any Subsidiary as to which the breach, nonperformance, cancellation of,
failure to renew by any party thereto, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Change.
“Material Indebtedness” is any Indebtedness the principal amount of which, individually or in
the aggregate, is equal to or greater than One Million Dollars ($1,000,000).
“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries
for any period, the net profit (or loss), after provision for taxes, of Borrower and its
Subsidiaries for such period taken as a single accounting period.
“Notice of Borrowing” means a notice given by Borrower to Bank in accordance with Section
3.2(a), substantially in the form of Exhibit B, with appropriate insertions.
“Notice of Conversion/Continuation” means a notice given by Borrower to Bank in accordance
with Section 3.5, substantially in the form of Exhibit C, with appropriate insertions.
“Obligations” are any Credit Party’s obligations to pay when due any debts, principal,
interest, Bank Expenses and other amounts any Credit Party 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 any Credit
Party assigned to Bank, and to perform any Credit Party’s duties under the Loan Documents.
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“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.
“Patents” means all patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Distributions” are:
(a) purchases of capital stock from former employees, consultants and directors pursuant to
repurchase agreements or other similar agreements in an aggregate amount not to exceed $1,000,000
in any fiscal year provided that at the time of such purchase no Event of Default has occurred and
is continuing;
(b) distributions or dividends consisting solely of Borrower’s capital stock;
(c) purchases for value of any rights distributed in connection with any stockholder rights
plan;
(d) purchases of capital stock or options to acquire such capital stock with the proceeds
received from a substantially concurrent issuance of capital stock or convertible securities;
(e) purchases of capital stock pledged as collateral for loans to employees;
(f) purchases of capital stock in connection with the exercise of stock options or stock
appreciation rights by way of cashless exercise or in connection with the satisfaction of
withholding tax obligations; and
(g) purchases of fractional shares of capital stock arising out of stock dividends, splits or
combinations or business combinations.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) (i) any Indebtedness existing on the Effective Date that does not exceed $100,000 in an
aggregate principal amount, and (ii) any Indebtedness existing on the Effective Date and shown on
the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) guaranties of Permitted Indebtedness;
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(g) Indebtedness consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements entered into in the ordinary course of business and
designated to protect Borrower or its Subsidiaries against fluctuations in interest rates, currency
exchange rates, or commodity prices;
-31-
(h) Indebtedness between Borrower and any of its Subsidiaries or among any of Borrower’s
Subsidiaries;
(i) Indebtedness with respect to documentary letters of credit;
(j) capitalized leases and purchase money Indebtedness not to exceed $2,500,000 in the
aggregate in any fiscal year secured by Liens permitted under clause (c) of the definition of
“Permitted Liens”;
(k) Indebtedness of entities acquired in any permitted merger or acquisition transaction;
(l) extensions, renewals and refinancings of Permitted Indebtedness, provided that the amount
of such Indebtedness is not increased except by an amount equal to a reasonable premium or other
reasonable amount paid in connection with such refinancing and by an amount equal to any existing,
but unutilized, commitment thereunder; and
(m) other unsecured indebtedness incurred by non-Credit Parties;
(n) other Indebtedness, if, on the date of incurring any Indebtedness pursuant to this clause
(m), the outstanding aggregate amount of all Indebtedness incurred pursuant to this clause (m) does
not exceed $500,000.
