LOAN AND SECURITY AGREEMENT
Exhibit 10.27
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective Date between
SILICON VALLEY BANK, a California corporation (“Bank”), and CARDIOVASCULAR SYSTEMS, INC., a
Minnesota corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1 Revolving Advances.
(a) Availability. Subject to the terms and conditions of this Agreement and to
deduction of Reserves, Bank shall make Advances not exceeding the
Availability Amount. 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) Streamline Period. Borrower may, at its option, elect not to have any Advances
outstanding during specified periods of time (each, a “Streamline Period”). At least 30 days prior
to requesting that a Streamline Period be put into effect, Borrower shall (i) give Bank written
notice thereof, specifying the date the Streamline Period is to begin and (ii) pay to Bank, by wire
transfer, an amount sufficient to repay in full all outstanding Advances, all accrued interest
thereon, and all other outstanding monetary Obligations with respect to the Revolving Line. A
Streamline Period may not be put into effect if there are outstanding Obligations in connection
with Cash Management Services in excess of One Million Dollars ($1,000,000). During a Streamline
Period, Borrower will not be permitted to incur Obligations in connection with Cash Management
Services in an amount more than One Million Dollars ($1,000,000) in the aggregate at any time
outstanding. Borrower may not request any Advances, and Bank shall have no obligation to make any
Advances, within the 30 days prior to the beginning of a Streamline Period or during a Streamline
Period. To terminate a Streamline Period, Borrower shall provide Bank at least 30 days prior
written notice of the date for such termination (which date shall not be earlier than 30 days after
such Streamline Period began) together with such information relating to the Eligible Accounts and
other Collateral as Bank may specify.
(c) Termination; Repayment. Borrower shall pay Bank accrued interest on the Revolving
Line beginning on the last day of the calendar month during which the first Advance is made and
continuing on the same day of each succeeding month. 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. Borrower may terminate the Revolving Line prior to the
Revolving Line Maturity Date, effective five (5) Business Days after written notice of
termination is given to Bank, on which date Borrower shall repay the principal amount of all
Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line.
If the Borrower terminates the Revolving Line prior to the Revolving Line Maturity Date, or if Bank
terminates the Revolving Line prior to the Revolving Line Maturity Date due to the occurrence and
continuance of an Event of Default, or if the Obligations under the Revolving Line otherwise become
due and payable as the result of an Event of Default (including, without limitation, becoming due
and payable as the result of an Insolvency Proceeding), Borrower shall immediately pay to Bank, in
addition to the payment of any other expenses or fees then-owing, a termination fee in an amount
equal to 2% of the Maximum Dollar Amount. Without limitation on the fact that such fee shall be
due as set forth in the preceding sentence, such fee shall bear interest until paid at a rate equal
to the highest rate applicable to the Revolving Line. Notwithstanding
any termination of the Revolving Line, Bank’s liens and security interests in the Collateral and all of Bank’s rights and
remedies under this Agreement shall continue until Borrower fully satisfies all Obligations.
(d) Audit Condition Precedent. Bank shall have no obligation to make any Advance
until 30 days following the completion of the Initial Audit with results satisfactory to Bank,
provided that Bank will allow Borrower to use up to $500,000 of the Revolving Line for Cash
Management Services beginning on the Effective Date (and any amounts that Bank pays on behalf of
Borrower for Cash Management Services shall be treated as Advances in accordance with Section
2.1.4).
2.1.2 Term Loan A.
(a) Availability. Bank shall make a term loan to Borrower in the amount of Term Loan
A Commitment Amount (the “Term Loan A”) within five (5) days from the Effective
Date subject to the satisfaction of the terms and conditions of this Agreement. No portion of
the Term Loan A may be re-borrowed after repayment.
(b) Repayment. Borrower shall pay Bank accrued interest on the Term Loan A beginning
on the first day of the calendar month following the month during which the Term Loan A is made and
continuing on the same day of each succeeding month. Borrower shall repay the Term Loan A in 30
equal monthly payments of principal and accrued interest, each in the amount necessary to fully
amortize the Term Loan A over such period (such amount to be calculated by Bank), commencing on
March 1, 2009 and continuing on the first day of each calendar month thereafter until the Term Loan
A Maturity Date on which date the entire unpaid principal balance of the Term Loan A, plus the
Final Payment, plus any and all accrued and unpaid interest, and plus all other sums, if any, that
shall have become due and payable hereunder with respect to the Term Loan A, shall be paid.
(c) Permitted Prepayment. At Borrower’s option, so long as an Event of Default has not
occurred and is not continuing, Borrower shall have the option to prepay all, but not less than
all, of the Term Loan A, provided Borrower (i) provides written notice to Bank of its
election to prepay the Term Loan A at least thirty (30) days prior to such prepayment, and
(ii) pays, on the date of the prepayment (A) all accrued and unpaid interest with respect to the
Term Loan A through the date the prepayment is made; (B) all unpaid principal with respect to the
Term Loan A; (C) a fee equal to the Make-Whole Premium; (D) the Final Payment; and (E) all other
sums, if any, that shall have become due and payable hereunder with respect to the Term Loan A.
Without limitation on the fact that such amounts shall be due on the date of the prepayment, they
shall bear interest from the date due until paid at a rate equal to the highest rate applicable to
the Term Loan A.
(d) Fee and Final Payment Due Upon Acceleration. If all or any portion of the Term
Loan A has become due and payable according to the terms hereof because of the occurrence and
continuance of an Event of Default, Borrower shall pay to Bank on the date that it has become due
and payable according to the terms hereof, in addition to any other sums owing, a fee equal to the
Make-Whole Premium, plus the Final Payment. Without limitation on the fact that such amounts shall
be due as set forth in the preceding sentence, they shall bear interest from the date due until
paid at a rate equal to the highest rate applicable to the Term Loan A.
2.1.3 Term Loan B.
(a) Availability. Bank shall make two term loans to Borrower in the amounts of
$3,000,000 (the “Term Loan B1”) and $2,500,000 (the “Term Loan B2”), respectively, within five (5)
days from the Effective Date subject to the satisfaction of the terms and conditions of this
Agreement. (Term Loan B1 and Term Loan B2 shall be collectively referred to as the “Term Loan B”.)
No portion of the Term Loan B may be re-borrowed after repayment. Borrower shall execute and
deliver to Bank promissory notes in the form provided by Bank to further evidence the Term Loan B1
and Term Loan B2 (the “Term Loan B Promissory Notes”). Nothing in Term Loan B Promissory Notes
shall be deemed to limit any of the terms or provisions of this Agreement or any of the other Loan
Documents, and all of Bank’s rights and remedies hereunder, under Term Loan B Promissory Notes, and
under the Loan Documents are cumulative. In case of any conflict between the Term Loan B
Promissory Notes and this Agreement, this Agreement shall control.
