LOAN AND SECURITY AGREEMENT
THIS LOAN AND
SECURITY AGREEMENT (this
“Agreement”) dated as of the Effective Date
between SILICON VALLEY
BANK, a California
corporation (“Bank”), and ENERGY AND POWER
SOLUTIONS, INC., a
California 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.
(i) Streamline
Period Definition. A “Streamline
Period” is any period
during which: (A) Borrower’s cash minus Obligations equals or exceeds
$5,000,000 (the “Minimum Cash
Requirement”) and (B) no
Default or Event of Default has occurred and is continuing.
(ii) Streamline
Period Provisions. During a Streamline Period,
the following provisions shall apply:
(A) Monthly
Borrowing Base. Within 30 days after the end
of each month, Borrower shall deliver to Bank a transaction report signed by the
Chief Executive Officer, President, Chief Financial Officer, Controller or other
officer approved by Bank of Borrower on Bank’s standard form, together with aged
listings of accounts receivable and accounts payable, and all other monthly
reporting requirements set forth in this Agreement.
(B) Changes to
Reporting Requirements.
Delivery to Bank of transaction reports, schedules and assignments of Accounts,
and schedules of collections, as called for by Section 6.3(a) hereof, will not
be required, but rather shall be provided as set forth in subclause (ii)(A)
above.
(C) Proceeds of
Accounts to be Deposited in Operating Account. During a Streamline Period,
the payments on, and proceeds of, Accounts will be deposited into Borrower’s
operating account without first being applied to the Obligations as provided for
in Section 6.3(c) hereof.
(D) Standard
Terms and Conditions Apply. Upon the earliest to occur
of (I) a breach of the Minimum Cash Requirement or (II) the occurrence of a
Default or Event of Default under the Loan Documents, all of the respective
terms and conditions of this Agreement that have been modified by this Section
2.1.1(b) will immediately revert to the respective standard terms and conditions
as provided for in this Agreement (without giving effect to this Section
2.1.1(b)), which standard terms will immediately go back into effect without any
further action on the part of Bank or Borrower, provided that if such breach of
the Minimum Cash Requirement, Default or Event of Default is cured or
waived, the Streamline Period shall be reinstated without any further action on
the part of Bank or Borrower.
(c) Termination;
Repayment. The
Revolving Line terminates on the Revolving Line Maturity Date, when the
principal amount of all Advances, the unpaid interest thereon, and all other
Obligations relating to the Revolving Line shall be immediately due and
payable.
2.1.2 Letters of Credit
Sublimit.
(a) Subject to the Overall Sublimit in
Section 2.1.5 below, as part of the Revolving Line, Bank
shall issue or have issued Letters of Credit for Borrower’s account, provided
that, after giving effect to such Letters of Credit: (1) the total of the amount
of all outstanding and undrawn Letters of Credit (including drawn but
unreimbursed Letters of Credit), plus an amount equal to the Letter of Credit
Reserves shall not exceed $2,500,000; and (2) the total of the amount of all
outstanding and undrawn Letters of Credit (including drawn but unreimbursed
Letters of Credit), plus an amount equal to the Letter of Credit Reserves, plus
the FX Reserve, plus amounts used for Cash Management Services, plus the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base. The aggregate amounts utilized
hereunder shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. If, on the Revolving Line Maturity Date,
there are any outstanding Letters of Credit, then on such date Borrower shall
provide to Bank cash collateral in an amount equal to 105% of the undrawn amount
of all such Letters of Credit plus all interest, fees, and costs due or to
become due in connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to said Letters of
Credit. All Letters of Credit shall be in form and substance
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank’s standard Application and Letter of Credit Agreement (the
“Letter
of Credit Application”). Borrower agrees to
execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request. Borrower further agrees to be bound by
the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.
(b) The obligation of Borrower to
immediately reimburse Bank for drawings made under Letters of Credit shall be
absolute, unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, such Letters of Credit, and the
Letter of Credit Application.
(c) Borrower may request that Bank issue a
Letter of Credit payable in a Foreign Currency. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand as
an Advance to Borrower of the equivalent of the amount thereof (plus fees and
charges in connection therewith such as wire, cable, SWIFT or similar charges)
in Dollars at the then-prevailing rate of exchange in San Francisco, California,
for sales of the Foreign Currency for transfer to the country issuing such
Foreign Currency.
(d) To guard against fluctuations in
currency exchange rates, upon the issuance of any Letter of Credit payable in a
Foreign Currency, Bank shall create a reserve (the “Letter of Credit
Reserve”) under the
Revolving Line in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit. The amount of the Letter of Credit Reserve may
be adjusted by Bank from time to time to account for fluctuations in the
exchange rate. The availability of funds under the Revolving Line
shall be reduced by the amount of such Letter of Credit Reserve for as long as
such Letter of Credit remains outstanding.
2.1.3 Foreign Exchange
Sublimit. Subject to the Overall
Sublimit in Section 2.1.5 below, as part of the Revolving Line, Borrower
may enter into foreign exchange contracts with Bank under which Borrower commits
to purchase from or sell to Bank a specific amount of Foreign Currency (each, a
“FX
Forward Contract”) on a
specified date (the “Settlement
Date”); provided that,
after giving effect to such FX Forward Contracts and the FX Reserve applicable
thereto, the total of the amount of all outstanding and undrawn Letters of
Credit (including drawn but unreimbursed Letters of Credit), plus an amount
equal to the Letter of Credit Reserves, plus the FX Reserve, plus amounts used
for Cash Management Services, plus the outstanding principal balance of any
Advances (including any amounts used for Cash Management Services) shall not
exceed the lesser of (i) the Maximum Dollar Amount, or (ii) the Borrowing
Base. FX Forward Contracts shall have a Settlement Date of at least
one (1) FX Business Day after the contract date and shall be subject to a
reserve of ten percent (10%) of each outstanding FX Forward Contract in a
maximum aggregate amount equal to $2,500,000 (the “FX
Reserve”). The
aggregate amount of FX Forward Contracts at any one time may not exceed ten (10)
times the amount of the FX Reserve.
-2-
2.1.4 Cash Management
Services Sublimit. Subject to the Overall
Sublimit in Section 2.1.5 below, Borrower may use up to $2,500,000 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”), provided that,
after giving effect to such utilization, the total of the amount of all
outstanding and undrawn Letters of Credit (including drawn but unreimbursed
Letters of Credit), plus an amount equal to the Letter of Credit Reserves, plus
the FX Reserve, plus amounts utilized for Cash Management Services, plus the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base. Any amounts used by Borrower for Cash
Management Services will be treated as Advances under the Revolving Line, will
accrue interest at the interest rate applicable to Advances, and will reduce the
amount otherwise available for Credit Extensions thereunder.
2.1.5 Overall Aggregate
Sublimit. In no
event shall the total amount of (i) outstanding and undrawn Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve), and (ii) the FX Reserve, and (iii) the amount of the Revolving Line
utilized for Cash Management Services, at any time exceed $2,500,000 in the
aggregate (the “Overall Sublimit”).