“Permitted Investments” are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date;
(b) Investments consisting of (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agencies or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 2 years after its creation and having the
highest rating from either Standard & Poor’s Ratings Group or Xxxxx’x Investors Service, Inc.,
(iii) Bank’s certificates of deposit maturing no more than 2 years after issue; and (iv) money
market funds that comply with Rule 2a-7 and are rated AAA;
(c) Investments approved by Borrower’s Board of Directors or otherwise pursuant to a
Board-approved investment policy;
(d) Investments (i) by a Credit Party in another Credit Party; (ii) by a Credit Party in a
non-Credit Party for operating expenses and tax obligations in the ordinary course of business;
(iii) other Investments by a Credit Party in a non-Credit Party not to exceed One Million Dollars
($1,000,000) in the aggregate;
(e) Investments consisting of Collateral Accounts in the name of Borrower or any Subsidiary so
long as Bank has a first priority, perfected security interest in such Collateral Accounts;
(f) Investments consisting of extensions of credit to Borrower’s or its Subsidiaries’
customers in the nature of accounts receivable, prepaid royalties or notes receivable in the
ordinary course of business arising from the sale or lease of goods, provision of services or
licensing activities of Borrower;
(g) 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;
(h) Investments consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements entered into in the ordinary course of business and
designated to protect a Person against fluctuations in interest rates, currency exchange rates, or
commodity prices;
(i) 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
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 in an aggregate amount
outstanding at any time not to exceed $1,000,000;
(j) Investments permitted by Section 7.3; and
-32-
(k) joint ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the non-exclusive licensing of technology, the development of technology or the
providing of technical support, provided that any cash investments by Borrower do not exceed One
Million Dollars ($1,000,000) in the aggregate in any fiscal year.
“Permitted Liens” are:
(a) (i) Liens securing Indebtedness under clause (b)(ii) or (k) of the definition of
“Permitted Indebtedness” hereunder, and (ii) Liens arising under this Agreement and the other Loan
Documents
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not
due and payable or (ii) 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) Liens (including with respect to capital leases) (i) on property (including accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds
thereof) acquired or held by Borrower or its Subsidiaries incurred for financing such property
(including accessions, additions, parts, replacements, fixtures, improvements and attachments
thereto, and the proceeds thereof) other than Accounts, Inventory, and Financed Equipment, or (ii)
existing on property (and accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) when acquired other than Accounts, Inventory, and
Financed Equipment, if the Lien is confined to such property (including accessions, additions,
parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof);
(d) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness it secures may not increase;
(e) 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;
(f) 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);
(g) leases or subleases of real property granted in the ordinary course of Borrower’s business
(or, if referring to another Person, in the ordinary course of such Person’s business), and leases,
subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual
Property) granted in the ordinary course of Borrower’s business (or, if referring to another
Person, in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest therein;
(h) non-exclusive license of Intellectual Property granted to third parties in the ordinary
course of business, and licenses of Intellectual Property that could not result in a legal transfer
of title of the licensed property that may be exclusive in respects other than territory and that
may be exclusive as to territory only as to discreet geographical areas;
(i) Liens in favor of custom and revenue authorities arising as a matter of law to secure the
payment of custom duties in connection with the importation of goods;
(j) customary Liens granted in favor of a trustee to secure fees and other amounts owing to
such trustee under an indenture or other similar agreement;
(k) Liens on assets acquired in mergers and acquisitions not prohibited by Section 7 of this
Agreement;
-33-
(l) Liens consisting of pledges of cash, cash equivalents or government securities to secure
swap or foreign exchange contracts or letters of credit, provided that the amount of all such Liens
does not exceed $250,000;
(m) Liens arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 and 8.7;
(n) 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;
(o) deposits to secure the performance of bids, trade contracts (other than for borrowed
money), contracts for the purchase of property, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each case, incurred in the
ordinary course of business and not representing an obligation for borrowed money; and
(p) Liens not otherwise described above, provided that (i) the amount of all such Liens at any
time outstanding is not in excess of $500,000 and (ii) such Liens are subordinate in priority to
Bank’s Lien hereunder.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
“Prime Rate” is the higher of (a) the prime rate published in the Western edition of The Wall
Street Journal, and (b) the federal funds rate plus 0.50%, in each case on any date of
determination.
“Prime Rate Advance” means an Advance that bears interest based at the Prime Rate.
“Prime Rate Margin” means, from time to time, the following percentages per annum, based upon
the Borrower’s Leverage Ratio, as set forth below:
| Applicable Margin for | ||||
| Leverage Ratio | Prime Rate Advances | |||
Less than or equal to 1.00:1.00 |
1.00 | % | ||
Greater than 1.00:1.00 |
1.50 | % | ||
“Quick Assets” is, on any date, Borrower’s consolidated, unrestricted cash and Cash
Equivalents, net billed accounts receivable and investments with maturities of fewer than 12
months, determined according to GAAP.
