THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Exhibit 10.1
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as
of July 16, 2010 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation
(“Bank”), and CARDIAC SCIENCE CORPORATION, a Delaware corporation (“Borrower”), amends and restates
the terms of that certain Second Amended and Restated Loan and Security Agreement by and between
Bank and Borrower dated as of April 27, 2010, as amended from time to time (the “Existing Loan
Agreement”, the Existing Loan Agreement and all other “Loan Documents (as such term is defined in
the Existing Loan Agreement) are hereinafter collectively referred to as “Existing Loan
Documents”), and provides the terms on which Bank shall lend to Borrower and Borrower shall repay
Bank. The parties agree as follows:
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.
2.1 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.
(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. 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.
(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 the lesser of (A) One Million Dollars
($1,000,000), minus (i) the sum of all amounts used for Cash Management Services, and minus (ii)
the FX Reduction Amount, or (B) the lesser of (I) the Revolving Line or (II) the Domestic Borrowing
Base, minus (i) the sum of all outstanding principal amounts of any Advances (including any amounts
used for Cash Management Services), and minus (ii) the FX Reduction Amount.
(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 one hundred ten percent (110%) 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.
2.1.3 Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may enter into
foreign exchange contracts with Bank under which Borrower commits to purchase from or sell to Bank
a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the
“Settlement Date”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX
Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract (the “FX Reserve”). The aggregate amount of FX Forward Contracts
at any one time may not exceed ten (10) times the lesser of (A) One Million Dollars ($1,000,000),
minus (i) the sum of all amounts used for Cash Management Services, and minus (ii) the Dollar
Equivalent of the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve), or (B) the lesser of (I) the
Revolving Line or (II) the Domestic Borrowing Base, minus (i) the sum of all outstanding principal
amounts of any Advances (including any amounts used for Cash Management Services), and minus (ii)
the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve). The amount otherwise available
for Credit Extensions under the Revolving Line shall be reduced by an amount equal to ten percent
(10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”). Any amounts needed to
fully reimburse Bank for any amounts not paid by Borrower in connection with FX Forward Contracts
will be treated as Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances.
2.1.4 Cash Management Services Sublimit. Borrower may use the Revolving Line for Bank’s cash
management services, which may include merchant services, direct deposit of payroll, business
credit card, and check cashing services identified in Bank’s various cash management services
agreements (collectively, the “Cash Management Services”), in an aggregate amount not to exceed the
lesser of (A) One Million Dollars ($1,000,000), minus (i) the Dollar Equivalent of the face amount
of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve), and minus (ii) the FX Reduction Amount, or (B) the lesser of (I) the
Revolving Line or (II) the Domestic Borrowing Base, minus (i) the sum of all outstanding principal
amounts of any Advances, minus the Dollar Equivalent of the face amount of any outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve),
and minus (iii) the FX Reduction Amount. Any amounts Bank pays on behalf of Borrower for any Cash
Management Services will be treated as Advances under the Revolving Line and will accrue interest
at the interest rate applicable to Advances.
2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any
Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either (I) the Revolving
Line or (II) the Domestic Borrowing Base,
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Borrower shall immediately pay to Bank in cash such excess. If, at any time, the outstanding
principal amount of any EX-IM Advances exceeds the lesser of the EX-IM Committed Line or the
Foreign Borrowing Base (and any sublimitations thereof), Borrower shall immediately pay to Bank in
cash such excess. Each such excess shall be deemed to be an “Overadvance”. Without limiting
Borrower’s obligation to repay Bank any amount of the Overadvance, Borrower agrees to pay Bank
interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.
(a) Advances. Subject to Section 2.3(b), the principal amount outstanding under the
Revolving Line shall accrue interest at a floating per annum rate equal to two and one half
percentage points (2.50%) above the Prime Rate, which interest shall be payable monthly in
accordance with Section 2.3(f) below.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is three and one half
percentage points (3.50%) 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) Adjustment to Interest Rate. Changes to the interest rate of any Credit
Extension based on changes to the Prime Rate shall be effective on the effective date of any change
to the Prime Rate and to the extent of any such change.
(d) 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.
(e) Payment; Interest Computation; Float Charge. Interest is payable monthly on the
last calendar day of each month and shall be computed on the basis of a 360-day year for the actual
number of days elapsed. In computing interest, (i) all Payments received after 12:00 p.m. Pacific
time on any day shall be deemed received at the opening of business on the next Business Day, and
(ii) 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. In addition,
Bank shall be entitled to charge Borrower a “float” charge in an amount equal to two (2) Business
Days interest, at the interest rate applicable to the Advances whether or not any Advances are
outstanding, on all Payments received by Bank. Such float charge is not included in interest for
purposes of computing Minimum Monthly Interest (if any) under this Agreement. The float charge for
each month shall be payable on the last day of the month. Bank shall not, however, be required to
credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in
its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the
amount of any item of payment which is returned to Bank unpaid.