2.1.6 Term Loan.
(a) Availability. During the Term Loan Draw
Period, subject to the terms and conditions of this Agreement, Bank agrees to
make advances to Borrower (each a "Term Loan Advance" and collectively the "Term
Loan Advances") in an aggregate original principal amount not to exceed Three
Million Five Hundred Thousand Dollars ($3,500,000). Each Term Loan
Advance is to be in an amount of at least $600,000; provided, that there shall
be no minimum threshold amount with respect to the final Term Loan Advance
requested by Borrower if the amount available under this Term Loan is less than
$600,000. A Term Loan Advance will only be made to finance xChange
Point site installations for which (i) installation has been completed, (ii) the
terms have been satisfied for Borrower to commence monthly xxxxxxxx regarding
such site and (iii) Borrower has provided written evidence, satisfactory to Bank
in its sole discretion, that the xChange Point site installation is complete and
the terms to commence monthly xxxxxxxx in connection therewith have been
satisfied (each a “Financed Site”). Financed Sites may include such
sites that satisfied the foregoing requirements within six months prior to the
Effective Date. The portion of a Term Loan Advance applicable to each
Financed Site cannot exceed $60,000. After a Term Loan Advance (or
any portion thereof) has been repaid, no Term Loan Advance (or repaid portion
thereof) may be reborrowed. As used herein, the term "Term Loan Draw
Period" means the period of time beginning on the Effective Date and ending on
March 30, 2010 [the date that is ninety (90) days from the Effective
Date].
(b) Interest-Only
Period. During
the Term Loan Draw Period, interest only shall be payable on any and all Term
Loan Advances outstanding from time to time.
(c) Repayment. The aggregate principal
amount of all Term Loan Advances outstanding at the end of the Term Loan Draw
Period, shall be repaid in (A) thirty-three (33) equal installments of
principal, plus (B) monthly payments of accrued interest (each a “Term Loan
Payment”). The Term Loan Payments shall commence on the first day of
the month following the end of the Term Loan Draw Period and shall continue on
the first day of each month thereafter with a balloon payment on the Term Loan
Maturity Date. Borrower’s final Term Loan Payment, due on the Term
Loan Maturity Date, shall include all outstanding principal and accrued and
unpaid interest under the Term Loan.
(d) Prepayment.
(i) Voluntary. Borrower may, so long as an
Event of Default has not occurred and is not continuing, at its option, prepay
all, but not less than all, of the outstanding Term Loan Advances, provided
Borrower (A) provides written notice to Bank of its election to prepay the Term
Loan at least five (5) days prior to such prepayment and (B) pays, on the date
of the prepayment, the following: (I) all accrued and unpaid interest
with respect to the Term Loan through the date the prepayment is made, (II) all
unpaid principal with respect to the Term Loan, (III) a premium equal to the
Term Loan Termination Fee and (IV) all other sums, if any, that shall have
become due and payable hereunder with respect to the Term
Loan.
(ii) Involuntary. If the Term Loan 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
the Term Loan has become due and payable according to the terms hereof, in
addition to any other sums owing, a termination fee equal to the Term Loan
Termination Fee, and such Term Loan Termination Fee shall bear interest until
paid at a rate equal to the highest rate applicable to the
Obligations.
-3-
(e) Final
Payment. On the
earlier of (i) the Term Loan Maturity Date or (ii) the date Borrower prepays the
Term Loan pursuant to subclause (d) above, Borrower shall pay to Bank an amount
equal to the Final Payment. The Final Payment shall be in addition to
(and not in lieu of) any principal, interest, fees, costs and other charges
payable by Borrower to Bank.
2.2 Overadvances. If at any time or for any reason the
total of all outstanding Advances and all other monetary Obligations exceeds the
Availability Amount (an “Overadvance”), Borrower shall immediately pay the
amount of the excess in cash to Bank, on demand. Without limiting
Borrower’s obligation to repay to Bank the amount of any Overadvance, Borrower
agrees to pay Bank interest on the outstanding amount of any Overadvance, on
demand, at the Default Rate.
2.3 Payment of Interest
on the Credit Extensions.
(a) Interest
Rate.
(i) Advances. Subject to Section 2.3(b),
the principal amount outstanding under the Revolving Line shall accrue interest
at a per annum rate equal to four percentage points (4.0%) above the Prime Rate,
which interest shall be payable monthly; provided, however, during a Streamline Period, subject to
Section 2.3(b), the principal amount outstanding under the Revolving Line shall
accrue interest at a per annum rate equal to two percentage points (2.0%) above
the Prime Rate, which interest shall be payable monthly.
(ii) Term
Loan. Subject to
Section 2.3(b), the principal amount outstanding under the Term Loan shall
accrue interest at a per annum rate equal to five percentage points (5.0%) above
the Prime Rate, 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 three 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.
(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.
(f) Minimum
Monthly Interest. [Omitted].
(g) Payment;
Interest Computation; Float Charge. Interest is payable monthly
on the last calendar day of each month. In computing interest on the
Obligations, all Payments received after 12:00 p.m. California 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
three (3) Business Days interest, at the interest rate applicable to the
Advances, on all Payments received by Bank; provided, however, such “float” charge will not be
applicable if a Streamline Period is in effect. Said float charge is
not included in interest for purposes of computing Minimum Monthly Interest (if
any) under this Agreement. The float charge for each month shall be
payable on the last day of the month. Bank shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Bank in its good faith business judgment, and Bank
may charge Borrower's Designated Deposit Account for the amount of any item of
payment which is returned to Bank unpaid.
-4-
2.4 Fees. Borrower shall pay to
Bank:
(a) Commitment
Fee. A fully
earned, non-refundable commitment fee of $37,500, on the Effective Date;
and
(b) Letter of
Credit Fee. Bank’s customary fees and
expenses for the issuance or renewal of Letters of Credit, including, without
limitation, a Letter of Credit Fee of two percent (2.0%) per annum of the face
amount of each Letter of Credit issued, upon the issuance or renewal of such
Letter of Credit by Bank; and
(c) Termination
Fee. Subject to
the terms of Section 2.1.6(d), a termination fee; and
(d) Unused
Revolving Line Facility Fee. [Omitted];
and
(e) Collateral
Monitoring Fee. A monthly collateral
monitoring fee of $1,500, payable in arrears on the last day of each month
(prorated for any partial month at the beginning and upon termination of this
Agreement or at the beginning or termination of a Streamline Period);
provided, however, for any month that falls entirely
within a Streamline Period, the monthly collateral monitoring fee will be
$0.00;
(f) Term Loan
Fee. In addition
to the Commitment Fee set forth above, a fully earned, non-refundable commitment
fee with respect to the Term Loan of $35,000, on the Effective Date;
and
(g) Anniversary
Fee. A fully
earned, non-refundable fee of $37,500, on the first anniversary of the Effective
Date; and
(h) 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
this Agreement and the IP Agreement to which it is a party;
(b) a duly executed original signature to
the Warrant;
(c) duly executed original signatures to the
completed Borrowing Resolutions for Borrower;
(d) the Perfection Certificate executed by
Borrower (which Bank acknowledges has been received);
(e) a copy of its Registration Rights
Agreement or Investors’ Rights Agreement and any amendments thereto;
and
(f) payment of the fees and Bank Expenses
then due as specified in Section 2.4 hereof.
3.1A Conditions Subsequent
to Initial Credit Extension. The funds constituting the initial
Credit Extension shall be held by Bank in an account maintained at Bank until
such time as Borrower shall have delivered the following, in form and substance
satisfactory to Bank:
(a) its Operating Documents and a good
standing certificate of Borrower certified by the Secretary of State of the
State of California as of a date no earlier than thirty (30) days prior to the
Effective Date;
-5-
(b) evidence that (i) the Liens securing
Indebtedness owed by Borrower to Pacific Mercantile Bank will be terminated and
(ii) the documents and/or filings evidencing the perfection of such Liens,
including without limitation any financing statements and/or control agreements,
have been terminated;
(c) 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;
(d) the duly executed original signatures to
the Guaranty, together with the completed Borrowing Resolutions for Guarantor
and a Security Agreement executed by Guarantor granting Bank a first-priority
perfected security interest in all of its present and future assets (subject
only to “Permitted Liens” as defined therein) to secure all of its obligations
under the Guaranty; and
(e) evidence of the insurance policies
and/or endorsements required pursuant to Section 6.7 hereof.