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made.
“Regulatory Change” means, with respect to Bank, any change on or after the date of this
Agreement in United States federal, state, or foreign laws or regulations, including Regulation D,
or the adoption or making on or after such date of any interpretations, directives, or requests
applying to a class of lenders including Bank, of or under any United States federal or state, or
any foreign laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or administration thereof.
“Reserve Requirement” means, for any Interest Period, the average maximum rate at which
reserves (including any marginal, supplemental, or emergency reserves) are required to be
maintained during such Interest Period under Regulation D against “Eurocurrency liabilities” (as
such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by Bank by reason of any Regulatory Change against (a) any category of liabilities
which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the
definition of LIBOR or (b) any category of extensions of credit or other assets which include
Advances.
-34-
“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 to reflect usage of cash
management products provided by Bank.
“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.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.
“Restricted License” is any material license or other agreement with respect to which Borrower
is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security
interest in Borrower’s interest in such license or agreement or any other property, or (b) for
which a default under or termination of could interfere with the Bank’s right to sell any
Collateral.
“Revolving Line” is an Advance or Advances in an amount equal to Twenty-Five Million Dollars
($25,000,000).
“Revolving Line Maturity Date” is September 13, 2012.
“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any
analogous Governmental Authority.
“Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.
“Settlement Date” is defined in Section 2.1.3.
“Subordinated Debt” (a) Indebtedness incurred by Borrower subordinated to Borrower’s
Indebtedness owed to Bank and which is reflected in a written agreement in a manner and form
reasonably acceptable to Bank and approved by Bank in writing, and (b) to the extent the terms of
subordination do not change adversely to Bank, refinancings, refundings, renewals, amendments or
extensions of any of the foregoing.
“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or
other entity of which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such
Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a
reference to a Subsidiary of Borrower.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all Indebtedness.
“Trademarks” means any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized by such trademarks.
“Transfer” is defined in Section 7.1.
“Unused Revolving Line Facility Fee” is defined in Section 2.4(c).
[Signature page follows.]
-35-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
| BORROWER: | ||||
| CRAY INC. | ||||
By:
|
/s/ Xxxxx X. Xxxxx
|
|||
| Title: EVP & CFO | ||||
| BANK: | ||||
| SILICON VALLEY BANK | ||||
By:
|
/s/ Xxx Xxxxx
|
|||
| Title: Relationship Manager | ||||
EXHIBIT A — COLLATERAL DESCRIPTION
The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles, commercial tort claims, documents, instruments (including any promissory notes),
chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing), securities, and all other
investment property (excluding that certain investment account (Account Number 00000000) of
Borrower at Xxxxx Fargo Bank, National Association), supporting obligations, and financial assets,
whether now owned or hereafter acquired, wherever located; and
all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
Notwithstanding the foregoing, the Collateral does not include more than 65% of the presently
existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of
any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other
matter.
EXHIBIT B — [FORM OF] NOTICE OF BORROWING
Date:
To:
|
Silicon Valley Bank | |
| 0000 Xxxxxx Xxxxx | ||
| Xxxxx Xxxxx, XX 00000 | ||
| Attention: Corporate Services Department | ||
Re:
|
Loan and Security Agreement dated as of September 13, 2010 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”), by and between Cray Inc. (“Borrower”), and Silicon Valley Bank (“SVB”) |
Ladies and Gentlemen:
The undersigned refers to the Loan Agreement, the terms defined therein and used herein as so
defined, and hereby gives you notice irrevocably, pursuant to Section 3.5 of the Loan Agreement, of
its request for an Advance.
1. The requested Borrowing Date, which shall be a Business Day, is .
2. The aggregate amount of the requested Advance is $ .
3. The requested Advance shall consist of $ of Prime Rate Advance and $ of
LIBOR Advance.