(b) Repayment. Borrower shall pay Bank accrued interest on the Term Loan B beginning
on the first day of the calendar month following the month during which the Term Loan B is made and
continuing on the same day of each succeeding month. On the Term Loan B Maturity Date Borrower
shall pay the entire unpaid
-2-
principal balance of the Term Loan B, plus any and all accrued and unpaid interest, and plus all
other sums, if any, that shall have
become due and payable hereunder with respect to the Term Loan B. To the extent that Bank applies
any payment or other credit to the principal or accrued interest of the Term Loan B, Bank shall
make a reasonable effort to allocate such payments and credits to the Term Loan B1 and the Term
Loan B2 pro rata according to the amounts outstanding with respect to each, but Bank shall have no
liability for failing to do so, and Bank may apply and reverse and reapply such payments and
credits in order to do so.
(c) No Prepayment. Borrower shall have no right to pay, and Bank shall have no
obligation to accept for application to the Term Loan B, any payment of or other credit against the
principal of the Term Loan B prior to the Term Loan B Maturity Date.
2.1.4 Cash Management Services Sublimit. Borrower may use up to $1,000,000 of the Revolving
Line for Bank’s cash management services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s various cash
management services agreements (collectively, the “Cash Management Services”). Any amounts Bank
pays on behalf of Borrower 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 or for any reason the total of all outstanding Advances
(including without limitation any amounts used for Cash Management Services) and all other monetary
Obligations relating to the Revolving Line exceeds the lesser of the Maximum Dollar Amount or the
amount available under the Borrowing Base, Borrower shall immediately pay the amount of the excess
in cash to Bank, without notice or demand. Without limiting Borrower’s obligation to pay such
excess, Borrower agrees to pay Bank interest on the outstanding amount of any such excess, on
demand, at the Default Rate.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rate.
(i) 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 2.0 percentage points
above the Prime Rate, provided that the interest rate in effect on any day shall not be less than
7.0% per annum, which interest shall be payable monthly.
(ii) Term Loan A. Subject to Section 2.3(b), the
principal amount outstanding under
the Term Loan A shall accrue interest at a per annum rate equal to 10.5%, which interest shall be
payable monthly.
(iii) Term Loan B. Subject to Section 2.3(b), the
principal amount outstanding under
the Term Loan B shall accrue interest at a floating per annum rate equal to 2.25 percentage points
above the Prime Rate, provided that the interest rate in effect on any day shall not be less than
7.0% per annum, which interest shall be payable monthly.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is five percentage
points above the rate which is otherwise applicable to the Obligations (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Bank.
(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of any change to the
Prime Rate and to the extent of any such change.
(d) 360-Day
Year. Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed.
-3-
(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including
the Designated Deposit Account, for principal and interest payments or any other amounts Borrower
owes Bank when due. These debits shall not constitute a set-off.
(g) Payment; Interest Computation; Float Charge. Unless otherwise provided, interest
is payable monthly on the last calendar day of each month. In computing interest on the
Obligations, all Payments received after 12:00 p.m. Pacific time on any day shall be deemed
received on the next Business Day. In addition, so long as any principal or interest with respect
to any Credit Extension remains outstanding, Bank shall be entitled to charge Borrower a “float”
charge in an amount equal to two (2) Business Days interest, at the interest rate applicable to the
Advances, on all Payments received by Bank, unless at the time of receipt a Streamline Period is in
effect and no Event of Default has occurred and is continuing. 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. Fully earned, non-refundable commitment fees of $50,000 on each
of the Effective Date and the first anniversary of the Effective Date; and
(b) Collateral Monitoring Fee. A collateral monitoring fee of $750 for each month
during which both (i) the Streamline Period is not in effect for the entire month and (ii) no Event
of Default exists, 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
(c) Unused Revolving Line Facility Fee. A fee, payable quarterly, in arrears, on a
calendar year basis, in an amount equal to 0.375% 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 under the Cash Management Services Sublimit for
products provided. Borrower shall not be entitled to any credit, rebate or repayment of any such
fee previously earned by Bank pursuant to this Section notwithstanding any termination of this
Agreement, or suspension or termination of Bank’s obligation to make loans and advances hereunder,
including during any Streamline Period; and
(d) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses, and expenses for documentation and negotiation of this Agreement) incurred through and
after the Effective Date, when due.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial
Credit Extension is subject to the condition precedent that Borrower shall consent to or
have delivered, in form and substance satisfactory to Bank, such documents, and completion of
such other matters, as Bank may reasonably deem necessary or appropriate, including, without
limitation:
(a) duly executed original signatures to the Loan Documents to which it is a party;
(b) duly executed original signatures to the Warrant;
(c) its Operating Documents and a good standing certificate of Borrower certified by the
Secretary of State of the State of Minnesota as of a date no earlier than thirty (30) days prior to
the Effective Date;
(d) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(e) duly executed original signatures to the Limited Guaranties;
(f) duly executed original signatures to the Standby Purchase Agreement;
-4-
(g) duly executed original signatures to a subordination agreement by Maverick (the
“Maverick
Subordination Agreement”), in favor of Bank and acceptable to Bank in its sole discretion, and
consented to by Borrower, whereby Maverick subordinates the repayment of, and any liens securing,
any indebtedness of Borrower that may be purchased pursuant to the Standby Purchase Agreement, and
agrees not to exercise any of its rights or remedies in connection therewith for a period of time
acceptable to Bank;
(h) certified copies, dated as of a recent date, of financing statement searches, as Bank
shall request, accompanied by written evidence (including any UCC termination statements) that the
Liens indicated in any such financing statements either constitute Permitted Liens or have been or,
in connection with the initial Credit Extension, will be terminated or released;
(i) the Perfection Certificate(s) executed by Borrower;
(j) duly executed original signatures to a subordination agreement from each of the Guarantors
whom are providing a Limited Guaranty (the “Guarantor Subordination Agreements”), in favor of Bank
and acceptable to Bank in its sole discretion, and consented to by Borrower, whereby such
Guarantors subordinate any rights of reimbursement, subrogation, indemnity or any other rights
against Borrower that arise in connection with any payment or performance by such Guarantors under
the Limited Guaranties, and agree not to exercise any rights or remedies in connection therewith
for a period of time acceptable to Bank;
(k) a copy of its Investor’s Rights Agreement and any amendments thereto;
(l) the insurance policies and/or endorsements required pursuant to Section 6.7 hereof;
(m) the Initial Projections, which shall be acceptable to Bank in its discretion;
(n) evidence that Borrower has received the UBS Loan; and
(o) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.
3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to make each Credit
Extension, including the initial Credit Extension, is subject to the following:
(a) (i) to obtain an Advance, except as otherwise provided in Section 3.4, timely
receipt of
an executed Transaction Report, and (ii) to obtain a Term Loan A or Term Loan B, timely receipt of
an executed Payment/Advance Form;
(b) the representations and warranties in Section 5 shall be true in all material respects
on
the date of the Transaction Report or Payment/Advance Form (as applicable) and on the Funding Date
of each Credit Extension; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those representations
and warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date, and no Event of Default shall have occurred and be continuing or
result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty
on that date that the representations and warranties in Section 5 remain true in all material
respects; provided, however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material respects as of such date; and
(c) in Bank’s good faith business judgment, there has not been a Material Adverse Change.