3.2 Conditions Precedent
to all Credit Extensions. Bank’s obligations to make
each Credit Extension, including the initial Credit Extension, is subject to the
following:
(a) except as otherwise provided in Section
3.4, timely receipt of an executed Transaction Report;
(b) the representations and warranties in
Section 5 shall be true in all material respects on the date of the Transaction
Report and on the Funding Date of each Credit Extension; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, and no Default or 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) 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 the extension of a
Credit Extension 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 extension in the absence of a required item shall be in Bank’s sole
discretion.
3.4 Procedures for
Borrowing. Subject to the prior
satisfaction of all other applicable conditions to the making of an Advance set
forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which
notice shall be irrevocable) by electronic mail, facsimile, or telephone by
12:00 p.m. California 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.
-6-
If this Agreement is terminated, Bank’s
Lien in the Collateral shall continue until the Obligations (other than inchoate
indemnity obligations) are repaid in full in cash. Upon payment in
full in cash of the Obligations and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein shall revert
to Borrower.
4.2 Authorization to File
Financing Statements. Borrower hereby authorizes
Bank to file financing statements, without notice to Borrower, with all
appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
5 REPRESENTATIONS
AND WARRANTIES
Borrower represents and warrants as
follows:
5.1 Due Organization and
Authorization. Borrower is duly existing
and in good standing in their respective jurisdictions of formation and are
qualified and licensed to do business and are in good standing in any
jurisdiction in which the conduct of their business or their ownership of
property requires that they 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 and Guarantor, respectively, entitled “Perfection
Certificate”. Borrower represents and warrants to Bank that (a)
Borrower’s exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; (b) Borrower is an organization of the type
and is organized in the jurisdiction set forth in the Perfection Certificate;
(c) the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement). If Borrower is not
now a Registered Organization but later becomes one, Borrower shall promptly
notify Bank of such occurrence and provide Bank with Borrower’s organizational
identification number.
The execution, delivery and performance
by Borrower of the Loan Documents to which it is a party have been duly
authorized, and do not (i) conflict with any of Borrower’s organizational
documents, (ii) contravene, conflict with, constitute a default under or
violate any material Requirement of Law, (iii) contravene, conflict or
violate any applicable order, writ, judgment, injunction, decree, determination
or award of any Governmental Authority by which Borrower or any of its
Subsidiaries or any of their property or assets may be bound or affected,
(iv) require any action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such Governmental
Approvals which have already been obtained and are in full force and effect or
(v) constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to
which it is a party or by which it is bound in which the default could
reasonably be expected to 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.
-7-
The Collateral is not in the possession
of any third party bailee (such as a warehouse) other than OneSource
Distributors (from whom the Bank is not requiring a written acknowledgment that
it is holding Collateral for the benefit of Bank). Except as
hereafter disclosed to Bank in writing by Borrower, none of the components of
the Collateral shall be maintained at locations other than as provided in the
Perfection Certificate. 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 acknowledge in writing that the bailee is holding such Collateral
for the benefit of Bank. For the purposes hereof, xChange Point sites
do not constitute a bailee.
All Inventory is in all material
respects of good and marketable quality, free from material
defects.
Borrower is the sole owner of 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 cause a Material Adverse Change.
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 thirty 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 the same 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, set forth in Section 13
below.
(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 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.
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
$100,000 which could reasonably be expected to cause a Material Adverse
Change.
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. Borrower is not engaged as one of its
important activities in extending credit for margin stock (under Regulations 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, except to the extent the failure to do so could not
reasonably be expected to cause a Material Adverse Change.
-8-
5.8
Subsidiaries;
Investments. As
of the date hereof, Borrower does not have any Subsidiaries, other than
DairyGen, LLC, NEC-EPS Holdings, LLC, Franklin Energy Center, LLC, Xxxx Energy
Center, LLC, COI Energy Center and other 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 (excluding, however, unpaid taxes in an aggregate amount not to exceed
$25,000). 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 in
excess of an aggregate amount of $100,000 becoming due and payable by
Borrower. Borrower has paid all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their
terms, and Borrower has not withdrawn from participation in, and has not
permitted partial or complete termination of, or permitted the occurrence of any
other event with respect to, any such plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.
5.10
Use of Proceeds. Borrower shall use the
proceeds of the Credit Extensions solely as working capital, and for other
general business purposes and not for personal, family, household or
agricultural purposes.
5.11
Full
Disclosure. No
written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank, as of the date such
representation, warranty, or other statement was made, taken together with all
such written certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).
6
AFFIRMATIVE
COVENANTS
Borrower shall do all of the
following:
6.1
Government
Compliance. 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:
-9-
|
|
(i)
|
a Transaction
Report (and any schedules related thereto) weekly and at the
time of each request for an Advance; provided, however, during a Streamline Period,
monthly within thirty (30) days after the end of each
month;
|
(ii) within fifteen (15) days after the end
of each month (provided, however, during a Streamline Period, monthly
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)
|
[omitted],
|
|
|
(D)
|
[omitted],
|
|
|
(E)
|
monthly Deferred Revenue report,
in form acceptable to Bank in its good faith business
judgment;
|
|
|
(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)
|
[omitted];
|
|
|
(vi)
|
within thirty (30) days prior to
the end of each fiscal year of Borrower, (A) annual operating budgets
(including income statements, balance sheets and cash flow statements, by
month) for the upcoming fiscal year of Borrower, and (B) annual financial
projections for the following fiscal year (on a quarterly basis) as
approved by Borrower’s board of directors, together with any related
business forecasts used in the preparation of such annual financial
projections; and
|
|
|
(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 opinion without a “going
concern” qualification of, independent certified public accountants
acceptable to Bank in its good faith business
judgment.
|
(b) At all times that Borrower is subject to
the reporting requirements under the Securities Exchange Act of 1934, as amended
(or other similar requirements of the Toronto Stock Exchange), 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 other similar reports filed with the
Canadian equivalent of 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 shown in the IP
Security Agreement, 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.
-10-
(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, the total
outstanding Advances will not exceed the lesser of the Revolving Line or the
Borrowing Base.
(c) Collection
of Accounts. Borrower shall have the
right to collect all Accounts, unless and until a Default or an Event of Default
has occurred and is continuing. Whether or not an Event of Default
has occurred and is continuing, Borrower shall hold all payments on, and
proceeds of, Accounts in trust for Bank, and Borrower shall immediately deliver
all such payments and proceeds to Bank in their original form, duly endorsed, to
be applied to the Obligations pursuant to the terms of Section 9.4
hereof. Bank may, in its good faith business judgment, require that
all proceeds of Accounts be deposited by Borrower into a lockbox account, or
such other “blocked account” as Bank may specify, pursuant to a blocked account
agreement in such form as Bank may specify in its good faith business
judgment.
(d) Returns. Provided no Event of Default
has occurred and is continuing, if any Account Debtor returns any Inventory 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 five (5) Business Days 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 the
sale of Collateral not constituting Accounts disposed of by Borrower in good
faith in an arm’s length transaction for an aggregate purchase price of $25,000
or less (for all such transactions in any fiscal year). Borrower
agrees that it will 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 all required tax returns and reports and timely pay all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
except for deferred payment of any taxes contested pursuant to the terms of
Section 5.9 hereof, and pay all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their
terms.