4. The duration of the Interest Period for the LIBOR Advance included in the requested Advance
shall be [1, 2, 3 or 6] months.
5. The undersigned hereby certifies that the following statements are true on the date hereof,
and will be true on the date of the proposed Advance before and after giving effect thereto, and to
the application of the proceeds therefrom, as applicable:
(a) each of the representations and warranties made by any Credit Party in or pursuant
to the Loan Documents shall be true and correct in all material respects on and as of such
date as if made on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects as of such earlier
date;
(b) no Default or Event of Default shall have occurred as of or on such date or after
giving effect to the extensions of credit requested to be made on such date; and
(c) the requested Advance will not, when added to the aggregate undrawn amount of all
outstanding Letters of Credit, exceed the Availability Amount.
| CRAY INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
For internal Bank use only
| Eurodollar Pricing Date | Eurodollar Rate | Eurodollar Variance | Maturity Date | |||||||||
| ——————— | % | |||||||||||
EXHIBIT C — [FORM OF] NOTICE OF CONVERSION/CONTINUATION
Date:
To:
|
Silicon Valley Bank | |
| 0000 Xxxxxx Xxxxx | ||
| Xxxxx Xxxxx, XX 00000 | ||
| Attention: Corporate Services Department | ||
Re:
|
Loan and Security Agreement dated as of September 13, 2010 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”), by and between Cray Inc. (“Borrower”), and Silicon Valley Bank (“SVB”) |
Ladies and Gentlemen:
The undersigned refers to the Loan Agreement, the terms defined therein being used herein as
therein defined, and hereby gives you notice irrevocably, pursuant to Section 3.6 of the Loan
Agreement, of the [conversion] [continuation] of the Advances specified herein, that:
1. The date of the [conversion] [continuation] is , 20_____.
2. The aggregate amount of the proposed Advances to be [converted] is
$ or [continued] is $ .
3. The Advances are to be [converted into] [continued as] [LIBOR] [Prime Rate] Advances.
4. The duration of the Interest Period for the LIBOR Advances included in the [conversion]
[continuation] shall be months.
5. The undersigned, on behalf of Borrower, hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the proposed [conversion] [continuation],
before and after giving effect thereto and to the application of the proceeds therefrom:
(a) each of the representations and warranties made by any Credit Party in or pursuant
to the Loan Documents shall be true and correct in all material respects on and as of such
date as if made on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects as of such earlier
date; and
(b) no Default or Event of Default shall have occurred as of or on such date or after
giving effect to the [conversion] [continuation] requested to be made on such date.
| CRAY INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT D
COMPLIANCE CERTIFICATE
| TO: SILICON VALLEY BANK | Date: | |
| FROM: CRAY INC. |
The undersigned authorized officer of Cray Inc. (“Borrower”) certifies that under the terms
and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):
(1) Borrower is in complete compliance for the period ending with all required
covenants except as noted below; (2) there are no Events of Default; (3) all representations and
warranties in the Agreement are true and correct in all material respects on this date except as
noted below; provided, however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material respects as of such date;
(4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports,
and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and
contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9
of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously
provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies
that these are prepared in accordance with GAAP consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower is not in compliance
with any of the terms of the Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the
meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | ||||
Quarterly financial statements with Compliance Certificate |
Quarterly within 45 days | Yes No | ||||
Annual financial statement (CPA Audited) + XX |
XXX within 90 days | Yes No | ||||
10-Q, 10-K and 8-K |
Within 5 days after filing with SEC | Yes No | ||||
Borrowing Base Certificate; A/R & A/P Agings; deferred revenue report |
Quarterly within 45 days when Advances exceed $15,000,000 only | Yes No | ||||
The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”)
| Financial Covenant | Required | Actual | Complies | |||||||||
Maintain on a Quarterly Basis: |
||||||||||||
Minimum Adjusted Quick Ratio |
1.15:1.0 | _________:1.0 | Yes No | |||||||||
Minimum TTM EBITDA: [see Schedule 1 below for historical EBITDA numbers] |
||||||||||||
September 30, 2010 |
($25,000,000) | $ | ___________ | Yes No | ||||||||
December 31, 2010 |
$0 | $ | ___________ | Yes No | ||||||||
March 31, 2011 and thereafter |
$5,000,000 or based on Board projections |
|||||||||||
| Performance Pricing | Applies | |||||||
| LIBOR RATE Prime Rate | ||||||||
Leverage Ratio > 1.00 |
L + 3.75% P + 1.50 | % | Yes No | |||||
Leverage Ratio < or equal to 1.00 |
L + 3.25% P + 1.00 | % | Yes No | |||||
The following financial covenant analys[is][es] and information set forth in Schedule 1
attached hereto are true and accurate as of the date of this Certificate.