2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of One Hundred
Seventy Five Thousand Dollars ($175,000) on the Effective Date which shall include fees payable to
EX-IM Bank;
(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, a letter of credit fee of three
percent (3.00%) per annum of the Dollar Equivalent of the face amount of each Letter of Credit
issued 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;
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(c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility
Fee”), payable monthly, in arrears, on a calendar year basis, in an amount equal to one quarter of
one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined by
Bank. The unused portion of the Revolving Line, for the purposes of this calculation, shall
include amounts reserved for products provided in connection with Cash Management Services and FX
Forward Contracts. 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;
(d) Collateral Monitoring Fee. For any month during which a Streamline Period is not
in effect at all times, a monthly collateral monitoring fee of Seven Hundred Fifty Dollars ($750),
payable in arrears on the last day of each month (prorated for any partial month at the beginning
and upon termination of this Agreement); and
(e) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses for documentation and negotiation of this Agreement) incurred through and after the
Effective Date, when due.
(a) 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.
(b) All payments with respect to the Obligations may be applied in such order and manner as
Bank shall determine in its sole discretion. Borrower shall have no right to specify the order or
the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to
Bank or otherwise received by Bank under this Agreement when any such allocation or application is
not specified elsewhere in this Agreement.
3.1 Conditions Precedent to Initial Advance. Bank’s obligation to make the initial Advance 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 Delaware as of a date no earlier than sixty (60) days prior
to the Effective Date;
(c) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(d) duly executed Control Agreements for any domestic accounts maintained outside Bank;
(e) the duly executed EX-IM Loan Documents;
(f) a public announcement from the United States Food and Drug Administration regarding
recalling of AED devices related to Corrective AED Field Action which was announced on November 13,
2009;
(g) 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
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any such financing statements either constitute Permitted Liens or have been or, in connection
with the initial Advance, will be terminated or released;
(h) the Perfection Certificate of Borrower, together with the duly executed original
signatures thereto;
(i) landlord’s consents in favor of Bank, together with the duly executed original signature
thereto, for Borrower’s Bothell, Washington and Deerfield, Wisconsin facilities;
(j) bailee agreements from all locations where Borrower stores Eligible Domestic Inventory or
EX-IM Eligible Foreign Inventory, if any, in the form attached hereto as Exhibit F;
(k) evidence satisfactory to Bank that the insurance policies required by Section 6.7 hereof
are in full force and effect, together with appropriate evidence showing lender loss payable and/or
additional insured clauses or endorsements in favor of Bank; and
(l) 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 3.4(a), timely receipt of an executed Transaction
Report and Payment/Advance Form;
(b) the representations and warranties in this Agreement shall be true, accurate, and complete
in all material respects on the date of the Transaction Report and Payment/Advance Form and on the
Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not
be applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in all material
respects as of such date, and no 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; and
(c) in Bank’s sole discretion, there has not been a Material Adverse Change.
3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered
to Bank under this Agreement as a condition 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.
3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable
conditions to the making of an Advance set forth in this Agreement, to obtain an Advance (other
than Advances under Sections 2.1.2 or 2.1.4), Borrower shall notify Bank (which notice shall be
irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding
Date of the Advance. Together with such notification, Borrower must promptly deliver to Bank by
electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or
his or her designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make
Advances under this Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Advances are necessary to meet Obligations which have
become due. Bank may rely on any telephone notice given by a person whom Bank believes is a
Responsible Officer or designee
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4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and
performance in full of all of the Obligations, a continuing security interest in, and pledges to
Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof.
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, Letter of Credit reimbursement obligations
if cash collateralized pursuant to Section 2.1.2(b) or other obligations that have been cash
collateralized) 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, without notice to Borrower, with all appropriate jurisdictions to perfect or
protect Bank’s interest or rights hereunder, including a notice that any disposition of the
Collateral in violation of this Agreement, 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.
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization; Power and Authority. Borrower is duly existing and in
good standing as a Registered Organization in its jurisdiction of formation and is qualified and
licensed to do business and is in good standing in any jurisdiction in which the conduct of its
business or its ownership of property requires that it be qualified except where the failure to do
so could not reasonably be expected to have a material adverse effect on Borrower’s business. In
connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by
Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a)
Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature
page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set
forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth
Borrower’s organizational identification number or accurately states that Borrower has none; (d)
the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than
one, its chief executive office as well as Borrower’s mailing address (if different than its chief
executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years,
changed its jurisdiction of formation, organizational structure or type, or any organizational
number assigned by its jurisdiction; and (f) all other information set forth on the Perfection
Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being
understood and agreed that Borrower may from time to time update 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
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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, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank
in connection herewith, or of which Borrower has given Bank notice and taken such actions as are
necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing
obligations of the Account Debtors.
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, free from material
defects.
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 Borrower’s awareness, 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.
(a) For each Account with respect to which Advances and/or EX-IM Advances are requested, on
the date each Advance is requested and made, such Account shall be an Eligible Domestic Account or
EX-IM Eligible Foreign Account.
(b) All statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing the Eligible Domestic Accounts and EX-IM Eligible Foreign Accounts are
and shall be true and correct and all such invoices, instruments and other documents, and all of
Borrower’s Books are genuine and in all respects what they purport to be. 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 Domestic Account
and/or EX-IM Eligible Foreign Account. All sales and other transactions underlying or giving rise
to each Eligible Domestic Account and/or EX-IM Eligible Foreign Account shall comply in all
material respects with all applicable laws and governmental rules and regulations. Borrower has no
knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are
Eligible Domestic Accounts or EX-IM Eligible Foreign Accounts in any EX-IM Borrowing Base
Certificate or Transaction Report. To the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all Eligible Domestic
Accounts and EX-IM Eligible Foreign Accounts are genuine, and all such documents, instruments and
agreements are legally enforceable in accordance with their terms.