-11-
6.6 Access to Collateral;
Books and Records. At reasonable times, on
three (3) 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. Borrower and Bank hereby acknowledge that the first such audit
will be conducted within ninety (90) days after the Effective Date and prior to
(with results satisfactory to Bank in its good faith business judgment) the
initial Revolving Line Advance, and thereafter, such audits will be performed no
more frequently than semi-annually (annually if a Streamline Period is in
effect), but nothing herein restricts Bank’s right to conduct such audits more
frequently if a Default or Event of Default has occurred and is
continuing. The foregoing inspections and audits shall be at
Borrower’s expense, and the charge therefor shall be $850 per person per day (or
such higher amount as shall represent Bank’s then-current standard charge for
the same), plus reasonable and documented out-of-pocket expenses. In
the event Borrower and Bank schedule an audit more than ten (10) days in
advance, and Borrower cancels or seeks to reschedules the audit with less than
ten (10) days written notice to Bank, then (without limiting any of Bank’s
rights or remedies), Borrower shall pay Bank a fee of $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 and Bank, Bank may make all or part of such payment or
obtain such insurance policies required in this Section 6.7, and take any action
under the policies Bank deems prudent. The insurance maintained by
Borrower on the Effective Date and approved by Bank shall be deemed to comply
with the provisions of this Section 6.7 subject to Borrower’s satisfaction of
the condition subsequent set forth in Section 3.1A(d)
hereof.
6.8 Operating
Accounts.
(a) Maintain all of its and its
Subsidiaries’ primary depository and operating accounts and securities accounts
with Bank and Bank’s affiliates which accounts shall represent at least
85% of the dollar value of Borrower’s and such Subsidiaries accounts at all
financial institutions. Such 85% amount shall include the up to
$700,000 transferred by Borrower to DairyGen, LLC (and to be held at Pacific
Mercantile Bank) to cash secure the credit facility of DairyGen, LLC to Pacific
Mercantile Bank.
(b) Provide Bank five (5) days prior written
notice before establishing any Collateral Account at or with any bank or
financial institution other than Bank or Bank’s Affiliates. In
addition, 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; provided that within thirty (30) days
after the Effective Date, Borrower shall cause Pacific Mercantile Bank to
execute such Control Agreement with respect to any Collateral Account maintained
by Borrower at Pacific Mercantile Bank. The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as
such.
6.9 Financial
Covenants.
As of the last day of each month,
Borrower shall maintain on a consolidated basis:
-12-
(a) Tangible Net
Worth. A
Tangible Net Worth of at least $12,500,000 (“Minimum
Tangible Net Worth”) plus
(i) 50% of all consideration received after the date hereof for equity
securities and subordinated debt of the Borrower, plus (ii) 50% of the
Borrower’s net income in each fiscal quarter ending on or after March 31,
2010. Increases in the Minimum Tangible Net Worth based on
consideration received for equity securities and subordinated debt of the
Borrower shall be effective as of the end of the month in which such
consideration is received, and shall continue effective thereafter. Increases in
the Minimum Tangible Net Worth based on net income shall be effective on the
last day of the fiscal quarter in which said net income is realized, and shall
continue effective thereafter. In no event shall the Minimum Tangible Net Worth
be decreased.
6.10 Intellectual Property
Rights. Borrower
shall: (a) protect, defend and maintain the validity and
enforceability of its intellectual property material to Borrower’s business; (b)
promptly advise Bank in writing of material infringements of its intellectual
property material to Borrower’s business; 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 or servicemark, then Borrower shall promptly
provide written notice thereof to Bank and shall execute such intellectual
property security agreements and other documents and take such other actions as
Bank shall request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such
property. If Borrower decides to register any copyrights or mask
works in the United States Copyright Office, Borrower shall: (x) provide
Bank with at least fifteen (15) days prior written notice of Borrower’s intent
to register such copyrights or mask works together with a copy of the
application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (y) execute an intellectual property security
agreement and such other documents and take such other actions as Bank may
request in its good faith business judgment to perfect and maintain a first
priority perfected security interest in favor of Bank in the copyrights or mask
works intended to be registered with the United States Copyright Office; and
(z) record such intellectual property security agreement with the United
States Copyright Office contemporaneously with filing the copyright or mask work
application(s) with the United States Copyright Office. Borrower
shall promptly provide to Bank copies of all applications that it files for
patents or for the registration of trademarks, servicemarks, copyrights or mask
works, together with evidence of the recording of the intellectual property
security agreement necessary for Bank to perfect and maintain a first priority
perfected security interest in such property.
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 [Omitted].
6.13 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.
6.14 DairyGen,
LLC. Borrower
shall cause DairyGen, LLC to execute and deliver to Bank a Cross-Corporate
Continuing Guaranty on Bank’s standard form, with such modifications thereto as
are acceptable to Bank in its good faith business judgment, pursuant to which
DairyGen, LLC shall guaranty the Obligations in favor of
Bank. Borrower shall also cause DairyGen, LLC to execute and deliver
to Bank a security agreement and related documents, in form and substance
satisfactory to Bank in its good faith business judgment, pursuant to which
DairyGen, LLC shall grant a security interest to Bank in all assets of DairyGen,
LLC to secure DairyGen, LLC’s obligations to Bank, including, without
limitation, DairyGen, LLC’s obligations under the aforementioned Cross-Corporate
Continuing Guaranty.
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; (c) Transfers consisting of
Permitted Liens and Permitted Investments; (d) Transfers of non-exclusive
licenses for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (e) the Transfer of up to $700,000 to DairyGen, LLC
as described in Section 6.8(a) above; and (f) Transfers of other property sold
at fair market value in an aggregate amount not to exceed $100,000 in any fiscal
year.
-13-
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
venture capital investors so long as Borrower identifies to Bank the venture
capital investors prior to the closing of the transaction);
or
(d) without 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 $100,000), (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.
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(b)
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;
and (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 in
the aggregate of $100,000 per fiscal year.
7.8 Transactions with
Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower, except for transactions that are in the ordinary course of Borrower’s
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm’s length transaction with a non-affiliated
Person.
-14-
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 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.
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, 6.6, 6.8, or 6.9 (provided, however, a default under Section 6.9 in and of
itself will not constitute an Event of Default with respect to the Term Loan,
and Bank will not exercise its rights and remedies hereunder with respect to the
Term Loan if the only default hereunder is a default under Section 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; provided, however, a Material Adverse Change solely under
subclause (d) of the definition of Material Adverse Change will not constitute
an Event of Default in and of itself with respect to the Term Loan, and Bank
will not exercise its rights and remedies hereunder with respect to the Term
Loan if the only default hereunder is a default under subclause (d) of the
definition of Material Adverse Change;
8.4 Attachment. Attachment. (a) Any material portion of
Borrower’s assets is attached, seized, levied on, or comes into possession of a
trustee or receiver; (b) 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;
(c) Borrower is enjoined, restrained, or prevented by court order from
conducting any material part of its business; or (d) a notice of lien, levy, or
assessment is filed against any of Borrower’s assets by any government agency,
and the same under clauses (a) through (d) 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;
-15-
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 $100,000 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);
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 the collateral provided by Guarantor.