The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)
| CRAY INC. | BANK USE ONLY | |||||||
By: |
Received by: | |||||||
| Name: | authorized signer | |||||||
| Title: | Date: | |||||||
| Verified: | ||||||||
| authorized signer | ||||||||
| Date: | ||||||||
| Compliance Status: Yes No | ||||||||
2
Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan
Agreement shall govern.
Dated:
I. Adjusted Quick Ratio (Section 6.7(a))
Required: 1.15:1.00
Actual:
A. Aggregate value of the unrestricted cash and cash equivalents of Borrower and its Subsidiaries |
$ | |||
B. Aggregate value of the net billed accounts receivable of Borrower and its Subsidiaries |
$ | |||
C. Aggregate value of the Investments with maturities of fewer than 12 months of Borrower and it Subsidiaries |
$ | |||
D. Quick Assets (the sum of lines A through C) |
$ | |||
E. Aggregate value of Obligations to Bank |
$ | |||
F. Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line E above that matures within one (1) year |
$ | |||
G. Current Liabilities (the sum of lines E and F) |
$ | |||
H. Aggregate value of all amounts received or invoiced by Borrower in advance of performance under contracts and not yet recognized as revenue |
$ | |||
I. Line G minus line H |
$ | |||
J. Quick Ratio (line D divided by line I) |
Is line J equal to or greater than 1.15:1:00?
No, not in compliance
|
Yes, in compliance |
3
II. TTM EBITDA (Section 6.7(b))
Required: See chart below
| Period | Minimum EBITDA | |
| September 30, 2010 | $(25,000,000) | |
| December 31, 2010 | $0 | |
| March 31, 2011 and thereafter | $5,000,000 or as established by Bank based on projections provided by Borrower |
Actual:
A. Net Income |
$ | |||
B. To the extent included in the determination of Net Income |
||||
1. Income tax expense |
$ | |||
2. Depreciation expense |
$ | |||
3. Amortization expense |
$ | |||
4. Net Interest Expense |
$ | |||
5. Stock-based compensation |
$ | |||
6. Unrealized foreign exchange losses |
$ | |||
7. The sum of lines 1 through 6 |
$ | |||
C. EBITDA (line A plus line B.7)1 |
Is line C equal to or greater than the amount required per the chart above?
No, not in compliance
|
Yes, in compliance |
| 1 | EBITDA shall be deemed to be $3,379,000 for the fiscal quarter
ending September 30, 2009, $6,237,000 for the fiscal quarter ending December
31, 2009, and ($7,803,000) for the fiscal quarter ending March 31, 2010. |
4
Performance Pricing
Leverage Ratio (Section 2.3)
Required:
| Applicable Margin for | Applicable Margin for | |||||||
| LIBOR Advances and | Prime Advances and | |||||||
| Leverage Ratio | Letter of Credit Fees | Letter of Credit Fees | ||||||
Less than or equal to 1.00:1.00
|
3.25 | % | 1.00 | % | ||||
Greater than 1.00:1.00
|
3.75 | % | 1.50 | % | ||||
Actual:
A. Total Indebtedness |
$ | |||
B. EBITDA (line II.C.) |
$ | |||
C. Leverage Ratio (line A divided by line B) |
What is the applicable performance pricing per the chart above?