(c) For any item of Inventory consisting of Eligible Domestic Inventory or EX-IM Eligible
Foreign Inventory in any EX-IM Borrowing Base Certificate or Transaction Report, such Inventory (1) consists of
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either, in the case of Eligible Domestic Inventory, raw materials and in the case
of both Eligible Domestic Inventory or EX-IM Eligible Foreign Inventory, 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; (2) meets all applicable governmental
standards; (3) has been manufactured in compliance with the Fair Labor Standards Act; (4) 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; and (5) is located at the locations in the United
States identified by Borrower in the Perfection Certificate where it maintains Inventory and where
Bank has obtained a bailee agreement or landlord waiver in form and substance acceptable to Bank.
5.4 Litigation. There are no actions or proceedings pending or, to the awareness of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than Five Hundred Thousand Dollars ($500,000), individually or in the aggregate, 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
Borrower’s awareness, 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.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any
contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in
writing of the commencement of, and any material development in, the proceedings, (c) posts bonds
or takes any other steps required to prevent the governmental authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.
Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years
which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all
amounts necessary to fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from participation in, and has not
permitted partial or complete termination of, or permitted the occurrence of any other event with
respect to, any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or
any other governmental agency.
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5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as
working capital and to fund its general business requirements and not for personal, family,
household or agricultural purposes.
5.11 Full Disclosure. No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank, as of the date such representation, warranty,
or other statement was made, taken together with all such written certificates and written
statements given to Bank, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in
good faith and based upon reasonable assumptions are not viewed as facts and that actual results
during the period or periods covered by such projections and forecasts may differ from the
projected or forecasted results).
5.12 Definition of “Knowledge.” For purposes of the Loan Documents, (i) whenever a
representation or warranty is made to Borrower’s knowledge or awareness or with a similar
qualification, knowledge or awareness means the actual knowledge of the Responsible Officers and
(ii) whenever a representation or warranty is made to the “best of” Borrower’s knowledge, or with a
similar qualification, the “best of” Borrower’s knowledge means the actual knowledge, after
reasonable investigation, of the Responsible Officers.
Borrower shall do all of the following:
(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. Provide Bank with the following:
(a) No later than Friday of each week if Streamline Period is not in effect or within twenty
(20) days after the end of each month if a Streamline Period is in effect, a Transaction Report
(and any schedules related thereto);
(b) within twenty (20) days after the end of each month, (A) monthly accounts receivable
agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers, if any, (C) monthly reconciliations of accounts receivable
agings (aged by invoice date), transaction reports and general ledger, and (D) monthly perpetual
inventory reports for 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;
(c) as soon as available, but no later than twenty (20) days after the last day of each month
when a Streamline Period is not in effect, a company prepared consolidated balance sheet and income
statement covering Borrower’s consolidated operations for such month certified by a Responsible
Officer and in a form acceptable to Bank (the “Monthly Financial Statements”);
(d) 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.
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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;
(e) within five (5) days of filing its 10Q or 10K with the SEC when a Streamline Period is in
effect or within twenty (20) days of the last day of each month when a Streamline Period is not in
effect, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as
of the end of such month/quarter, Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Bank shall reasonably request,
including, without limitation, a statement that at the end of such month/quarter there were no held
checks;
(f) within thirty (30) days prior to the end of each fiscal year of Borrower, (A) annual
operating budgets (including income statements, balance sheets and cash flow statements, by month)
for the upcoming fiscal year of Borrower, and (B) annual financial projections for the following
fiscal year (on a quarterly basis) as approved by Borrower’s board of directors, together with any
related business forecasts used in the preparation of such annual financial projections; and
(g) 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;
(h) In addition to any reporting requirements in the EX-IM Loan Documents, within twenty (20)
days after the last day of each fiscal quarter, deliver to Bank copies of (i) individual invoices
equal to or greater than ten percent (10%) of all outstanding EX-IM Eligible Foreign Accounts (as
reported at quarter-end) and (ii) individual export order equal to or greater than ten percent
(10%) of all outstanding EX-IM Eligible Foreign Inventory (as reported at quarter-end);
(i) 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 previously disclosed in writing to Bank,
and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and
adversely affect the value of the Intellectual Property;
(j) prompt report of any legal actions pending or threatened in writing against Borrower or
any of its Subsidiaries that could result in damages or costs to Borrower or any of its
Subsidiaries of, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000) or
more; and
(k) other financial information reasonably requested by Bank.
(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standard
forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect
or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to
advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein.
If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of
all contracts, orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts. In addition, Borrower shall deliver to Bank, on
its request, the originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Accounts, in the same form as received,
with all necessary indorsements, and copies of all credit memos.
(b) Disputes. Borrower shall promptly notify Bank of all material disputes or claims
relating to Accounts. Borrower may forgive (completely or partially), compromise, or settle any
Account for less than
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payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good
faith, in a commercially reasonable manner, in the ordinary course of business, in arm’s-length
transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Event
of Default has occurred and is continuing; and (iii) after taking into account all such discounts,
settlements and forgiveness, the total outstanding Advances will not exceed the lesser of (I) the
Revolving Line or (II) the Domestic Borrowing Base.