3.3 Covenant to Deliver.
Borrower agrees to deliver to Bank each item required to be delivered to Bank under this
Agreement as a condition to any Credit Extension. Borrower expressly agrees that a Credit
Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank
of Borrower’s obligation to deliver such item, and any such Credit Extension in the absence of a
required item shall be made in Bank’s sole discretion.
-5-
3.4 Procedures for Borrowing Advances. 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, 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.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and
performance in full of all of the Obligations, a continuing security interest in, and pledges to
Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a first priority perfected
security interest in the Collateral (subject only to Permitted Liens that may have superior
priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim,
Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof
and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory
to Bank.
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment
in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as
Bank’s obligation to make Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein shall revert to Borrower.
4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file
financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or
protect Bank’s interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code. Without limitation on the foregoing, Bank may, in its sole discretion, file more
than one financing statement in any jurisdiction in order to facilitate the operation of the
Standby Purchase Agreement.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents, warrants and agrees as follows:
5.1 Due Organization and Authorization. Borrower is duly existing and in good standing 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 Change. 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.
-6-
The execution, delivery and performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with any of Borrower’s
organizational documents, (ii) contravene, conflict with, constitute a default under or
violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable
order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may be bound or
affected, (iv) require any action by, filing, registration, or qualification with, or Governmental
Approval from, any Governmental Authority (except such Governmental Approvals which have already
been obtained and are in full force and effect or (v) constitute an event of default under any
material agreement by which Borrower is bound. Borrower is not in default under any agreement to
which it is a party or by which it is bound in which the default could reasonably be expected to
cause a Material Adverse Change.
5.2 Collateral. Borrower has good title to the Collateral, free of Liens except Permitted
Liens. Borrower has no deposit account other than the deposit accounts with Bank and deposit
accounts 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, pursuant to documentation reasonably acceptable to Bank. 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. In the event that Borrower, after the date hereof, intends to
store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first
receive the written consent of Bank and such bailee must execute and deliver a bailee agreement in
form and substance satisfactory to Bank in its sole discretion.
All Inventory is in all material respects of good and marketable quality, free from material
defects.
Borrower has not granted any Liens against or licenses to its intellectual property, except
for non-exclusive licenses granted to its customers in the ordinary course of business. Each
patent is valid and enforceable, and no part of the intellectual property has been judged invalid
or unenforceable, in whole or in part, and to the best of Borrower’s knowledge, no claim has been
made that any part of the intellectual property violates the rights of any third party except
to the extent such claim could not reasonably be expected to have a material adverse effect on
Borrower’s business. Except as noted on the Perfection Certificate, Borrower is not a party to,
nor is bound by, any material license or other agreement with respect to which Borrower is the
licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in
Borrower’s interest in such license or agreement or any other property, or (b) for which a default
under or termination of could interfere with the Bank’s right to sell any Collateral. Borrower
shall provide written notice to Bank within ten (10) days of entering or becoming bound by any such
license or agreement (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 (x) all such licenses or agreements 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 license or agreement, whether now
existing or entered into in the future, and (y) 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.
5.3 Accounts Receivable.
(a) For each Account with respect to which Advances are requested, on the date each Advance is
requested and made, such Account shall be an Eligible Account.
(b) All statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents, and all of Borrower’s Books are genuine and in all respects what
they purport to be. All sales and other transactions underlying or giving rise to each Eligible
Account shall comply in all material respects with all applicable laws and governmental rules and
regulations. Borrower has and will have no knowledge of any actual or imminent Insolvency
Proceeding of any Account Debtor whose accounts are shown as Eligible Accounts in any Transaction
Report. To the best of Borrower’s knowledge, all signatures and endorsements on all documents,
instruments, and agreements relating to all Accounts are and will be genuine, and all such
documents, instruments and agreements are and will be legally enforceable in accordance with their
terms.
-7-
5.4 Litigation. There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than $250,000, except as disclosed in the Perfection Certificate.
5.5 No Material Deviation in Financial Statements. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.
There has not been any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.6 Solvency. 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 cause a Material Adverse Change. None of Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of
Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have
obtained all consents, approvals and authorizations of, made all declarations or filings with, and
given all notices to, all
Government Authorities that are necessary to continue their respective businesses as currently
conducted.
5.8 Subsidiaries; Investments. Other than as disclosed in the Perfection Certificate,
Borrower does not have any Subsidiaries, other than Subsidiaries organized with the prior written
consent of Bank, and does not own any stock, partnership interest or other equity securities in any
other Person, except for Permitted Investments.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any
contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in
writing of the commencement of, and any material development in, the proceedings, (c) posts bonds
or takes any other steps required to prevent the governmental authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.
Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years
which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all
amounts necessary to fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from participation in, and has not
permitted partial or complete termination of, or permitted the occurrence of any other event with
respect to, any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or
any other governmental agency.
5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as
working capital, and to fund its general business requirements 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).
-8-
5.12 UBS Loan. On August 21, 2008, Borrower received net proceeds of $11,000,000 from a loan
by UBS Bank USA to Borrower, and as of the Effective Date, including such loan Borrower has loans
outstanding from UBS Bank USA in the aggregate of $22,880,599, including principal and accrued
interest, and Borrower can borrow additional amounts from UBS Bank USA that would allow such
aggregate amount of loans outstanding to increase to $23,000,000 of principal and accrued interest
(collectively, the “UBS Loans”). Borrower has provided Bank copies of all of the agreements,
instruments and documents relating to the UBS Loans (the “UBS Loan Documents”). The UBS Loans are
secured only by the Auction Rate Securities (UBS), and the UBS Loan Documents do not require
Borrower to provide or contemplate Borrower providing any additional collateral or proceeds from
any other Borrower assets, except that the UBS Loan Documents require Borrower to repay the UBS
Loans in the event that Borrower receives net proceeds exceeding $50,000,000 from an initial public
offering of Borrower’s stock.
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance. 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 cause a Material
Adverse Change. Borrower shall comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, noncompliance with which could
reasonably be expected to cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower shall provide Bank with the following:
| (i) | a Transaction Report (and any schedules related thereto) (y) weekly and at the time of each request for an Advance if a Streamline Period is not in effect or an Event of Default has occurred and is continuing, and (z) within thirty (30) days after the end of each month if a Streamline Period is in effect and no Event of Default has occurred and is continuing; | ||
| (ii) | within thirty (30) days after the end of each month, |
| (A) | monthly accounts receivable agings, aged by invoice date, | ||
| (B) | monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, | ||
| (C) | monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger, and | ||
| (D) | a Deferred Revenue report providing such information concerning Deferred Revenue as Bank shall reasonably request; |
| (iii) | as soon as available, and in any event within thirty (30) days after the end of each month, monthly unaudited financial statements; | ||
| (iv) | within thirty (30) days after the end of each month a monthly Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request, including, without limitation, a statement that at the end of such month there were no held checks; | ||
| (v) | [Reserved]; | ||
| (vi) | within thirty (30) days after 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 |
-9-
| 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 | |||
| (vii) | as soon as available, and in any event within 120 days following the end of Borrower’s fiscal year, annual financial statements certified by, and with an unqualified opinion of, independent certified public accountants acceptable to Bank. |
(b) At all times that Borrower is subject to the reporting requirements under the Securities
Exchange Act of 1934, as amended, within five (5) days after
filing, all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on Borrower’s or
another website on the Internet.