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) demand that Borrower (i) deposit cash
with Bank in an amount equal to the aggregate amount of any Letters of Credit
remaining undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and Borrower shall forthwith deposit and
pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to
be paid or payable over the remaining term of any Letters of
Credit;
(d) terminate any FX Forward
Contracts;
-16-
(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;
(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 Borrower’s insurance
policies; (e) pay, contest or settle any Lien, charge, encumbrance, security
interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and
(f) transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful attorney-in-fact
to sign Borrower’s name on any documents necessary to perfect or continue the
perfection of Bank’s security interest in the Collateral regardless of whether
an Event of Default has occurred until all Obligations have been satisfied in
full and Bank is under no further obligation to make Credit Extensions
hereunder. Bank’s foregoing appointment as Borrower’s attorney in
fact, and all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
9.3 Protective
Payments. If
Borrower fails to obtain the insurance called for by Section 6.7 or fails to pay
any premium thereon or fails to pay any other amount which Borrower is obligated
to pay under this Agreement or any other Loan Document, Bank may obtain such
insurance or make such payment, and all amounts so paid by Bank are Bank
Expenses and immediately due and payable, bearing interest at the then highest
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. 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 (collectively, “Communication”), other than Advance requests made
pursuant to Section 3.4, by any party to this Agreement or any other Loan
Document must be in writing and be delivered or sent by facsimile at the
addresses or facsimile numbers listed below. Bank or Borrower may
change its notice address by giving the other party written notice
thereof. Each such Communication 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, registered or certified mail,
return receipt requested, with proper postage prepaid; (b) upon transmission,
when sent by facsimile transmission (with such facsimile promptly confirmed by
delivery of a copy by personal delivery or United States mail as otherwise
provided in this Section 10); (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 or facsimile
number indicated below. Advance requests made pursuant to Section 3.4
must be in writing and may be in the form of electronic mail, delivered to Bank
by Borrower at the e-mail address of Bank provided below and shall be deemed to
have been validly served, given, or delivered when sent (with such electronic
mail promptly confirmed by delivery of a copy by personal delivery or United
States mail as otherwise provided in this Section 10). Bank or
Borrower may change its address, facsimile number, or electronic mail address by
giving the other party written notice thereof in accordance with the terms of
this Section 10.
-18-
|
If to
Borrower:
|
Energy and Power Solutions,
Inc.
|
|
|
000 Xxxxxxxxx Xxxxxx, Xxxxx
X000
|
||
|
Xxxxx Xxxx, Xxxxxxxxxx 00000
|
||
|
Attn:
|
Xxxxx Xxxxxx, Chief Financial
Officer
|
|
|
Fax: 000-000-0000
|
||
|
Email:
|
Xxxxx.Xxxxxx@xxxxxx.xxx
|
|
|
If to Bank:
|
Silicon Valley
Bank
|
|
|
00 Xxxxxxxxxx Xxxxx, Xxxxx
000
|
||
|
Xxxxxx, XX 00000
|
||
|
Attn:
|
Xxxx
Xxxxxxxxx
|
|
|
Fax:
|
000-000-0000
|
|
|
Email:
|
xxxxxxxxxx@xxx.xxx
|
|
11 CHOICE OF
LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE.
California law governs the Loan Documents without
regard to principles of conflicts of law. Borrower and Bank each
submit to the exclusive jurisdiction of the State and Federal courts in Santa
Xxxxx County, California; provided, however, that nothing in this Agreement
shall be deemed to operate to preclude Bank from bringing suit or taking other
legal action in any other jurisdiction to realize on the Collateral or any other
security for the Obligations, or to enforce a judgment or other court order in
favor of Bank. Borrower expressly submits and consents in advance to
such jurisdiction in any action or suit commenced in any such court, and
Borrower hereby waives any objection that it may have based upon lack of
personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of
the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage
prepaid.
TO THE 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.
-19-
12 GENERAL
PROVISIONS
12.1 Termination Prior to
Revolving Line Maturity Date. This Agreement may be
terminated prior to the Revolving Line Maturity Date by Borrower, effective
three (3) Business Days after written notice of termination is given to
Bank. Notwithstanding any such termination, Bank’s lien and security
interest in the Collateral and all of Bank’s rights and remedies under this
Agreement shall continue until Borrower fully satisfies its
Obligations.
12.2 Successors and
Assigns. This
Agreement binds and is for the benefit of the successors and permitted assigns
of each party. Borrower may not assign this Agreement or any rights
or obligations under it without Bank’s prior written consent (which may be
granted or withheld in Bank’s discretion). Bank has the right,
without the consent of or notice to Borrower, to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank’s
obligations, rights, and benefits under this Agreement and the other Loan
Documents.
12.3 Indemnification. Borrower agrees to
indemnify, defend and hold Bank and its directors, officers, employees, agents,
attorneys, or any other Person affiliated with or representing Bank 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 Bank 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 Bank’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 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.
12.7 Counterparts. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, are an original, and
all taken together, constitute one Agreement.
12.8 Survival. All covenants,
representations and warranties made in this Agreement continue in full force
until this Agreement has terminated pursuant to its terms and all Obligations
(other than inchoate indemnity obligations and any other obligations which, by
their terms, are to survive the termination of this Agreement) have been
satisfied. The obligation of Borrower in Section 12.2 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.
12.9 Confidentiality. In handling any
confidential information, Bank shall exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of information may
be made: (a) to Bank’s Subsidiaries or Affiliates; (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; and (e) as Bank considers appropriate in exercising
remedies under this Agreement. 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.
-20-
12.10 Attorneys’ Fees,
Costs and Expenses. In any action or proceeding
between Borrower and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled.
13 DEFINITIONS
13.1 Definitions. As used in this Agreement,
the following terms have the following meanings:
“Account” is any “account” as defined in the
Code with such additions to such term as may hereafter be made, and includes,
without limitation, all accounts receivable and other sums owing to
Borrower.
“Account
Debtor” is any “account
debtor” as defined in the Code with such additions to such term as may hereafter
be made.
“Advance” or “Advances” means an advance (or advances) under
the Revolving Line.
“Affiliate” of any Person is a Person that owns or
controls directly or indirectly the Person, any Person that controls or is
controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and
members.
“Agreement” is defined in the preamble
hereof.
“Availability
Amount” is (a) the lesser
of (i) the Revolving Line or (ii) the amount available under the Borrowing Base
minus (b) the amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit
Reserve, minus (c) the FX Reserve, minus (d) any amounts used for Cash
Management Services, and minus (e) the outstanding principal balance of any
Advances.
“Bank” is defined in the preamble
hereof.
“Bank
Expenses” are all audit
fees and expenses, costs, and expenses (including reasonable attorneys’ fees and
expenses) for preparing, 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” means 80% of Eligible Accounts, as determined by
Bank from Borrower’s most recent Transaction Report; provided, however, that
Bank may decrease the foregoing percentages in its good faith business judgment
based on events, conditions, contingencies, or risks which, as determined by
Bank, 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 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) sets forth 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 names of the Persons authorized
to execute the Loan Documents on behalf of such Person, together with a sample
of the true signatures of such Persons, 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.
-21-
“Business
Day” is any day that is not
a Saturday, Sunday or a day on which Bank is closed.
“Cash
Equivalents” means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not
more than one (1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating from either Standard & Poor’s Ratings Group or Xxxxx’x Investors
Service, Inc., (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue; and (d) money market funds at least ninety-five
percent (95%) of the assets of which constitute Cash Equivalents of the kinds
described in clauses (a) through (c) of this definition.
“Cash Management
Services” is defined in
Section 2.1.4.
“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.
“Communication” is defined in Section
10.
“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,
Letter of Credit, FX Forward Contract, amount utilized for Cash Management
Services, or any other extension of credit by Bank for Borrower’s
benefit.
“Default” 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 _____________, maintained with
Bank.
“Dollars,” “dollars” and “$” each mean lawful money of the
United States.