(c) Collection of Accounts. Borrower shall have the right to collect all Accounts,
unless and until an Event of Default has occurred and is continuing. Bank shall require that all
proceeds of Accounts billed and collected domestically be deposited by Borrower into a lockbox
account, or such other “blocked account” as specified by Bank, pursuant to a blocked account
agreement in such form as Bank may specify in its good faith business judgment. Whether or not an
Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on
and proceeds of Accounts to an account maintained with Bank to be applied (i) prior to an Event of
Default, pursuant to the terms of Section 2.5(b) hereof, and (ii) after the occurrence and during
the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof.
(d) Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i) determine the reason
for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount,
and (iii) provide a copy of such credit memorandum to Bank, upon request from Bank. In the event
any attempted return occurs after the occurrence and during the continuance of any Event of
Default, Borrower shall immediately notify Bank of the return of the Inventory.
(e) Verification. Bank may, from time to time, verify directly with the respective
Account Debtors the validity, amount and other matters relating to the Accounts, either in the name
of Borrower or Bank or such other name as Bank may choose.
(f) No Liability. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of
which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any Account, or for settling
any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence
or willful misconduct.
6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind,
all proceeds arising from the disposition of any Collateral to Bank in the original form in which
received by Borrower not later than the following Business Day after receipt by Borrower, to be
applied to the Obligations (a) prior to an Event of Default, pursuant to the terms of Section
2.5(b) hereof, and (b) after the occurrence and during the continuance of an Event of Default,
pursuant to the terms of Section 9.4 hereof; provided that, if no Event of Default has occurred and
is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of worn
out or obsolete Equipment disposed of by Borrower in good faith in an arm’s length transaction for
an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year).
Borrower agrees that it will maintain all proceeds of Collateral in an account maintained with
Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
6.5 Taxes; Pensions. Timely file all required tax returns and reports and timely pay all
foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower
except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and
shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms.
6.6 Access to Collateral; Books and Records. At reasonable times, on one (1) Business Day’s
notice (provided no notice is required if an Event of Default has occurred and is continuing),
Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy
Borrower’s Books. The foregoing inspections and audits shall be at Borrower’s expense, and the
charge therefor shall be Eight Hundred Fifty Dollars ($850) per person per day (or such higher
amount as shall represent Bank’s then-current standard charge for the
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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 reschedules 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 One Thousand Dollars ($1,000) plus any out-of-pocket
expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the
cancellation or rescheduling. Bank and Borrower agree that the first such audit shall be completed
no later than one hundred twenty (120) days after the Effective Date.
6.7 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All
property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee
and waive subrogation against Bank. 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. Proceeds payable under
any property policy shall, at Bank’s option, be payable to Bank on account of the Obligations. If
Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make all or part of such
payment or obtain such insurance policies required in this Section 6.7, and take any action under
the policies Bank deems prudent.
(a) Maintain its primary operating, investment and other deposit accounts with Bank.
(b) Provide Bank five (5) days prior written notice before establishing any Collateral Account
at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each
Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or
financial institution (other than Bank) at or with which any Collateral Account is maintained to
execute and deliver a Control Agreement or other appropriate instrument with respect to such
Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms
hereunder 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.
Borrower shall maintain at all times, to be tested as of the last day of each month, unless
otherwise noted, on a consolidated basis:
(a) Tangible Net Worth. A Tangible Net Worth of at least the sum of the following
(the “Required TNW Amount”): (i) negative Two Hundred Fifty Thousand Dollars (-$250,000) plus (ii)
fifty percent (50%) of all consideration received after the Effective Date for issuances of
Borrower’s equity securities, (iii) twenty five percent (25%) of the principal amount of
Subordinated Debt incurred after the Effective Date, plus (iv) fifty percent (50%) of Borrower’s
positive consolidated Net Income in each fiscal quarter ending after the Effective Date.
Increases in the Required TNW Amount based on consideration received for equity securities and
Subordinated Debt of the Borrower shall be effective as of the end of the quarter in which such
consideration is received, and shall continue effective thereafter. Increases in the Required TNW
Amount based on Net Income shall be effective on the last day of the fiscal quarter in which such
Net Income is realized, and shall continue effective thereafter. In no event shall the Required
TNW Amount be decreased from one fiscal period to another subsequent fiscal period.
(b) Liquidity. Liquidity of not less than Six Million Dollars ($6,000,000).
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(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). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by,
any person whose consent or waiver is necessary for (i) any Restricted License to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such Restricted License (to the extent such terms are
enforceable under applicable law), whether now existing or entered into in the future, and
(ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such
Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan
Documents.
6.11 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Bank, without expense to Bank, Borrower and its officers,
employees and agents and Borrower’s books and records, to the extent that Bank may deem them
reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or
against Bank with respect to any Collateral or relating to Borrower.
6.12 Further Assurances. Execute any further instruments and take further action as Bank
reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes
of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received,
copies of all correspondence, reports, documents and other filings with any Governmental Authority
regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that
could reasonably be expected to have a material effect on any of the Governmental Approvals or
otherwise on the operations of Borrower or any of its Subsidiaries.
Borrower shall not do any of the following without Bank’s prior written consent:
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 Transfers (a) of Inventory in the ordinary course of business; (b)
of worn-out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted
Investments; and (d) of non-exclusive licenses for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business. Notwithstanding the foregoing or any other
provisions hereof, Borrower shall not be permitted to sell its cardiac monitoring business without
the prior written consent of Bank.