(c) 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 to Bank in writing,
or (iii) Borrower’s knowledge of an event that materially adversely affects the value of the
intellectual property.
6.3 Accounts Receivable.
(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standard
forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect
or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to
advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein.
If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of
all contracts, orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts. In addition, Borrower shall deliver to Bank, on
its request, the originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Accounts, in the same form as received,
with all necessary endorsements, and copies of all credit memos.
(b) Disputes. Borrower shall promptly notify Bank of all disputes or claims relating
to Accounts. Borrower may forgive (completely or partially), compromise, or settle any Account for
less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in
good faith, in a commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the regular reports provided to Bank;
and (ii) no Default or Event of Default has occurred and is continuing; and (iii) after taking into
account all such discounts, settlements and forgiveness, no Credit Extension(s) shall exceed any
limit thereon contained herein.
(c) Collection of Accounts. Until payment in full in cash of all Advances and all
other Obligations relating to the Revolving Line (other than inchoate indemnity obligations) and
Bank’s obligations to make Advances and any other Credit Extensions relating to the Revolving Line
have terminated (provided that Borrower’s obligation under this sentence shall not end at a time
when any Event of Default exists), Borrower shall be a party to a three party agreement (the
“Lockbox Agreement”) with Bank and a lockbox provider (the “Lockbox Provider”). The Lockbox
Agreement and Lockbox Provider shall be acceptable to Bank. Borrower shall use the lockbox address
as the payment address on all invoices issued by Borrower and shall direct all its Account Debtors
to remit their payments to the lockbox address. The Lockbox Agreement shall provide that the
Lockbox Provider shall remit all collections received in the lockbox to Bank. Upon Bank’s receipt
of such collections, Bank shall apply the same as follows:
| (i) | If a Streamline Period is in effect, Bank shall deposit such proceeds into the operating account of Borrower at Bank that is designated by Borrower; and | ||
| (ii) | If a Streamline Period is not in effect, Bank shall apply such proceeds to the outstanding Advances, and if all outstanding Advances have been paid in full, Bank shall deposit the remainder into the operating account of Borrower at Bank that is designated by Borrower; and |
-10-
| (iii) | If a Default or Event of Default has occurred and is continuing, without limiting Bank’s other rights and remedies, Bank shall have the right to apply such proceeds to the outstanding Obligations in such order as it shall determine in its discretion. |
It is understood and agreed by Borrower that this Section does not impose any affirmative duty on
Bank to do any act other than to turn over such amounts. Without limitation on the foregoing,
whether or not an Event of Default has occurred and is continuing, Borrower shall hold all payments
on, and proceeds of, Accounts that Borrower receives, in trust for Bank, and Borrower shall
immediately deliver all such payments and proceeds to Bank in their original form, duly endorsed,
to be applied to the Obligations pursuant to the terms of Section 9.4 hereof.
(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 hold the returned Inventory
in trust for Bank, and 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 pursuant to the terms of Section 9.4 hereof; provided that, if no
Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to
remit to Bank the proceeds of (a) 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), or (b) the disposition of marketable
securities that are held with or managed by Bank or Bank’s Affiliates, provided that if such
proceeds are to be moved from the account in which the marketable securities were held immediately
prior to such disposition, they are only moved to an operating account of Borrower with Bank for
use thereafter in the ordinary course of Borrower’s business. Borrower agrees that it will not
commingle proceeds of Collateral with any of Borrower’s other funds or property, but
will hold such proceeds separate and apart from such other funds and property and in an
express trust for Bank. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
6.5 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports, and timely pay, and require each of its Subsidiaries to timely
file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant
to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates
attesting to such payments, and pay all amounts necessary to fund all present pension, profit
sharing and deferred compensation plans in accordance with their terms.
6.6 Access to Collateral; Books and Records. At reasonable times, on five (5) 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. (Without limiting the foregoing, the parties acknowledge and agree that Borrower
shall allow the Initial Audit to be conducted within 90 days after the Effective Date.) The
foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be
$750 per person per day (or such higher amount as shall represent
Bank’s then-current standard
charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank
schedule an audit
-11-
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 $1,000 plus any
out-of-pocket expenses
incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or
rescheduling.
6.7 Insurance. Keep its business 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 an additional
lender loss payee and waive subrogation against Bank, and all liability policies shall
show, or have endorsements showing, Bank as an additional insured. All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer must give Bank at least
twenty (20) days notice before canceling, amending, or declining to renew its policy. At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the
Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is
continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to
$50,000, in the aggregate, toward the replacement or repair of destroyed or damaged property;
provided that any such replaced or repaired property (i) shall be of equal or like value as the
replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted
a first priority security interest, and (b) after the occurrence and during the continuance of an
Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be
payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required
under this Section 6.7 or to pay any amount or furnish any required proof of payment to third
persons, Bank may make all or part of such payment or obtain such insurance policies required in
this Section 6.7, and take any action under the policies Bank deems prudent.
6.8 Operating Accounts.
(a) Maintain all of its and all of its Subsidiaries’ operating and other deposit accounts,
securities accounts, and any other accounts at which Borrower or its Subsidiaries maintain funds or
investments (including without limitation any Collateral Accounts, but excluding the Auction Rate
Securities (UBS)) with Bank and Bank’s Affiliates.
(b) Without limitation on subsection “a” above, (i) 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, and (ii) for each Collateral Account that
Borrower at any time maintains, Borrower shall cause the applicable bank or financial
institution (other than Bank) at or with which any Collateral Account is maintained to execute and
deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account
to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder. The
provisions of “ii” of the previous sentence shall not apply to (y) 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, or (z) the Auction Rate
Securities (UBS).
(c) Notwithstanding anything to the contrary in this Section 6.8, Borrower shall have
until 30
days following the Effective Date to close its account at Xxxxx Fargo Bank, and during such period
Borrower shall not be required to provide a Control Agreement with respect to such account.
6.9 Financial Covenants. 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) Liquidity Ratio. A Liquidity Ratio of greater than 1.25 to 1.00, to be tested
as of the last day of each month during which any Advances were outstanding. In addition, if, at
the time an Advance is requested by the Borrower, the Liquidity Ratio has not been tested with
respect to the monthly financial statements of Borrower most recently received by Bank, then the
Liquidity Ratio shall be tested with respect to such financial statements prior to the Advance
being made.
