WAIVER AND FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Exhibit 10.17
| *Certain portions of this exhibit (indicated by "[***]") have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. | ||
WAIVER AND FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED
This Waiver and Fourth Amendment to Third Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into this 8th day of March, 2024 by and between (a) SILICON VALLEY BANK, a division of FIRST-CITIZENS BANK & TRUST COMPANY (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank)) (“Bank), and (b) (i) OWLET BABY CARE, INC., a Delaware corporation (“Owlet Baby Care”), and (ii) OWLET, INC., a Delaware corporation (“Owlet”, and together with Owlet Baby Care, individually and collectively, jointly and severally, “Borrower”).
RECITALS
A. Bank and Borrower have entered into that certain Third Amended and Restated Loan and Security Agreement dated as of November 23, 2022, as amended by that certain First Amendment to Third Amended and Restated Loan and Security Agreement dated as of March 27, 2023 (the “First Amendment”), as further amended by that certain Second Amendment to Third Amended and Restated Loan and Security Agreement dated as of August 10, 2023, and as further amended by that certain Third Amendment to Third Amended and Restated Loan and Security Agreement dated as of November 13, 2023 (as the same has been and may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower has requested that Bank amend the Loan Agreement to (i) extend the Revolving Line Maturity Date, (ii) waive the Stated Events of Default (as defined below), and (iii) make certain other revisions to the Loan Agreement as more fully set forth herein.
D. Bank has agreed to so waive the Stated Events of Default (as defined below) and amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2.Amendments to Loan Agreement.
2.1Section 4.3 (Accounts Receivable; Inventory). Sections 4.3(c)(v) and 4.3(c)(vi) of the Loan Agreement are amended and restated in their entirety and replaced with the following:
“ (v) is either (x) located at a warehouse premise located in the Westlake, Texas or Memphis, Tennessee area, in each case identified by Borrower in the Perfection Certificate for which Bank has received a bailee agreement in form and substance satisfactory to Bank signed by the bailee (“Warehouse Inventory”), (y) in transit (“In-Transit Inventory”) and insured by freight insurance (i.e., in transit or cargo insurance) and property policies with a lender’s loss payable endorsement showing Bank as the sole lender loss payee, or (z) Inventory that is not Warehouse Inventory or In-Transit Inventory, is located in the United States at the locations identified by Borrower
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in the Perfection Certificate where it maintains Inventory (or at any location permitted under Section 6.2) with respect to which Bank has received a fully-executed satisfactory landlord’s consent or bailee’s waiver, and is otherwise acceptable to Bank in its sole and exclusive discretion; and
(vi) with respect to (A) the Warehouse Inventory, is aged less than 180 days; (B) the In-Transit Inventory, is in transit for no more than 45 days; and (C) all other Inventory, is aged less than 180 days or such other period approved by Bank in writing in its sole discretion.”
2.2Section 5.10 (Financial Covenants). Section 5.10 of the Loan Agreement is amended and restated in its entirety and replaced with the following:
“ 5.10 Financial Covenants
(a) Minimum Liquidity. Borrower shall maintain at all times, to be tested as of the last day of each month, Liquidity greater than $12,500,000.00 from March 31, 2024, and at all times thereafter.
(b) Adjusted EBITDA. Borrower shall maintain, measured as of the end of each fiscal quarter during the following periods, Adjusted EBITDA of at least the following:
| Fiscal Quarter | Minimum Adjusted EBITDA | ||||
| Ending December 31, 2023 | [***] | ||||
| Ending March 31, 2024 | [***] | ||||
| Ending June 30, 2024 | [***] | ||||
| Ending September 30, 2024 | [***] | ||||
| Ending December 31, 2024 | [***] | ||||
2.3Section 5.18 (Equity Event). The Loan Agreement is amended by inserting the following to appear as new Section 5.18 thereof:
“ 5.18 Equity Event. On or before March 31, 2024, deliver evidence to Bank, in a form and substance acceptable to Bank in all respects, that, from and after February 1, 2024, Xxxxxxxx has received additional unrestricted and unencumbered net cash proceeds from the sale of Borrower’s equity securities to investors reasonably satisfactory to Bank resulting in Xxxxxxxx’s receipt of at least $6,000,000.00 in unrestricted and unencumbered cash at closing.”