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(a) Engage in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably
related thereto;
(b) liquidate or dissolve; or
(c) cause, suffer, or permit a Change in Control; or
(d) without at least thirty (30) days prior written notice to Bank: (1) add any new offices
or business locations, including warehouses (unless such new offices or business locations contain
assets and property of Borrower with an aggregate value of less than Ten Thousand Dollars
($10,000)), (2) change its jurisdiction of organization, (3) change its organizational structure or
type, (4) change its legal name, or (5) change its organizational number (if any) assigned by its
jurisdiction of organization.
(a) Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any
other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of
the capital stock or property of another Person. A Subsidiary (that is not a Borrower) may merge
or consolidate into another Subsidiary (that is not a Borrower).
(b) Anything in Section 7.3(a) to the contrary notwithstanding, another entity may merge with
and into a Subsidiary of Borrower, if the following conditions are satisfied: (i) no Default or
Event of Default has occurred and is continuing at the time of such merger, or would result after
giving effect to such merger; (ii) a Subsidiary of Borrower is the surviving entity of such merger
(and, if such Subsidiary of Borrower is not already a Borrower and if Bank so requires, such
Subsidiary becomes either an additional Borrower hereunder, or a Guarantor all of whose assets
become subject to Bank’s first-priority continuing security interests, in accordance with Loan
Documents satisfactory to Bank; (iii) the acquired entity is in the same or similar line of
business as Borrower; (iv) the acquisition is a non-hostile acquisition (as determined by Bank in
its good faith business judgment); (v) the acquired entity must show a positive trailing six (6)
month GAAP EBITDA (except that this clause (v) is not applicable in the case of any such
acquisition whose total consideration is less than Two Million Five Hundred Thousand Dollars
($2,500,000); (vi) the total cash consideration paid by Borrower in all such acquisitions cannot
exceed Five Million Dollars ($5,000,000) in the aggregate in any consecutive-twelve-months-period;
(vii) Bank shall have received lien searches listing all effective financing statements which name
the disappearing entity of such merger as debtor that arc filed in the applicable filing offices,
none of which financing statements shall cover any of the assets of such disappearing entity,
except (x) Permitted Liens, (y) financing statements as to which Bank has received evidence
satisfactory to Bank of the confirmed termination thereof (or Bank has received duly executed
written authorization, in form and substance satisfactory to Bank, from the appropriate parties to
terminate such financing statements), or (z) as otherwise agreed in writing by Bank; and (viii)
Bank shall have received such other information (if any) as Bank may reasonably request relative to
such proposed merger.
(a) Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
(b) Without limiting the generality of Section 7.4(a), all present and future indebtedness of
Borrower to its officers, directors, and equityholders (“Inside Debt”) shall, at all times, be
subordinated to the Obligations pursuant to a subordination agreement on Bank’s standard form.
Borrower represents and warrants that there is no Inside Debt presently outstanding. Prior to
incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt
will be owed to execute and deliver to Bank a subordination agreement on Bank’s standard form.
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7.5 Encumbrance. Create, incur, or allow 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 interests of Bank therein (subject in lien priority only to those Permitted
Liens that are expressly entitled to such priority over the security interests of Bank by operation
of law or by written subordination agreement duly executed and delivered by Bank in favor of the
holders of such Permitted Liens), or enter into any agreement, document, instrument or other
arrangement (except with or in favor of Bank) with any Person which directly or indirectly
prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging,
pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the
definition of “Permitted Lien” herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.8 hereof.
(a) Directly or indirectly make any Investment other than Permitted Investments, or permit any
of its Subsidiaries to do so.
(b) Pay any dividends or make any distribution or payment or redeem, retire or purchase any
capital stock; provided that: (i) Borrower may convert any of its convertible securities into
other securities pursuant to the terms of such convertible securities or otherwise in exchange
thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase
the stock of former employees, directors, or consultants pursuant to stock repurchase agreements so
long as an Event of Default does not exist at the time of such repurchase and would not exist after
giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of
Fifty Thousand Dollars ($50,000) per fiscal year.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, except for transactions that are in the
ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under
the terms of the subordination, intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or the amount of any permitted payments
thereunder or adversely affect the subordination thereof to Obligations owed to Bank.
7.10 Compliance. Become an “investment company” or a company controlled by an “investment
company”, under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as defined in Regulation U
of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to cause a Material Adverse Change, 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.
Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:
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8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Credit Extension on its due date, or (b) pay any other Obligations within 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);
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.7, 6.8, 6.9
or 6.10(c) 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 Material Adverse Change. A Material Adverse Change occurs;
(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. There is, under any agreement to which Borrower is a party with a third
party or parties, (a) any default resulting in a right by such third party or parties, whether or
not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the
aggregate in excess of Five Hundred Thousand Dollars ($500,000); or (b) any default by Borrower,
the result of which could 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 Five Hundred Thousand Dollars ($500,000) (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;
8.10 Governmental Approvals. Any material Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in a materially adverse manner or not renewed in the ordinary course
for a full term or (b) subject to any decision by a Governmental Authority that designates a
hearing with respect to any applications for renewal of any of such Governmental Approval and that
could reasonably be expected to result in the Governmental Authority taking any of the actions
described in clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a Material Adverse
Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries
to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission,
suspension, modification or non-renewal could reasonably be expected to affect the status of or
legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in
any other jurisdiction.