(b) Performance to Plan. As of the last day of each month, Borrower’s net revenue
for such month shall be equal to at least 70% of Borrower’s projected revenue for such month as
outlined in the Initial Projections.
-12-
6.10 Intellectual Property Rights. Borrower shall: (a) protect, defend and maintain the
validity and enforceability of its intellectual property; (b) promptly advise Bank in writing of
material infringements of its intellectual property; and (c) not allow any intellectual property
material to Borrower’s business to be abandoned, forfeited or dedicated to the public without
Bank’s written consent. If Borrower (i) obtains any patent, registered trademark or servicemark,
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, servicemark or copyright, then Borrower shall immediately provide written notice
thereof to Bank. Borrower shall promptly provide to Bank copies of all applications that it files
for patents or for the registration of trademarks, servicemarks, copyrights or mask works.
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. Borrower shall execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to
effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively,
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or
property, except for (a) Transfers of Inventory in the ordinary course of business; (b) Transfers
of worn-out or obsolete Equipment; and (c) Transfers consisting of Permitted Liens and Permitted
Investments; and (d) Transfers of non-exclusive licenses for the use of the property of Borrower or
its Subsidiaries in the ordinary course of business.
7.2 Changes in Business, Management, Ownership, or Business Locations.
(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) permit a change in the record or beneficial ownership of an aggregate of more than 20%
of the outstanding shares of stock of Borrower, in one or more transactions, compared to the
ownership of outstanding shares of stock of Borrower in effect on the date hereof (other than by
the sale of Borrower’s equity securities in a public offering or to private equity investors so
long as Borrower identifies to Bank the private equity investors prior to the closing of the
transaction); 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 $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.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person, except that a
Subsidiary of Borrower may merge or consolidate into another Subsidiary of Borrower or into
Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
-13-
7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property or assets,
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, or permit any Collateral not to be
subject to the first priority security interest granted herein, or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Bank) with any Person
which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary
from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any
of Borrower’s or any Subsidiary’s intellectual property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Lien” herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.8 hereof.
7.7 Investments; Distributions. (a) Directly or indirectly make any Investment other than
Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or make
any distribution or payment or redeem, retire or purchase any capital stock, 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, (iii) Borrower may repurchase the stock of former employees or
consultants pursuant to stock repurchase agreements so long as no Default or Event of Default has
occurred at the time of such repurchase and would not exist after giving effect to such repurchase,
provided such repurchase does not exceed an aggregate of $50,000 in any fiscal year, and (iv) upon
the exercise of non-qualified stock option grants to purchase Borrower stock by an option holder
who is, or upon the vesting of restricted stock grants for Borrower stock to, an employee, member
of the Board of Directors or consultant of Borrower, Borrower may issue shares pursuant to such
exercise or vesting on a net issuance basis and pay the applicable withholding taxes to taxing
authorities on behalf of such employee, member of the Board of Directors or consultant of Borrower
receiving such shares.
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.
7.11 UBS Loans. Borrower shall not make any payments of principal with respect to the UBS
Loans other than payments from proceeds from the sale of Auction Rate Securities (UBS) and except
that the Borrower may repay the UBS Loans in the event Borrower receives net proceeds exceeding
$50,000,000 from an initial public offering of Borrower’s stock. The Borrower shall not provide
any collateral or other security for the UBS Loans other than the Auction Rate Securities (UBS).
Neither the UBS Loans nor the UBS Loan Documents shall be amended to increase the rate of interest
or any fees, costs or expenses, or to accelerate the
payment of the principal or interest or any other amount with respect to the UBS Loans or the
UBS Loan Documents.
-14-
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days
after such Obligations are due and payable. During the cure period, the failure to cure the
payment default is not an Event of Default (but no Credit Extension will be made during the cure
period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3, 6.4, 6.5,
6.6,
6.7, 6.8, or 6.9, or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within ten (10) days after
the occurrence thereof; provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10)
day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to cure the default shall not be
deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this section shall not apply, among other things, to financial covenants or
any other covenants set forth in subsection (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment; Levy; Restraint on Business. (a) (i) The service of process seeking to
attach, by trustee or similar process, any funds of Borrower or of any entity under control of
Borrower (including a Subsidiary) on deposit with Bank or any Bank Affiliate, or (ii) a notice of
lien, levy, or assessment is filed against any of Borrower’s assets by any government agency, and
the same under subclauses (i) and (ii) hereof are not, within 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; and (b) (i) any
material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a
trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from
conducting any part of its business;
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 a default in any agreement to which Borrower or any Guarantor
is a party with a third party or parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of
$200,000 or that could result in a Material Adverse Change with respect to Borrower’s or any
Guarantor; provided, however, that the Event of Default under this Section 8.6 caused by the
occurrence of a default under such other agreement shall be cured or waived for purposes of this
Agreement upon Bank receiving written notice from the party asserting such default of such cure or
waiver of the default under such other agreement, if at the time of such cure or waiver
under such other agreement (a) Bank has not declared an Event of Default under this Agreement
and/or exercised any rights with respect thereto; (b) any such cure or waiver does not result in an
Event of Default under any other provision of this Agreement or any Loan Document; and (c) in
connection with any such cure or waiver under such other agreement, the terms of any agreement with
such third party are not modified or amended in any manner which could in the good faith judgment
of Bank be materially less advantageous to Borrower or any Guarantor;
8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of $100,000 or more (not covered by independent
third-party insurance as to which liability has been accepted by such insurance carrier) shall be
rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of ten
(10) days after the entry thereof (provided that no Credit Extensions will be made prior to the
satisfaction, vacation, or stay of such judgment, order, or decree);
-15-
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and
any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement
with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such
agreement; or
8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any reason to be
in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any
guaranty of the Obligations; (c) any circumstance described in Sections 8.3,
8.4, 8.5, 8.7, or 8.8. occurs with respect to any Guarantor, or (d) the death, liquidation,
winding up, or termination of existence of any Guarantor; or (e) (i) a material impairment in the
perfection or priority of Bank’s Lien in any collateral provided by Guarantor or in the value of
such collateral or (ii) a material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) or the prospect of repayment of the Obligations
occurs with respect to any Guarantor.
8.11 Standby Purchase Agreement. (a) the Standby Purchase Agreement terminates or ceases for
any reason to be in full force and effect except in accordance with its terms; (b) Maverick does
not perform any obligation or covenant under the Standby Purchase Agreement; (c) any circumstance
described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8. occurs with respect to Maverick, or (d) the
liquidation, winding up, or termination of existence of Maverick; or (e) a material adverse change
in the general affairs, management, results of operation, condition (financial or otherwise) or the
prospect of repayment of the Obligations occurs with respect to Maverick.
8.12 UBS Loan. A default or breach occurs with respect to the UBS Loans or the UBS Loan
Documents.