“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 for which the Account Debtor
has not been invoiced;
(b) Accounts that the Account Debtor has not
paid within ninety (90) days of invoice date;
(c) 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;
(d) Credit balances over ninety (90) days
from invoice date;
(e) Accounts owing from an Account Debtor,
including Affiliates, whose total obligations to Borrower exceed twenty-five
(25%) of all Accounts, for the amounts that exceed that percentage, unless Bank
approves in writing;
(f) Accounts owing from an Account Debtor
which does not have its principal place of business in the United States except for Eligible Foreign
Accounts;
(g) Accounts owing from an Account Debtor
which is a federal, state or local government entity or any department, agency,
or instrumentality thereof except for Accounts of the United States if 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;
(h) Accounts owing from an Account Debtor to
the extent (and only 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;
(i) Accounts for demonstration or
promotional equipment, or in which goods are consigned, or sold on a “sale
guaranteed”, “sale or return”, “sale on approval”, “xxxx and hold”, or other
terms if Account Debtor’s payment may be conditional;
(j) Accounts for which the Account Debtor is
Borrower’s Affiliate, officer, employee, or agent;
(k) 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;
(l) Accounts owing from an Account Debtor
with respect to which Borrower has received Deferred Revenue (but only to the
extent of such Deferred Revenue);
(m) [omitted];
(n) Accounts associated with any
co-generational plant owned by Borrower or a Subsidiary of Borrower, including,
without limitation, DairyGen, LLC, NEC-EPS Holdings, LLC, Franklin Energy
Center, LLC, Xxxx Energy Center, LLC and COI Energy Center,
LLC;
-23-
(o) Accounts generated from any xChange
Point site whose installation costs are financed by Bank;
and
(p) other Accounts Bank deems ineligible in
the exercise of its good faith business judgment (including, without limitation,
Accounts for which Bank in its good faith business judgment determines
collection to be doubtful).
“Eligible Foreign
Accounts” means Accounts
arising in the ordinary course of Borrower’s business from an Account Debtor
that does not have its principal place of business in the United States but are
otherwise Eligible Accounts that are approved in writing by Bank and either
(a) supported by letter(s) of credit acceptable to Bank in its discretion;
or (b) covered in full by credit insurance satisfactory to Bank, less any
deductible.
“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 equal
to five percent (5.0%) of the aggregate amount of Term Loan Advances advanced by
Bank to Borrower.
“Foreign
Currency” means lawful
money of a country other than the United States.
“Funding
Date” is any date on which
a Credit Extension is made to or on account of Borrower which shall be a
Business Day.
“FX Business
Day” is any day when (a)
Bank’s Foreign Exchange Department is conducting its normal business and (b) the
Foreign Currency being purchased or sold by Borrower is available to Bank from
the entity from which Bank shall buy or sell such Foreign
Currency.
“FX Forward
Contract” is defined in Section
2.1.3.
“FX
Reserve” is defined in Section
2.1.3.
“GAAP” is generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of determination.
“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.
-24-
“Guarantor” is any present or future guarantor of
any of the Obligations.
“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.
“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.
“IP
Agreement” is that certain
Intellectual Property Security Agreement executed and delivered by Borrower to
Bank dated as of the date hereof.
“Letter of
Credit” means a letter of
credit issued by Bank or another institution based upon an application,
guarantee, indemnity or similar agreement on the part of Bank as set forth in
Section 2.1.2.
“Letter of Credit
Application” is defined in
Section 2.1.2(a).
“Letter of Credit
Reserve” has the meaning
set forth in Section 2.1.2(d).
“Lien” is a claim, mortgage, deed of trust,
levy, charge, pledge, security interest or other encumbrance of any kind,
whether voluntarily incurred or arising by operation of law or otherwise against
any property.
“Loan
Documents” are,
collectively, this Agreement, the Warrant, the Perfection Certificate, the IP
Agreement, the Subordination Agreement, 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.
“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 and its
Subsidiaries, taken as a whole; 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.
“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.
-25-
“Perfection
Certificate” is defined in
Section 5.1.
“Permitted
Indebtedness”
is:
(a) Borrower’s Indebtedness to Bank under
this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective
Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade
creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of
endorsing negotiable instruments received in the ordinary course of
business;
(f) Indebtedness secured by Permitted
Liens;
(g) extensions, refinancings, modifications,
amendments and restatements of any items of Permitted Indebtedness (a) through
(g) 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 accepted in connection with
Transfers permitted by Section 7.1;
(f) Investments of Subsidiaries in or to
other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not
to exceed $500,000 in the aggregate in any fiscal year (including any Investment
made by Borrower to Subsidiaries to pay such Subsidiaries’ normal operating
expenses);
(g) Investments consisting of (i) travel
advances and employee relocation loans and other employee loans and advances in
the ordinary course of business, and (ii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plans or agreements approved by
Borrower’s Board of Directors;
(h) Investments (including debt obligations)
received in connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other disputes
with, customers or suppliers arising in the ordinary course of business;
and
(i) Investments consisting of notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph shall not apply to Investments of Borrower in any
Subsidiary.
“Permitted
Liens”
are:
-26-
(a) Liens existing on the Effective Date and
shown on the Perfection Certificate or arising under this Agreement and the
other Loan Documents (including the lien in favor of Pacific Mercantile Bank
until such time as the condition subsequent in Section 3.1A(b) is
satisfied);
(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 and capitalized
leases (i) on Equipment acquired or held by Borrower incurred for financing the
acquisition of the Equipment securing no more than $250,000 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 and 8.7;
“Person” is any individual, sole
proprietorship, partnership, limited liability company, joint venture, company,
trust, unincorporated organization, association, corporation, institution,
public benefit corporation, firm, joint stock company, estate, entity or
government agency.
“Prime
Rate” is Bank’s most
recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Registered
Organization” is any
“registered organization” as defined in the Code with such additions to such
term as may hereafter be made.
“Requirement of
Law” is as to any Person,
the organizational or governing documents of such Person, and any law (statutory
or common), treaty, rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
“Reserves” means, as of any date of
determination, such amounts as Bank may from time to time establish and revise
in its good faith business judgment, reducing the amount of Advances and other
financial accommodations which would otherwise be available to Borrower (a) to
reflect events, conditions, contingencies or risks which, as determined by Bank
in its good faith business judgment, do or 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.
-27-
“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 the date
that is two years from the Effective Date.
“Securities
Account” is any “securities
account” as defined in the Code with such additions to such term as may
hereafter be made.
“Settlement
Date” is defined in Section
2.1.3.
“Subordinated
Debt” is indebtedness
incurred by Borrower subordinated to all of Borrower’s now or hereafter
indebtedness to Bank (pursuant to a subordination, intercreditor, or other
similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to
Bank.
“Subsidiary” means, with respect to any Person, any
Person of which more than 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.
“Tangible Net
Worth” is, on any date, the
consolidated total assets of Borrower and its Subsidiaries minus (a) any amounts attributable to (i)
goodwill, (ii) intangible items including unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, (iii) notes, accounts receivable
and other obligations owing to Borrower from its officers or other Affiliates,
and (iv) reserves not already deducted from assets, minus (b) Total Liabilities, plus (c) Subordinated
Debt.
“Term
Loan” is a loan made by
Bank pursuant to the terms of Section 2.1.6 hereof.
“Term Loan
Advance” is defined in
Section 2.1.6(a).
“Term Loan
Amount” is
$3,500,000.
“Term Loan Draw
Period” is defined in
Section 2.1.6(a).
“Term Loan Maturity
Date” is December 31, 2012
[the date that is thirty-six months from the Effective
Date].
“Term Loan
Payment” is defined in
Section 2.1.6(c).