9.1 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 one hundred ten
percent (110%) 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) terminate any FX Forward Contracts;
(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s
security interest in such funds, and verify the amount of such account;
(f) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Bank requests and make it available as Bank designates. Bank may enter premises where the
Collateral is located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank’s rights or remedies;
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(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Bank owing to or for the credit or the account of Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of
use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of, advertising for sale, and
selling any Collateral and, in connection with Bank’s exercise of its rights under this Section,
Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(i) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to any Control
Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of Borrower’s Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or xxxx of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all
claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of Bank’s security interest in the Collateral regardless of whether an
Event of Default has occurred until all Obligations have been satisfied in full and Bank is under
no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as
Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to
provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.7
or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to
pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such
payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest 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. If an Event of Default has occurred and is
continuing, Bank may apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole
discretion. Any surplus shall be paid to Borrower by credit to the Designated Deposit Account or
to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.
If Bank, in its good faith business judgment, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have
the option, exercisable at any time, of either reducing the Obligations by the principal amount of
the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank
of cash therefor.
9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under the control of
Bank, Bank shall not be liable or
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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.
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: | CARDIAC SCIENCE CORPORATION | |||
| 0000 Xxxxx Xxxxx Xxxxxxx | ||||
| Xxxxxxx, XX 00000 | ||||
| Attn: Xxxxxxx Xxxxxxx | ||||
| Fax: (000) 000-0000 | ||||
| Email: XXxxxxxx@xxxxxxxxxxxxxx.xxx | ||||
| If to Bank: | Silicon Valley Bank | |||
| 000 0xx Xxxxxx, Xxxxx 0000 | ||||
| Xxxxxxx, XX 00000 | ||||
| Attn: Xxxx Xxxxxxxxx | ||||
| Fax: (000) 000-0000 | ||||
| Email: xxxxxxxxxx@xxx.xxx |
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
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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.
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.
12.1 Termination Prior to Revolving Line Maturity Date. This Agreement may be terminated
prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after
written notice of termination is given to Bank. Notwithstanding any such termination, Bank’s lien
and security interest in the Collateral shall continue until Borrower fully satisfies its
Obligations.
12.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors
and permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Bank’s prior written consent (which may be granted or withheld in
Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell,
transfer, 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.
12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors,
officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank
(each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and
liabilities (collectively, “Claims”) claimed or
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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, consequential to, or arising
from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses),
except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or
willful misconduct.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.
12.5 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.6 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in
the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrower
with written notice of such correction and allows Borrower at least ten (10) days to object to such
correction. In the event of such objection, such correction shall not be made except by an
amendment signed by both Bank and Borrower.
12.7 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.
12.8 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, is an
original, and all taken together, constitute one Agreement.
12.9 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.3
to indemnify Bank shall survive until the statute of limitations with respect to such claim or
cause of action shall have run.
12.10 Confidentiality. In handling any confidential information, Bank shall exercise the same
degree of care that it exercises for its own proprietary information, but disclosure of information
may be made: (a) to Bank’s Subsidiaries or Affiliates (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, Bank shall use its best efforts to obtain any
prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required
by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in
connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising
remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such
service providers have executed a confidentiality agreement with Bank with terms no less
restrictive than those contained herein. Confidential information does not include information
that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank; or (ii) 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
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immediately preceding sentence shall survive the termination of this Agreement.
12.11 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and
Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.
12.12 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.
12.13 Captions. The headings used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
12.14 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.
12.15 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.
12.16 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.
12.17 Effect of Amendment and Restatement. This Agreement amends and restates in its entirety
the Existing Loan Agreement. Except for the Existing Loan Agreement (which is being amended and
restated in its entirety by this Agreement) and that certain Amended and Restated Intellectual
Property Security Agreement executed by Borrower in favor of Bank dated as of April 27, 2010, all
other Existing Loan Documents shall continue in full force and effect and constitute Loan
Documents, including without limitation, all documents entered into by the Borrower and Bank in
connection with Letters of Credit, FX Forward Contracts, or Cash Management Services, all security
agreements (which shall continue to secure all present and future indebtedness, liabilities,
guarantees and other Obligations), all lockbox agreements and blocked account agreements, all
control agreements relating to deposit accounts, securities accounts or other accounts, all
warrants to purchase stock or other securities or interests, all investor rights and other
agreements relating to stock or securities, and all UCC-1 financing statements and other documents
filed with governmental offices which perfect liens or security interests in favor of Bank.
References in any such surviving Loan Documents to “Loan Agreement” shall be deemed to refer to
this Agreement instead of the Existing Loan Agreement. Except as otherwise set forth herein, this
Agreement is intended to and does completely amend and restate, without novation, the Existing Loan
Agreement. All security interests granted under the Existing Loan Agreement are hereby confirmed
and ratified and shall continue to secure all Obligations under this Agreement.
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.
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“Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
“Affiliate” 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 (a) the lesser of (i) the Revolving Line minus the outstanding
principal balance of any EX-IM Advances or (ii) the amount available under the Domestic Borrowing
Base minus (b) 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 (c)
the FX Reduction Amount, minus (d) any amounts used for Cash Management Services, and minus (e) the
outstanding principal balance of any Advances.
“Bank” is defined in the preamble hereof.
“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
“Borrower” is defined in the preamble hereof.
“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 Resolutions” are, with respect to any Person, those resolutions substantially in
the form attached hereto as Exhibit E.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or any agency or any State thereof having maturities of not more
than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1)
year after its creation and having the highest rating from either Standard & Poor’s Ratings Group
or Xxxxx’x Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the
assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of
this definition.