9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. If an Event of Default has occurred and is continuing, 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) [Reserved];
(d) terminate any foreign exchange contracts among Borrower and Bank;
(e) demand payment of, and collect any Accounts and General Intangibles comprising Collateral,
settle or adjust disputes and claims directly with Account Debtors for
amounts, on terms, and in any order that Bank considers advisable, notify any Account Debtor
or other Person owing Borrower money of Bank’s security interest in such funds, verify the amount
of the same and collect the same;
(f) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Bank requests and make it available as Bank designates. Bank may enter premises where the
Collateral is located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank’s rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or
(ii) any
amount held by Bank owing to or for the credit or the account of Borrower;
-16-
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or
any similar property as it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this
Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(i) place a “hold” on any account maintained with Bank and/or deliver a notice of
exclusive
control, any entitlement order, or other directions or instructions pursuant to any Control
Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of Borrower’s Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).
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 any of Borrower’s insurance policies that relate to any of the Collateral; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge
the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on
any documents necessary to perfect or continue the perfection of Bank’s security interest in the
Collateral regardless of whether an Event of Default has occurred until all Obligations (other than
inchoate indemnity obligations) have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney in fact,
and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all
Obligations (other than inchoate indemnity obligations) have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.7
or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to
pay under this Agreement or any other Loan Document, Bank may obtain such
insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then highest applicable rate, and secured by
the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank
obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No
payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of
any Event of Default.
9.4 Application of Payments and Proceeds. Borrower shall have no right to specify the order or
the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to
Bank or otherwise received by Bank under this Agreement when any such allocation or application is
not specified elsewhere in this Agreement. If an Event of Default has occurred and is continuing,
Bank may apply any funds in its possession, whether from Borrower account balances, payments,
proceeds realized as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole
discretion. If with respect to any payment or other credit Bank has the right under this Agreement
or the other Loan Documents to determine the application of such payment or credit, then Bank may
apply and reverse and reapply such payment or credit to the Obligations in such manner 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.
-17-
9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under the control of
Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act
or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral.
9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict
performance by Borrower of any provision of this Agreement or any other Loan Document shall not
waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance
herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is
only effective for the specific instance and purpose for which it is given. Bank’s rights and
remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is
not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s
delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by
Bank on which Borrower is liable.
10 NOTICES
All notices, consents, requests, approvals, demands, or other communication by any party to
this Agreement or any other Loan Document must be in writing and shall be deemed to have been
validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business
Days after deposit in the U.S. mail, first class, registered or certified mail return receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission (provided that if transmission occurs after normal business hours
during a day, then upon the next Business Day); (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: | Cardiovascular Systems, Inc. | |||
| 000 Xxxxxx Xxxxx | ||||
| Xxxxx Xxxx, XX 00000 | ||||
| Attn: Xxxxx Xxxxxxxxx | ||||
| Fax: (000) 000-0000 | ||||
| Email: XXxxxxxxxx@xxx000.xxx | ||||
| If to Bank: | Silicon Valley Bank | |||
| 000 Xxxxxxx Xxxxxxx, Xxxxx 000 | ||||
| Xxxxxxxxxx, XX 00000 | ||||
| Attn: Xxx Xxxxxxx | ||||
| Fax: (000) 000-0000 | ||||
| Email: XXxxxxxx@xxx.xxx |
11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE.
California law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in
Santa Xxxxx County, California; provided, however, that nothing in this Agreement shall be deemed
to operate to preclude Bank from bringing suit or taking other legal action in any other
jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce
a judgment or other court order in favor of Bank. Borrower expressly submits and consents in
advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby
waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or
forum non conveniens and hereby consents to the granting of such legal or equitable relief as is
deemed appropriate by such court.
-18-
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR
ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS
REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa Xxxxx County, California Superior
Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the
federal courts), sitting without a jury, in Santa Xxxxx County, California; and the parties hereby
submit to the jurisdiction of such court. The
reference proceedings shall be conducted pursuant to and in accordance with the provisions of
California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have
the power, among others, to grant provisional relief, including without limitation, entering
temporary restraining orders, issuing preliminary and permanent injunctions and appointing
receivers. All such proceedings shall be closed to the public and confidential and all records
relating thereto shall be permanently sealed. If during the course of any dispute, a party desires
to seek provisional relief, but a judge has not been appointed at that point pursuant to the
judicial reference procedures, then such party may apply to the Santa Xxxxx County, California
Superior Court for such relief. The proceeding before the private judge shall be conducted in the
same manner as it would be before a court under the rules of evidence applicable to judicial
proceedings. The parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to judicial
proceedings. The private judge shall oversee discovery and may enforce all discovery rules and
order applicable to judicial proceedings in the same manner as a trial court judge. The parties
agree that the selected or appointed private judge shall have the power to decide all issues in the
action or proceeding, whether of fact or of law, and shall report a statement of decision thereon
pursuant to the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit
the right of any party at any time to exercise self-help remedies, foreclose against collateral, or
obtain provisional remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 [Reserved].
12.2 Successors and Assigns.
(a) This Agreement binds and is for the benefit of the successors and permitted assigns of
each party. Borrower may not assign this Agreement or any rights or obligations under it without
Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits
under this Agreement and the other Loan Documents.
(b) Without limitation upon the terms of subsection “a” above, Borrower acknowledges
that it
has reviewed the Standby Purchase Agreement and consents to the terms thereof and transactions
contemplated thereby (without implying any right of Borrower to consent to any future amendments or
waivers with respect thereto). Without limiting the generality of any other provision of this
Agreement, Borrower agrees that Bank may in its sole discretion, but without any obligation to do
so, file more than one UCC financing statement for purposes of perfecting Bank’s security interest
in the Collateral and, if Bank does so, at Bank’s option in its sole discretion (a) Bank may assign
of record one of such financing statements to Maverick as part of the closing of the purchase of
the Term Loan B2 by Maverick pursuant to the Standby Purchase Agreement, and (b) Bank is authorized
to amend such assigned UCC financing statement to reference the existence of the Maverick
Subordination Agreement.
-19-
12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors,
officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank
(each, an “Indemnified Person”) harmless against: (a) all obligations,
demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by such Indemnified Person from, following, or arising from transactions
between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims
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 [Reserved].
12.7 Amendments in Writing; Integration. All amendments to this Agreement must be in writing
and signed by both Bank and Borrower. This Agreement and the Loan Documents represent the entire
agreement about this subject matter and supersede prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations between the parties about
the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan
Documents.
12.8 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.
12.9 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of
Borrower in Section 12.3 to indemnify Bank shall survive until the statute of limitations with
respect to all claims and causes of action with respect to which indemnity is given to Bank shall
have run. The provisions of Section 12.10 shall survive termination of this Agreement.
12.10 Confidentiality. In handling any confidential information, Bank shall exercise the same
degree of care that it exercises for its own proprietary information, but disclosure of information
may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers
of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable
efforts to obtain such prospective transferee’s or purchaser’s agreement to the terms of this
provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators
or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers
appropriate in exercising remedies under the Loan Documents; and
(f) to third-party service
providers of Bank so long as such service providers have executed a confidentiality agreement with
Bank with terms no less restrictive than those contained herein. Confidential information does not
include information that either: (i) is in the public domain or in Bank’s possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) is disclosed to
Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the
information.