2.4Section 12.2 (Definitions). The definition of “Eligible Accounts” in Section 12.2 of the Loan Agreement is amended by deleting subsection (y) and inserting the following as new subsection (y) thereof:
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“ (y) Accounts owing from BuyBuy Baby (provided that all Accounts owing from BuyBuy Baby shall automatically be excluded from Eligible Accounts in the event that an Insolvency Proceeding is commenced by or against BuyBuy Baby or its direct or indirect parent), Target, Walmart, Sam’s Club, Costco, and Best Buy whose total obligations to Borrower exceed 45.0% of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;”
2.5Section 12.2 (Definitions). The definition of “Eligible Accounts” in Section 12.2 of the Loan Agreement is amended by (i) deleting “and” from the end of subsection (z) thereof, (ii) deleting “.” from the end of subsection (aa) thereof and inserting “; and” in its place, and (iii) inserting the following as new subsection (bb) thereof:
“ (bb) Accounts owing from Amazon whose total obligations to Borrower exceed 60.0% of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing.”
2.6Section 12.2 (Definitions). The following term and its definition set forth in Section 12.2 of the Loan Agreement are amended in their entirety and replaced with the following:
“ “Eligible Inventory” means (i) finished goods held in the Westlake, TX warehouse or Memphis, TN warehouse (in each case, for which Bank has signed a bailee agreement), that are aged less than 180 days, (ii) finished goods less than 45 days in transit (for which Bank has been named loss payee), and (iii) finished goods not covered by subsections (i) or (ii) above that are aged less than 180 days, subject to a first priority perfected Lien in favor of Bank, that meet all of Borrower’s representations and warranties in Section 4.3(c), and are otherwise acceptable to Bank in all respects. Borrower shall deliver an inventory appraisal as of the last day of each calendar year, or as more frequently required by Bank in its sole discretion, conducted by a firm satisfactory to Bank in all respects. Notwithstanding anything to the contrary contained in this Agreement, the total amount of Eligible Inventory shall not exceed $5,000,000.00. Unless Bank otherwise agrees in writing, Eligible Inventory shall not include:
(a) Inventory requiring FDA approval, until such approval is obtained; and
(b) Refurbished units of Inventory in excess of five percent (5.00%) of all Eligible Inventory.”
2.7Section 12.2 (Definitions). Section 12.2 of the Loan Agreement is amended by inserting the following new term and its definition to appear alphabetically therein:
“ “Fourth Amendment Effective Date” is March 8, 2024.”
2.8Schedule I (Section 12.2 – Revolving Line Maturity Date). The reference to the Loan Agreement provision for Section 12.2 in Schedule I of the Loan Agreement is amended in its entirety and the following inserted in its place:
“ “Revolving Line Maturity Date” is December 31, 2024.”
2.9Exhibit A (Compliance Statement). The Compliance Statement appearing as Exhibit A to the Loan Agreement is deleted in its entirety and replaced with the Compliance Statement attached as Schedule I hereto.
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3.Acknowledgment of Default; Waiver. Xxxxxxxx acknowledges and agrees that it is currently in default under the Loan Agreement as a result of Xxxxxxxx’s failure to comply with the Minimum Liquidity covenant contained in Section 5.10(a) of the Loan Agreement for the testing periods ended November 30, 2023, December 31, 2023, January 31, 2024, and February 29, 2024 (the “Stated Events of Default”). As a result of the Stated Events of Default, Bank has the right to declare all Obligations due and payable in full and to pursue its rights and remedies pursuant to the Loan Agreement (including, without limitation, collection of interest accrued at the Default Rate), applicable law, or otherwise. Notwithstanding the foregoing, subject to the satisfaction of the conditions precedent set forth in Section 12 below, Bank shall, without further action, waive the Stated Events of Default. Borrower hereby acknowledges and agrees that except as specifically provided herein, nothing in this section or anywhere in this Amendment shall be deemed or otherwise construed as a waiver by Bank of any of its other rights and remedies pursuant to the Loan Documents, applicable law or otherwise. This Amendment shall only constitute an agreement by Bank to waive its rights and remedies with respect to the Stated Events of Default upon the terms and conditions set forth herein.
4.Monthly Financial Statements; 10-K Report. Notwithstanding anything to the contrary contained in Section 5.3 of the Loan Agreement, Borrower shall have until March 31, 2024 to deliver to Bank (a) the monthly financial statements required pursuant to Section 5.3(a) of the Loan Agreement for the month ended December 31, 2023, and (b) Borrower’s 10-K report for Borrower’s fiscal year ended December 31, 2023 required pursuant to Section 5.3(e) of the Loan Agreement. Xxxxxxxx’s failure to deliver the foregoing monthly financial statements and 10-K report as and when due as set forth above shall be an immediate Event of Default without grace or cure period.
5.Limitation of Amendments.