“Cash Management Services” is defined in Section 2.1.4.
“Change in Control” means any event, transaction, or occurrence as a result of which (a) any
“person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding
securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the
meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of
Borrower, representing 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 at least two-thirds of the directors then still in office who either were directions
at the beginning of such period or whose
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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.
“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 C.
“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.
“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.
“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, EX-IM Advance, Letter of Credit, FX Forward Contract,
amount utilized for Cash Management Services, or any other extension of credit by Bank for
Borrower’s benefit.
“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.
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“Designated Deposit Account” is Borrower’s deposit account, account number ,
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 Borrowing Base” is (a) eighty percent (80%) of Eligible Domestic Accounts plus (b)
the lesser of (I) thirty five percent (35%) of Eligible Domestic Inventory or (II) Two Million Five
Hundred Thousand Dollars ($2,500,000), all as determined by Bank from Borrower’s most recent
Transaction Report; provided, however, that Bank may decrease the foregoing amounts and percentages
in its good faith business judgment based on events, conditions, contingencies, or risks which, as
determined by Bank, may adversely affect Collateral; and provided, further that the amount in
subsection (b) above (EX-IM Eligible Domestic Inventory) may not exceed forty percent (40%) of the
dollar amount of Eligible Domestic Accounts at any time.
“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any
state or territory thereof or the District of Columbia.
“Effective Date” is defined in the preamble hereof.
“Eligible Domestic Accounts” means Accounts owing from an Account Debtor which has its
principal place of business in the United States or Canada 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 Domestic Accounts shall not include:
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;
(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have
not been paid within ninety (90) days of invoice date;
(c) Accounts owing from an Account Debtor which does not have its principal place of business
in the United States or Canada;
(d) Accounts billed and/or payable outside of the United States;
(e) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated
in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise — sometimes called
“contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;
(f) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(g) Accounts with credit balances over ninety (90) days from invoice date;
(h) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that
percentage, unless Bank approves in writing;
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(i) Accounts owing from an Account Debtor which is a United States government entity or any
department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to
Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940,
as amended;
(j) Accounts for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account
Debtor’s payment may be conditional;
(k) Accounts owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called memo xxxxxxxx or
pre-xxxxxxxx);
(l) Accounts subject to contractual arrangements between Borrower and an Account Debtor where
payments shall be scheduled or due according to completion or fulfillment requirements where the
Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to
perform in accordance with the contract (sometimes called contracts accounts receivable, progress
xxxxxxxx, milestone xxxxxxxx, or fulfillment contracts);
(m) Accounts owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the
extent of the amount withheld; sometimes called retainage xxxxxxxx);
(n) Accounts subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;
(o) Accounts owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an
agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that
(i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the
goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from
Borrower (sometimes called “xxxx and hold” accounts);
(p) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred
Revenue (but only to the extent of such Deferred Revenue);
(q) Accounts for which the Account Debtor has not been invoiced;
(r) Accounts that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;
(s) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;
(t) Accounts subject to chargebacks or others payment deductions taken by an Account Debtor
(but only to the extent the chargeback is determined invalid and subsequently collected by
Borrower);
(u) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding,
or becomes insolvent, or goes out of business; and
(v) Accounts for which Bank in its good faith business judgment determines collection to be
doubtful.
“Eligible Domestic Inventory” means, at any time, the aggregate of Borrower’s Inventory that
(a) consists of either raw materials or 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; (b) meets all applicable governmental standards; (c)
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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) located at the locations in the United States identified by
Borrower in the Perfection Certificate where it maintains Inventory and where Bank has obtained a
bailee agreement or landlord waiver in form and substance acceptable to Bank; and (f) is otherwise
acceptable to Bank in its good faith business judgment.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Excess Availability” (a) the lesser of (i) the Revolving Line plus Three Million Dollars
($3,000,000) or (ii) the amount of the Domestic Borrowing Base plus the amount available to be
borrowed under the EX-IM Loan Documents minus (b) 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 (c) the FX Reduction Amount, minus (d) any amounts used for Cash
Management Services, and minus (e) the outstanding principal balance of any Advances and any EX-IM
Advances.
“Exchange Act” is the Securities Exchange Act of 1934, as amended.
“EX-IM” means the Export-Import Bank of the United States of America.
“EX-IM Advance” has the meaning set forth in the EX-IM Loan Agreement.
“EX-IM Borrower Agreement” means that certain Export-Import Bank of the United States Working
Capital Guarantee Program, dated as of even date herewith by and between Bank and Borrower (as the
same may from time to time be further amended, modified, supplemented or restated).
“EX-IM Borrowing Base Certificate” has the meaning set forth in the EX-IM Loan Agreement.
“EX-IM Eligible Foreign Accounts” has the meaning set forth in the EX-IM Loan Agreement.
“EX-IM Eligible Foreign Inventory” has the meaning set forth in the EX-IM Loan Agreement.
“EX-IM Loan Agreement” means that certain Loan and Security Agreement (EX-IM Loan Facility)
dated of even date herewith by and between Bank and Borrower (as the same may from time to time be
further amended, modified, supplemented or restated).
“EX-IM Loan Documents” means collectively, the EX-IM Loan Agreement, EX-IM Borrower Agreement,
any note, or notes or guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with the EX-IM Loan Agreement, all as
amended, extended or restated.
“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.