Bank may use confidential information for any purpose, including, without limitation, for the
development of client databases, reporting purposes, and market analysis, so long as Bank does not
disclose Borrower’s identity or the identity of any person associated with Borrower unless
otherwise expressly permitted by this Agreement. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.
12.11 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and
Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.
13 DEFINITIONS
13.1 Definitions. As used in this Agreement, the following terms have the following meanings:
-20-
“Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person,
any Person that controls or is controlled by or is under common control with the Person, and each
of that Person’s senior executive officers, directors, partners and, for any Person that is a
limited liability company, that Person’s managers and members.
“Agreement” is defined in the preamble hereof.
“Auction Rate Securities” shall have the meaning commonly attributed thereto but shall include
without limitation any bonds sold by U.S. states, cities, and public authorities, funds,
corporations or student loan agencies with a long-term nominal maturity for which the interest rate
is reset through a dutch auction.
“Auction Rate Securities (UBS)” means the Auction Rate Securities owned by Borrower and held
with UBS Financial Services Inc. or its Affiliates and serving as collateral for the UBS Loans.
“Availability Amount” is (a) the lesser of (i) the Maximum Dollar Amount or (ii) the amount
available under the Borrowing Base, minus (b) the outstanding principal balance of any Advances,
and minus (c) any amounts used for Cash Management Services.
“Bank” is defined in the preamble hereof.
“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, negotiating, amending, 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 Base” is 80% of Eligible Accounts, as determined by Bank from Borrower’s most
recent Transaction Report; provided, however, that Bank may decrease the foregoing percentage in
its good faith business judgment based on events, conditions, contingencies, or risks which, as
determined by Bank (after taking into account any Reserves that Bank may have established as a
consequence of such events, conditions, contingencies, or risks), may adversely affect Collateral.
“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such
Person’s Board of Directors and delivered by such Person to Bank approving the Loan Documents to
which such Person is a party and the transactions contemplated thereby, together with a certificate
executed by its secretary or assistant secretary on behalf of such Person certifying that (a) such
Person has the authority to execute, deliver, and perform its obligations under each of the Loan
Documents to which it is a party, (b) that such certificate contains a true, correct, and complete
copy of the resolutions then in full force and effect authorizing and ratifying the execution,
delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person,
together with a sample of the true signature(s) of such Person(s), and (d) that Bank may
conclusively rely on such certificate unless and until such Person shall have delivered to Bank a
further certificate canceling or amending such prior certificate.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
-21-
“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. For purposes of clarity, and without limitation, it is agreed that that “Cash
Equivalents” do not include any Auction Rate Securities.
“Cash Management Services” is defined in Section 2.1.4.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California; provided, that, to the extent that the Code is used to define
any term herein or in any Loan Document and such term is defined differently in different Articles
or Divisions of the Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the
State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in
effect in such other jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions relating to such
provisions.
“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit
A.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.
“Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit B.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed,
endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or indirectly liable;
(b) any obligations for undrawn letters of credit for the account of that Person; and (c) all
obligations from any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank
pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
“Credit Extension” is any Advance, amount utilized for Cash Management Services, Term Loan A,
Term Loan B, or any other extension of credit by Bank for Borrower’s benefit.
“Default” means any event which with notice or passage of time or both, would constitute an
Event of Default.
“Default Rate” is defined in Section 2.3(b).
“Deferred Revenue” is all amounts received or invoiced in advance of performance under
contracts and not yet recognized as revenue.
-22-
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.
“Designated Deposit Account” is Borrower’s deposit account, account number 3300613328,
maintained with Bank.
“Dollars,” “dollars” and “$” each mean lawful money of the United
States.
“Easton Xxxx Capital” means Easton Xxxx Capital Partners, L.P., a Delaware limited
partnership.
“Effective Date” is the date Bank executes this Agreement and as indicated on the signature
page hereof.
“Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business
that meet all Borrower’s representations and warranties in Section 5.3. Bank reserves the right at
any time and from time to time after the Effective Date, to adjust any of the criteria set forth
below and to establish new criteria in its good faith business judgment. Unless Bank agrees
otherwise in writing, Eligible Accounts shall not include:
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date
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 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, to the extent of
such credit balances;
(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;
(i) Accounts owing from an Account Debtor which is a United States government entity or any
department, agency, or instrumentality thereof, unless both
(i) the Account has been pre-approved
by Bank in writing, and (ii) 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
-23-
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
that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;
(r) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;
(s) Accounts 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);
(t) 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
(u) Accounts for which Bank in its good faith business judgment determines collection to be
doubtful.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Final Payment” is a payment (in addition to and not a substitution for the regular monthly
payments of principal plus accrued interest) due with respect to the Term Loan A on the earlier to
occur of (a) the Term Loan A Maturity Date, (b) the acceleration of the Term Loan A, or (c) the
prepayment of the Term Loan A, equal to the Term Loan A Commitment Amount multiplied by the Final
Payment Percentage.
“Final Payment Percentage” is three percent (3.0%)
“Funding Date” is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the date of
determination.
-24-
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims,
income and other tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any kind.
“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.
“Guarantor” is any present or future guarantor of any of the Obligations, including without
limitation Xxxx X. Xxxxxx, M.D. and Easton Xxxx Capital.
“Guarantor Subordination Agreements” is defined in Section 3.1.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.
“Indemnified Person” is defined in Section 12.3.
“Initial Audit” is Lender’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s
Books.
“Initial Projections” are annual projections (including income statements, balance sheets and
cash flow statements, by month) for the 2008 through 2010 fiscal years of Borrower, as reviewed by
Borrower’s board of directors, together with any related business forecasts used in the preparation
of such annual financial projections.
“Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of Borrower’s custody
or possession or in transit and including any returned goods and any documents of title
representing any of the above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.
“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.
“Limited Guaranties” are, collectively, the guaranties of the Obligations executed by Xxxx X.
Xxxxxx, M.D. and Easton Xxxx Capital, in the amounts of $1,000,000 and $2,000,000, respectively
(plus interest and costs), in form acceptable to Bank in its sole discretion.
-25-
“Liquidity Ratio” is the ratio of (a) Borrower’s unrestricted cash and Cash Equivalents held
with Bank and Bank’s Affiliates plus Borrower’s Eligible Accounts, divided by (b) the sum of
Borrower’s outstanding monetary Obligations, plus any amounts used for Cash Management Services,
plus all other indebtedness for borrowed money (other than the UBS Loans) or the deferred price of
property or services (other than unsecured indebtedness to trade creditors incurred in the ordinary
course of business).
“Loan Documents” are, collectively, this Agreement, the Term Loan B Promissory Notes, the
Warrant, the Perfection Certificate, the Standby Purchase Agreement, the Maverick Subordination
Agreement, the Limited Guaranties, the Guarantor Subordination Agreements, any note, or notes or
guaranties executed by Borrower or any Guarantor, and any other present or future agreement between
Borrower or any Guarantor and/or for the benefit of Bank in connection with this Agreement, all as
amended, restated, or otherwise modified.