“Term Loan
Termination Fee” is an
amount equal to (i) two percent (2.0%) of the Term Loan Amount if the prepayment
is made on or before the first anniversary of the Effective Date, (ii) one
percent (1.0%) of the Term Loan Amount if the prepayment is made after the first
anniversary of the Effective Date but before the second anniversary of the
Effective Date and (iii) one percent (1.0%) of the Term Loan Amount if the
prepayment is made after the second anniversary of the Effective Date but before
the Term Loan Maturity Date; provided that no Term Loan Termination Fee
shall be charged if the credit facility hereunder is replaced with a new
facility from another division of Silicon Valley Bank.
“Total
Liabilities” is on any day,
obligations that should, under GAAP, be classified as liabilities on Borrower’s
consolidated balance sheet, including all Indebtedness, and current portion of
Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all
other Subordinated Debt.
-28-
“Transaction
Report” is that certain
report of transactions and schedule of collections in the form attached hereto
as Exhibit D.
“Transfer” is defined in Section
7.1.
“Warrant” is that certain Warrant to Purchase
Stock dated as of the Effective Date executed by Borrower in favor of
Bank.
[Signature page follows.]
-29-
IN WITNESS
WHEREOF, the parties hereto
have caused this Agreement to be executed as of the Effective
Date.
BORROWER:
ENERGY AND POWER SOLUTIONS,
INC.
By: /s/ Xxxxx
Ludlum_____________________________
Name: Xxxxx
Ludlum_____________________________
Title: CFO____________________________________
BANK:
SILICON VALLEY BANK
By: /s/ Xxxx
Miklinski____________________________
Name: Xxxx
Miklinski_____________________________
Title: Vice
President_____________________________
Effective Date: 12/31/09________________________________
Exhibits
A “Collateral”
B Compliance
Certificate
C [intentionally
omitted]
D Transaction Report
[Signature page to Loan and Security
Agreement]
EXHIBIT
A
The Collateral consists of all of
Borrower’s right, title and interest in and to the following personal
property:
All goods, Accounts (including
health-care receivables), Equipment, Inventory, contract rights or rights to
payment of money, leases, license agreements, franchise agreements, General
Intangibles, commercial tort claims, documents, instruments (including any
promissory notes), chattel paper (whether tangible or electronic), cash, deposit
accounts, fixtures, letters of credit rights (whether or not the letter of
credit is evidenced by a writing), securities, and all other investment
property, supporting obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and all Borrower’s Books relating to the
foregoing, and any and all claims, rights and interests in any of the above and
all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of
any or all of the foregoing.
1
EXHIBIT
B
COMPLIANCE
CERTIFICATE
|
TO:
|
SILICON VALLEY
BANK
|
Date:
|
________________ |
| FROM: | Energy and Power Solutions, Inc. |
The undersigned authorized officer of
Energy and Power Solutions, Inc. (“Borrower”) certifies that under the terms and
conditions of the Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (1) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below, (2) there are
no Events of Default, (3) all representations and warranties in the
Agreement are true and correct in all material respects on this date except as
noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached
are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein
shall have the meanings given them in the Agreement.
|
Please indicate compliance status
by circling Yes/No under “Complies” column.
|
|||||
|
Reporting
Covenant
|
Required
|
Complies
|
|||
|
Monthly financial statements with
Compliance Certificate
|
Monthly within 30
days
|
Yes No
|
|||
|
Annual financial statement (CPA
Audited) + XX
|
XXX within 120
days
|
Yes No
|
|||
|
Board
Projections
|
Within 30 days prior to next
FY
|
Yes No
|
|||
|
10-Q, 10-K and
8-K
|
Within 5 days after filing with
SEC
|
Yes No
|
|||
|
A/R & A/P
Agings
|
Monthly within 15 days (30 days if
on Streamline)
|
Yes No
|
|||
|
Deferred Revenue
Report
|
Monthly within 15 days (30 days if
on Streamline)
|
Yes No
|
|||
|
Transaction
Reports
|
Weekly and with each
Advance
(provided, however, if on
Streamline,
then monthly within 30
days)
|
Yes No
|
|||
|
The following intellectual
property was registered after the Effective Date (if no registrations,
state “None”)
____________________________________________________________________________
|
|||||
|
Financial
Covenant
|
Required
|
Actual
|
Complies
|
||
|
Maintain on a Monthly Basis:
|
|||||
|
Minimum Tangible Net
Worth
|
$12,500,000
plus (i) 50%
of new equity
and sub debt
plus (ii) 50%
of quarterly
net income on
or after March 31,
2010
|
$_______
|
Yes No
|
||
1
The following financial covenant
analysis and information set forth in Schedule 1 attached hereto are true and
accurate as of the date of this Certificate.
The following are the exceptions with
respect to the certification above: (If no exceptions exist, state
“No exceptions to note.”)
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
Energy and Power Solutions,
Inc.
By:__________________________________
Name:________________________________
Title:_________________________________
|
BANK USE ONLY
Received by:
_____________________
authorized
signer
Date: _________________________
Verified:
________________________
authorized
signer
Date: _________________________
Compliance
Status: Yes No
|
2
Schedule 1
to Compliance Certificate
Financial
Covenants of Borrower
In the event of a conflict between this
Schedule and the Loan Agreement, the terms of the Loan Agreement shall
govern.
Dated: ____________________
Tangible Net
Worth (Section
6.9(a))
|
Required:
|
$12,500,000 plus (i) 50% of new
equity and subordinated debt plus (ii) 50% of quarterly net income on or
after March 31, 2010
|
Actual:
|
A.
|
Aggregate value of total assets of
Borrower and its Subsidiaries
|
$_______
|
|
B.
|
Aggregate value of goodwill of
Borrower and its Subsidiaries
|
$_______
|
|
C.
|
Aggregate value of intangible
assets of Borrower and its Subsidiaries
|
$_______
|
|
D.
|
Aggregate value of investments of
Borrower and its Subsidiaries consisting of minority investments in
companies which investments are not
publicly-traded
|
$_______
|
|
E.
|
Aggregate value of any reserves
not already deducted from assets
|
$_______
|
|
F.
|
Aggregate value of liabilities of
Borrower and its Subsidiaries (including all
Indebtedness)
and current portion of
Subordinated Debt permitted by Bank to be paid by Borrower (but no other
Subordinated Debt)
|
$_______
|
|
G.
|
Aggregate value of Indebtedness of
Borrower subordinated to Borrower’s Indebtedness to
Bank
|
$_______
|
|
H.
|
Tangible Net Worth (line A minus
line B minus line C minus line D minus line E minus line F plus line
G)
|
$_______
|
Is line H equal to or greater than as
required above?
|
________
|
No, not in
compliance
|
_______ Yes, in
compliance
|
3
Exhibit
D
Transaction Report
|
GENERAL
INPUT SHEET
|
|||||
|
TO
|
|||||
|
Date
of Data
|
All
reports
|
-
|
|||
|
Report
number
|
All
reports
|
-
|
|||
|
Prior
day's Gross A/R Balance (Line 8)
|
Transaction
rpt
|
$ -
|
|||
|
Current
day's A/R ineligible Figure
|
Transaction
rpt
|
$ -
|
|||
|
Prior
day's Loan Balance (Line 17)
|
Transaction
rpt
|
$ -
|
|||
|
Current
day's loan advance request
|
Transaction
rpt
|
$ -
|
|||
|
SALES
JOURNAL
|
|||||
|
Invoices
:
|
Normal
sales
|
Sch.
A
|
$ -
|
||
|
Credit
Memos:
|
Normal
sales
|
Sch.
A
|
$ -
|
||
|
Misc.
Adj.:
|
Normal
sales
|
Sch.