“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its
normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to
Bank from the entity from which Bank shall buy or sell such Foreign Currency.
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“FX Forward Contract” is defined in Section 2.1.3.
“FX Reduction Amount” is defined in Section 2.1.3.
“FX Reserve” is defined in Section 2.1.3.
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date of determination.
“GAAP EBITDA” means (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.
“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.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.
“Indemnified Person” is defined in Section 12.3.
“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 Borrower’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
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(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,
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).
“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 Second Amended and Restated 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).
“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.
“Liquidity” is Qualified Cash plus Excess Availability.
“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, the IP
Agreement, the EX-IM Loan Documents, 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.
“Monthly Financial Statements” is defined in Section 6.2(c).
“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries
for any period as at any date of determination, the net profit (or loss), after provision for
taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.
“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating to letters of
credit (including reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if
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any, and including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under
the Loan Documents.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in
current form, (b) if such Person is a limited liability company, its limited liability company
agreement (or similar agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current amendments or
modifications thereto.
“Overadvance” is defined in Section 2.2.
“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.
“Payment” means all checks, wire transfers and other items of payment received by Bank
(including proceeds of Accounts and payment of the Obligations in full) for credit to Borrower’s
outstanding Credit Extensions or, if the balance of the Credit Extensions has been reduced to zero,
for credit to its deposit accounts.
“Payment/Advance Form” is that certain form attached hereto as Exhibit B.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of
“Permitted Liens” hereunder; and
(g) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
“Permitted Investments” are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date
and shown on the Perfection Certificate;
(b) (i) Investments consisting of Cash Equivalents, and (ii) any Investments permitted by
Borrower’s investment policy, as amended from time to time, provided that such investment policy
(and any such amendment thereto) has been approved in writing by Bank;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;
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(d) Investments consisting of deposit accounts in which Bank has a perfected security
interest;
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
(f) Equity Investments (i) by Borrower in Subsidiaries not to exceed One Hundred Thousand
Dollars ($100,000) in the aggregate in any fiscal year and (ii) by Subsidiaries in other
Subsidiaries not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal
year or in Borrower;
(g) Investments consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;
(h) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of business; and
(i) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary;
“Permitted Liens” are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (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) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000) in
the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien
is confined to the property and improvements and the proceeds of the Equipment;
(d) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature
arising in the ordinary course of business so long as such Liens attach only to Inventory and which
are not delinquent or remain payable without penalty or which are being contested in good faith and
by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale
of the property subject thereto;
(e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business (other than
Liens imposed by ERISA);
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary course of 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;
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(h) non-exclusive license of Intellectual Property granted to third parties in the ordinary
course of business; and
(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 and 8.7.
“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” means the Prime Rate published in the Money Rates section of the Western Edition
of The Wall Street Journal, or such other rate of interest publicly announced from time to time by
Bank as its Prime Rate. Bank may price loans to its customers at, above or below the Prime Rate.
Any change in the Prime Rate shall take effect at the opening of business on the day specified in
the public announcement of a change in Prime Rate.
“Qualified Cash” means unrestricted cash held at Bank or Bank’s affiliates subject to an
account control agreement in favor of Bank.
“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.
“Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.
“Reserves” means, as of any date of determination, such amounts as Bank may from time to time
establish and revise in its good faith business judgment, reducing the amount of Advances and other
financial accommodations which would otherwise be available to Borrower (a) to reflect events,
conditions, contingencies or risks which, as determined by Bank in its good faith business
judgment, do or may adversely affect (i) the Collateral or any other property which is security for
the Obligations or its value (including without limitation any increase in delinquencies of
Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Bank in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Bank’s good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any Guarantor to Bank is
or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of
any state of facts which Bank determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.
“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 reasonably be expected to interfere with the Bank’s
right to sell any material portion of the Collateral.
“Revolving Line” is an Advance or Advances in an amount equal to Fifteen Million Dollars
($15,000,000).
“Revolving Line Maturity Date” is the date three hundred sixty four (364) days from the
Effective Date.
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“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.
“Streamline Period” means any period of time when (i) Borrower’s Qualified Cash plus (ii) the
Availability Amount is greater than Fifteen Million Dollars ($15,000,000).
“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now
or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Bank entered into between Bank and the other
creditor), on terms acceptable to Bank.
“Subsidiary” 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.
“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its
Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items
including unamortized debt discount and expense, Patents, Trademarks, Copyrights, and research and
development expenses except prepaid expenses, (iii) notes, accounts receivable and other
obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves not already
deducted from assets, minus (b) Total Liabilities.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all Indebtedness but excluding
Subordinated Debt.
“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.
“Transaction Report” is that certain report of transactions and schedule of collections in the
form attached hereto as Exhibit D.
“Transfer” is defined in Section 7.1.
“Unused Revolving Line Facility Fee” is defined in Section 2.4(c).
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
BORROWER:
CARDIAC SCIENCE CORPORATION
By |
/s/ Xxxxxxx X.
Xxxxxxx
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|
Name: Xxxxxxx X.
Xxxxxxx
|
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Title: SVP,
CFO
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BANK:
SILICON VALLEY BANK
By |
/s/ Xxxx Xxxxxxxxx
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Name: Nick
Xxxxxxxxx
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Xxxxx: Relationship
Manager
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EXHIBIT A
The Collateral consists of all of Borrower’s right, title and interest in and to all personal
property, including without limitation the following:
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, 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.
1