“Lockbox Agreement” is defined in Section 6.3(c).
“Lockbox Provider” is defined in Section 6.3(c).
“Make-Whole
Event Date” shall mean (a) in the case of a prepayment pursuant to Section
2.1.2(c) hereof, the date of such prepayment, and (b) in the case of all or a portion of the Term
Loan A becoming due and payable according to the terms hereof because of the occurrence and
continuance of an Event of Default, the date such amount of the Term Loan A has become due and
payable according to the terms hereof.
“Make-Whole
Premium” is an amount equal to 6% of the Term Loan A Commitment Amount if the
Make-Whole Event Date occurs on or before the first anniversary of the Effective Date; 3% of the
Term Loan A Commitment Amount if the Make-Whole Event Date occurs after the first anniversary of
the Effective Date but on or before the second anniversary of the Effective Date; 1% of Term Loan A
Commitment Amount if the Make-Whole Event Date occurs after the second anniversary of the Effective
Date but before the Term Loan A Maturity Date.
“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 or (d) Bank determines,
based upon information available to it and in its reasonable judgment, that there is a reasonable
likelihood that Borrower shall fail to comply with one or more of the financial covenants in
Section 6.9 during the next succeeding financial reporting period.
“Maverick” shall mean, jointly and severally, Maverick Fund, L.D.C., a Cayman Islands
exempted limited duration company, Maverick Fund USA, Ltd., a Texas limited partnership, and
Maverick Fund II, Ltd., a Cayman Islands exempted limited duration company.
“Maverick Subordination Agreement” is defined in Section 3.1.
“Maximum Dollar Amount” is $5,000,000.
“Obligations” are Borrower’s obligation to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating to letters of
credit (including reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank,
and the performance of Borrower’s duties under the Loan Documents.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in
current form, (b) if such Person is a limited liability company, its limited liability company
agreement (or similar agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current amendments or
modifications thereto.
-26-
“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 or
its Obligations.
“Payment/Advance Form” is that certain form attached hereto as Exhibit C.
“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) the UBS Loans;
(e) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(g) Indebtedness
secured by Permitted Liens described in subparts b-f of the definition of
Permitted Liens;
(h) other Indebtedness not exceeding $50,000 in the aggregate outstanding at any time; and
(i) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (e) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
“Permitted Investments” are:
(a) Investments shown on the Perfection Certificate and existing on the Effective Date;
(b) Cash Equivalents;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;
(d) Investments consisting of deposit accounts in which Bank has a perfected security
interest;
(e) Investments 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,
not exceeding $100,000 in the aggregate for the foregoing “i” and “ii” outstanding at any time;
(f) 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;
(g) 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 shall not apply to Investments of Borrower in any Subsidiary;
(h) other Investments not exceeding $50,000 in the aggregate outstanding at any time.
-27-
“Permitted Liens” are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains adequate reserves on
its Books, provided that no notice of any such Lien has been filed or recorded under the
Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than $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 have no priority over Bank’s security interest, 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), provided, they have no priority over any of Bank’s Liens;
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary course of business, and
leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of Borrower’s business, if the
leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;
(h) non-exclusive license of intellectual property granted to third parties in the ordinary
course of business;
(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 or 8.7;
(j) Liens in favor of UBS Bank USA against the Auction Rate Securities (UBS) securing the UBS
Loans.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made.
“Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.
-28-
“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.
“Revolving Line” is an Advance or Advances in an aggregate amount of up to the Maximum Dollar
Amount outstanding at any time.
“Revolving Line Maturity Date” is September 11, 2010.
“Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.
“Standby Purchase Agreement” means the loan purchase agreement by Maverick, in favor of Bank,
whereby Maverick agrees to purchase the Term Loan B2 upon the occurrence of certain events, in form
acceptable to Bank in its sole discretion.
“Streamline Period” is defined in Section 2.1.1(b).
“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 in its sole discretion.
“Subsidiary” means, with respect to any Person, any Person of which more than 50.0% of the
voting stock or other equity interests (in the case of Persons other than corporations) is owned or
controlled directly or indirectly by such Person or one or more of Affiliates of such Person.
“Term Loan A” is defined in Section 2.1.2(a).
“Term Loan A Commitment Amount” is $3,000,000.
“Term Loan A Maturity Date” is August 1, 2011.
“Term Loan B” is defined in Section 2.1.3(a).
“Term Loan B1” is defined in Section 2.1.3(a).
“Term Loan B2” is defined in Section 2.1.3(a).
“Term Loan B Maturity Date” is September 11, 2009.
“Term Loan B Promissory Notes” is defined in Section 2.1.3(a).
“Transaction
Report” is that certain report of transactions and schedule of collections in the
form attached hereto as Exhibit D.
-29-
“Transfer” is defined in Section 7.1.
“UBS Loan” is defined in Section 5.12.
“UBS Loan Documents” is defined in Section 5.12.
“Warrant” is that certain Warrant to Purchase Stock of substantially even date executed by
Borrower in favor of Bank.
[Signature page follows.]
-30-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
BORROWER: |
||||
CARDIOVASCULAR SYSTEMS, INC. |
||||
By Name: |
/s/ Xxxxxxxx X. Xxxxxxxxx
|
|||
Title: |
CFO | |||
BANK: |
||||
SILICON VALLEY BANK |
||||
By Name: |
/s/ Xxxxxxxx Xxxxxxx
|
|||
Title:
|
Deal Team Leader | |||
Effective Date: September 12, 2008 |
||||
[Signature page to Loan and Security Agreement]
EXHIBIT A
COLLATERAL
The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:
All goods, Accounts
(including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles (except as provided below), commercial tort claims, documents, instruments (including
any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, all
certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is
evidenced by a writing), securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and
All Borrower’s Books relating to the foregoing, and any
and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
Notwithstanding the foregoing, the Collateral does not include any of the following, whether
now owned or hereafter acquired: (1) any copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative work, whether
published or unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues,
extensions, and continuations-in-part
of the same, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, and the goodwill of the business of Borrower
connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing; provided, however, the Collateral shall include all Accounts,
license and royalty fees and other revenues, proceeds, or income arising out of or relating to any
of the foregoing, or (2) Auction Rate Securities (UBS).
Pursuant to the terms of a certain negative pledge arrangement with Collateral Agent and
Lenders, Borrower has agreed not to encumber any of its (1) Auction Rate Securities (UBS), except
in favor of UBS Bank USA or its Affiliates to secure the UBS Loans, or (2) copyright rights,
copyright applications, copyright registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, any patents, patent applications and like
protections, including improvements, divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or not, and the goodwill of the
business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade
secret rights, rights to unpatented inventions, and any claims for damage by way of any past,
present, or future infringement of any of the foregoing, without Collateral Agent’s prior written
consent.
1