5.1The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
5.2This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
6.Release by Xxxxxxxx.
6.1FOR GOOD AND VALUABLE CONSIDERATION, Borrower hereby forever relieves, releases, and discharges Bank and its present or former employees, officers, directors, agents, representatives, attorneys, and each of them, from any and all claims, debts, liabilities, demands, obligations, promises, acts, agreements, costs and expenses, actions and causes of action, of every type, kind, nature, description or character whatsoever, whether known or unknown, suspected or unsuspected, absolute or contingent, arising out of or in any manner whatsoever connected with or related to facts, circumstances, issues, controversies or claims existing or arising from the beginning of time through and including the date of execution of this Amendment (collectively “Released Claims”). Without limiting the foregoing, the Released Claims shall include any and all liabilities or claims arising out of or in any manner whatsoever connected with or related to the Loan Documents, the recitals hereto, any instruments, agreements or documents executed in connection with any of the foregoing or the origination, negotiation, administration, servicing and/or enforcement of any of the foregoing.
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6.2In furtherance of this release, Borrower expressly acknowledges and waives any and all rights under Section 1542 of the California Civil Code, which provides as follows:
“A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” (Xxxxxxxx added.)
6.3By entering into this release, Xxxxxxxx recognizes that no facts or representations are ever absolutely certain and it may hereafter discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention of Borrower hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected or unsuspected; accordingly, if Xxxxxxxx should subsequently discover that any fact that it relied upon in entering into this release was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges that it is not relying upon and has not relied upon any representation or statement made by Bank with respect to the facts underlying this release or with regard to any of such party’s rights or asserted rights.
6.4This release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower acknowledges that the release contained herein constitutes a material inducement to Bank to enter into this Amendment, and that Bank would not have done so but for Bank’s expectation that such release is valid and enforceable in all events.
6.5Borrower hereby represents and warrants to Bank, and Bank is relying thereon, as follows:
(a)Except as expressly stated in this Amendment, neither Bank nor any agent, employee or representative of Bank has made any statement or representation to Borrower regarding any fact relied upon by Xxxxxxxx in entering into this Amendment.
(b)Xxxxxxxx has made such investigation of the facts pertaining to this Amendment and all of the matters appertaining thereto, as it deems necessary.
(c)The terms of this Amendment are contractual and not a mere recital.
(d)This Amendment has been carefully read by Borrower, the contents hereof are known and understood by Xxxxxxxx, and this Amendment is signed freely, and without duress, by Borrower.
(e)Borrower represents and warrants that it is the sole and lawful owner of all right, title and interest in and to every claim and every other matter which it releases herein, and that it has not heretofore assigned or transferred, or purported to assign or transfer, to any person, firm or entity any claims or other matters herein released. Xxxxxxxx shall indemnify Bank, defend and hold it harmless from and against all claims based upon or arising in connection with prior assignments or purported assignments or transfers of any claims or matters released herein.
7.Due Authorization. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank that it has the power and due authority to execute and deliver this Amendment.
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8.Amendment Fee; Bank Expenses. In addition to the other fees due to Bank under the Loan Documents, in consideration of Bank’s agreements hereunder, Borrower shall pay to Bank a fully earned, non-refundable amendment fee in the amount of $75,000.00 (the “Amendment Fee”) due and payable as of the date hereof. The Amendment Fee shall constitute a portion of the Obligations and be secured by all Collateral. Notwithstanding anything to the contrary contained in the First Amendment, the Deferral Fee in the amount of $[***] due under the First Amendment shall be deferred until the earliest to occur of (i) an Event of Default (other than the Stated Events of Default), (ii) December 15, 2024, and (iii) the repayment of the Obligations in full. Borrower shall also reimburse Bank for all unreimbursed Bank Expenses, including without limitation, all legal fees and expenses incurred in connection with this Amendment.
9.Integration. This Amendment 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 Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
10.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including portable document format (PDF) or any electronic signature complying with the United States Electronic Signatures in Global and National Commerce (ESIGN) Act of 2000, e.g., xxx.xxxxxxxx.xxx) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. If this Amendment is placed in escrow with any party or its respective counsel, no agreement shall be binding against any party hereto unless and until all documents have been released from escrow in writing by Bank or its counsel.
11.Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of California.