EXHIBIT E — BORROWING BASE CERTIFICATE
Borrower: Cray Inc.
Lender: Silicon Valley Bank
Commitment Amount: $25,000,000
Lender: Silicon Valley Bank
Commitment Amount: $25,000,000
ACCOUNTS RECEIVABLE |
||||
1. Accounts Receivable (invoiced) Book Value as of |
$ | |||
2. Additions (please explain on reverse) |
$ | |||
3. TOTAL ACCOUNTS RECEIVABLE |
$ | |||
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) |
||||
4. 90 Days Past Invoice Date |
$ | |||
5. Balance of 50% over 90 Day Accounts |
$ | |||
6. Foreign Account Debtor Accounts |
$ | |||
7. Foreign Invoiced Accounts |
$ | |||
8. Contra/Customer Deposit Accounts |
$ | |||
9. Intercompany/Employee Accounts |
$ | |||
10. Credit Balances over 90 Days |
$ | |||
11. Concentration Limits (excluding accounts under #12) |
$ | |||
12. U.S. Governmental Accounts, unless pursuant to Assignment of
Claims |
$ | |||
13. Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale
Accounts |
$ | |||
14. Accounts with Progress/Milestone/Pre-xxxxxxxx; Contract Accounts |
$ | |||
15. Accounts for Retainage Xxxxxxxx |
$ | |||
16. Trust Accounts |
$ | |||
17. Xxxx and Hold Accounts |
$ | |||
18. Unbilled Accounts |
$ | |||
19. Non-Trade Accounts |
$ | |||
20. Accounts with Extended Term Invoices |
$ | |||
21. Accounts Subject to Chargebacks |
$ | |||
22. Disputed Accounts |
$ | |||
23. Other (please explain on reverse) |
$ | |||
24. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS |
$ | |||
25. Eligible Accounts (#3 minus #24) |
$ | |||
26. ELIGIBLE AMOUNT OF ACCOUNTS ( 85% of #25) |
$ | |||
INVENTORY |
||||
27. Eligible Inventory Value as of |
$ | |||
28. ELIGIBLE AMOUNT OF INVENTORY (lesser of 50% of #27 and $8,250,000) |
$ | |||
BALANCES |
||||
29. Maximum Loan Amount |
$ | |||
30. Total Funds Available [Lesser of #29 or (#26 plus #28)] |
$ | |||
31. Present balance owing on Line of Credit |
$ | |||
32. Outstanding under Letters of Credit Sublimit |
$ | |||
33. Reserves for cash management services |
$ | |||
34. RESERVE POSITION (#30 minus #31, #32 and #33) |
$ |
[Continued on following page.]
The undersigned represents and warrants that this is true, complete and correct, and that the
information in this Borrowing Base Certificate complies with the representations and warranties in
the Loan and Security Agreement between the undersigned and Silicon Valley Bank.
| COMMENTS: | BANK USE ONLY |
|||||||
| Received by: | ||||||||
| authorized signer | ||||||||
| Date: | ||||||||
By:
|
Verified: | |||||||
| Authorized Signer | authorized signer | |||||||
Date:
|
Date: | |||||||
| Compliance Status: Yes No | ||||||||
EXHIBIT F — CORPORATE BORROWING CERTIFICATE
Borrower:
|
Cray Inc. | Date: | ||
Bank:
|
Silicon Valley Bank | |||
| 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 Washington.
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 1 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 or by
a Committee of the Board of Directors duly authorized to adopt such resolutions at a duly held
meeting of such directors or Committee (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 with respect to the Silicon
Valley Bank Loan and Security Agreement:
| 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 with respect to the Silicon Valley
Bank Loan and Security Agreement.
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.
Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.
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.
Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.
Further Acts. Designate other individuals to request advances, pay fees and costs and
execute other documents or agreements (including documents or agreement that waive
Borrower’s 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.
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| By: | ||||
| Name: | ||||
| Title: | ||||