A
|
$ -
|
||
|
Check
figure - Net sales journal
|
$ -
|
||||
|
CASH
RECEIPTS
|
|||||
|
Credit
posted to A/R
|
Sch.
B
|
$ -
|
|||
|
Non-Cash
reductions to A/R
|
Sch.
B
|
$ -
|
|||
|
Non-A/R
collections
|
Sch.
B
|
$ -
|
|||
|
Total
cash collected to Loan
|
Sch.
B
|
$ -
|
|||
|
Check
figure - Should be -0-
|
$ -
|
||||
|
A/R
ADJUSTMENTS - GENERAL LEDGER
|
|||||
|
Transaction
rpt
|
$ -
|
||||
|
Detail
separately & remit to Bank
|
$ -
|
||||
|
Silicon
Valley Bank
|
||||||||
|
Commercial
Finance Division
|
Report
No:
|
1
|
||||||
|
0000
Xxxxxx Xxxxx, Xxxxx Xxxxx, XX 00000
|
Date
|
|
||||||
|
TRANSACTION
REPORT AND LOAN REQUEST
|
||||||||
|
ACCOUNTS
RECEIVABLE COLLATERAL
|
Domestic
|
|||||||
|
1
|
Beginning
Accounts Receivable Balance Per Previous Report (Line 8)
|
$ -
|
||||||
|
2
|
Add:
Sales for Period (Schedule A)
|
$ -
|
||||||
|
3
|
Add:
Misc. Customers (Schedule A)
|
$ -
|
||||||
|
4
|
Less:
Credit Memos (Schedule A)
|
$ -
|
||||||
|
5
|
Less:
Cash Receipts Applied To Accounts Receivable (Direct-Schedule
B)
|
$ -
|
||||||
|
6
|
Less:
Cash - Other
|
$ -
|
||||||
|
7
|
Adjustments:
Dr. - Increase Cr. (Decrease)
|
$ -
|
||||||
|
8
|
Ending
Accounts Receivable Balance (Sum Lines 1-7)
|
$ -
|
||||||
|
9
|
Deduct:
Ineligible Accounts Receivable Per Aging Dated:
|
3/31/2010
|
$ -
|
|||||
|
10
|
Total
Eligible Accounts Receivable
|
$ -
|
||||||
|
11
|
Availability
from Receivables after applying advance rate
|
Line
Limit
|
$ 5,000,000
|
80%
|
$ -
|
|||
|
12
|
Less
Reserves (Letters of Credit, FX, etc):
|
Maximum
|
$ 2,500,000
|
|||||
|
13
|
Less
Other
|
|||||||
|
A/R
Availability:
|
$ -
|
|||||||
|
COMPUTATION
OF LOAN
|
||||||||
|
14
|
Beginning
Loan Balance
|
$ -
|
||||||
|
15
|
Add:
Returned Checks (NSF, Endorsement, etc.)
|
$ -
|
||||||
|
16
|
Add:
Amount deposited back into client's account after paying down loan
balance
|
$ -
|
||||||
|
17
|
Less:
Cash Applied To Loan - Accounts Receivable (Direct) from Schedule
B
|
$ -
|
||||||
|
18
|
Less:
Cash - Other
|
$ -
|
||||||
|
19
|
Ending
Loan Balance - Before Loan Request
|
$ -
|
||||||
|
20
|
UNUSED
BORROWING AVAILABILITY BEFORE LOAN REQUEST
|
$ -
|
||||||
|
21
|
||||||||
|
22
|
Loan
Advance =
|
$ -
|
||||||
|
23
|
NEW
LOAN BALANCE - AFTER LOAN ADVANCE
|
$ -
|
||||||
|
24
|
REMAINING
UNUSED BORROWING AVAILABILITY - After Loan Request
|
$ -
|
||||||
|
The
above described Collateral is subject to a security interest in favor of
SILICON VALLEY BANK pursuant to the terms and
|
||||||||
|
conditions
of a Loan and Security Agreement's, as executed by and between SILICON
VALLEY BANK and the undersigned.
|
||||||||
|
BORROWER
|
SILICON
VALLEY BANK
|
|||||||
|
Energy
& Power Solutions, Inc.
|
||||||||
|
Auth
Signer:
|
Signature
|
|||||||
|
Name:
|
Name
|
Xxxx
Xxxxxxxxx
|
||||||
|
Title:
|
Title
|
Relationship
Manager
|
||||||
|
Date:
|
Date:
|
|||||||
|
Silicon
Valley Bank
|
||||||
|
Commercial
Finance Division
|
||||||
|
0000
Xxxxxx Xxxxx, Xxxxx Xxxxx, XX 00000
|
A
|
|||||
|
SCHEDULE
A - ACCOUNTS RECEIVABLE ASSIGNED
|
||||||
|
Report
No.
|
1
|
Date
Assigned
|
|
|||
|
Customer
|
Invoice
|
Shipping
|
Invoice
|
|||
|
Number
|
Customer
Name
|
Type
|
Date
|
Date
|
Invoice
No.
|
Amount
|
|
Domestic
|
||||||
|
INVOICES
, FREIGHT, SALES TAX - See attached detail
|
Normal
sales
|
|||||
|
CREDIT
MEMOS - See attached detail
|
VOIDS
|
Normal
CMs
|
$ -
|
|||
|
MISC.
CUSTOMERS - See attached detail
|
Normal
miscel.
|
$ -
|
||||
|
Net
Sales
|
||||||
|
Assignment
|
$ -
|
|||||
|
Silicon
Valley Bank
|
B
|
||||||||
|
Commercial
Finance Division
|
|||||||||
|
SCHEDULE
B - ACCOUNTS RECEIVABLE COLLECTION REPORT
|
|||||||||
|
Report
No.
|
Date
of Remittance
|
|
|||||||
|
Date
|
Customer
|
Customer
|
Invoice
|
Original
|
Actual
Funds
|
Discount/DM
|
Amt.
Credited
|
Non-A/R
|
Collection
|
|
Received
|
No.
|
Name
|
Number
|
Invoice
Amt.
|
Received
(Loan)
|
To
A/R Norm.
|
To
A/R
|
Collections
|
Source
|
|
see
attached report
|
|||||||||
|
Totals:
|
-
|
-
|
-
|
-
|
-
|
||||
|
(Trans
Rpt Ln 20)
|
(Trans
Rpt Ln 5)
|
||||||||
|
Ineligible
|
|||||
|
A/R
CALCULATION
|
As
of:
|
|
|||
|
1
|
Unbilled
Accounts
|
$ -
|
|||
|
2
|
Over
90 days from invoice date
|
$ -
|
|||
|
3
|
Credit
Memos Over 90 Days
|
$ -
|
|||
|
4
|
Accounts
cross-aged at 50%
|
$ -
|
|||
|
5
|
Concentrations
@ 25%
|
$ -
|
|||
|
6
|
Unapproved
foreign accounts
|
$ -
|
|||
|
7
|
Contra
accounts
|
$ -
|
|||
|
8
|
Federal
Government accounts
|
$ -
|
|||
|
9
|
Unapproved
Affiliate & Related Accounts
|
$ -
|
|||
|
10
|
Accounts
for Demonstration, Consignment
|
$ -
|
|||
|
11
|
Accounts
in dispute; Debtor insolvent
|
$ -
|
|||
|
12
|
Doubtful
Accounts
|
$ -
|
|||
|
13
|
Milestone
Progress Xxxxxxxx
|
$ -
|
|||
|
14
|
Other
Non Approved Accounts
|
$ -
|
|||
|
Total
Ineligible to BBC
|
$ -
|
||||