12.Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto; and (b) Borrower’s payment to Bank of (i) the Amendment Fee and (ii) all unreimbursed Bank Expenses, including without limitation, all legal fees and expenses incurred in connection with this Amendment.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
| BANK | BORROWER | |||||||||||||
| FIRST-CITIZENS BANK & TRUST | OWLET BABY CARE, INC. | |||||||||||||
| COMPANY (successor by purchase to the | ||||||||||||||
| Federal Deposit Insurance Corporation as | By: | /s/ Xxxx Xxxxxxx | ||||||||||||
| receiver for Silicon Valley Bridge Bank, N.A. | Name: | Xxxx Xxxxxxx | ||||||||||||
| (as successor to Silicon Valley Bank)) | Title: | Chief Executive Officer | ||||||||||||
| By: | /s/ Xxxx Xxxxxx | |||||||||||||
| Name: | Xxxx Xxxxxx | |||||||||||||
| Title: | Managing Director | |||||||||||||
| OWLET, INC. | ||||||||||||||
| By: | /s/ Xxxx Xxxxxxx | |||||||||||||
| Name: | Xxxx Xxxxxxx | |||||||||||||
| Title: | Chief Executive Officer | |||||||||||||
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Schedule I
EXHIBIT A
COMPLIANCE STATEMENT
TO: FIRST-CITIZENS BANK & TRUST COMPANY Date:
FROM: OWLET BABY CARE INC. and OWLET, INC.
Under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (as amended, modified, supplemented and/or restated from time to time, the “Agreement”), Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below. Attached are the required documents evidencing such compliance, setting forth calculations prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
| Please indicate compliance status by circling Yes/No under “Complies” column. | ||||||||
| Reporting Covenants | Required | Complies | ||||||
| Monthly financial statements with Compliance Statement | Monthly within 30 days | Yes No | ||||||
| Annual financial statements (CPA Audited) | FYE within 180 days | Yes No | ||||||
| 10-Q, 10-K and 8-K | Within 5 days after filing with SEC | Yes No | ||||||
| A/R & A/P Agings, along with reconciliations, detailed debtor report, and general ledger | Monthly within 30 days | Yes No | ||||||
| Borrowing Base Statements | Monthly within 7 days | Yes No | ||||||
| Board approved projections | FYE within 60 days and as amended/updated | Yes No | ||||||
The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”) ____________________________________________________________________________ | ||||||||
Financial Covenant | Required | Actual | Complies | ||||||||
| Maintain as indicated: | |||||||||||
| Minimum Liquidity | $12,500,000.00 | $_______ | Yes No | ||||||||
| Minimum Adjusted EBITDA | See Schedule 1 | $_______ | Yes No | ||||||||
The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and correct as of the date of this Compliance Statement.
The following are the exceptions with respect to the statements above: (If no exceptions exist, state “No exceptions to note.”)
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Schedule 1 to Compliance Statement
Financial Covenants of Borrower
In the event of a conflict between this Schedule and the Agreement, the terms of the Agreement shall govern.
Dated: ____________________
I. Liquidity (Section 5.10(a))
Required: $12,500,000.00
Actual:
| A. | Unrestricted and unencumbered cash and Cash Equivalents | $ | ||||||
| B. | The lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base in each case not to exceed $10,000,000.00. | $ | ||||||
| C. | The outstanding principal balance of any Advances | $ | ||||||
| D. | Availability Amount (Line B minus Line C) | $ | ||||||
| E. | Liquidity (line A plus line D) | $ | ||||||
Is line C equal to or greater than $12,500,000.00?
No, not in compliance Yes, in compliance
II. Adjusted EBITDA (Section 5.10(b))
Required:
| Quarter Ending | Minimum Adjusted EBITDA | ||||
| Ending December 31, 2023 | [***] | ||||
| Ending March 31, 2024 | [***] | ||||
| Ending June 30, 2024 | [***] | ||||
| Ending September 30, 2024 | [***] | ||||
| Ending December 31, 2024 | [***] | ||||
Actual:
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| A. | Net Income | $ | ||||||
| B. | To the extent included in the determination of Net Income | |||||||
| 1. The provision for income taxes | $ | |||||||
| 2. Depreciation expense | $ | |||||||
| 3. Amortization expense | $ | |||||||
| 4. Net Interest Expense | $ | |||||||
| 5. Non-cash stock compensation expense | $ | |||||||
6. Non-recurring transaction expenses associated with raising preferred equity in an aggregated amount not to exceed $1,000,000.00 at any given time | $ | |||||||
7. Non-cash warrant expense | $ | |||||||
| 8. The sum of lines 1 through 7 | $ | |||||||
| C. | Adjusted EBITDA (line A plus line B.8) | |||||||
Is line C equal to or greater than the amount required for the corresponding measuring period set forth in the chart above?
No, not in compliance Yes, in compliance
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