EXHIBIT 10.3
ASSUMPTION AND AMENDMENT AGREEMENT
This Assumption and Amendment Agreement, dated as of September 28, 2005,
is entered into between SILICON VALLEY BANK ("Silicon"), on the one side, and
CARDIAC SCIENCE CORPORATION, a Delaware corporation formerly known as CSQ
HOLDING COMPANY (the "Surviving Company"), XXXXXXX CARDIOLOGY, INC., a
Washington corporation ("QCI") (jointly and severally, and effective upon the
effective date of the Merger (as defined below), Surviving Company and QCI are
referred to herein as the "Existing Borrower"), and CARDIAC SCIENCE OPERATING
COMPANY, a Delaware corporation formerly known as CARDIAC SCIENCE, INC. ("CSI")
hereinafter referred to as the "New Borrower"), on the other side, with
reference to the following facts:
A. Silicon and Xxxxxxx Cardiology Systems, Inc., a Delaware corporation
("QCS") and QCI are parties to that certain Loan and Security Agreement dated
December 30, 2002 (as amended, the "Loan Agreement"). (The Loan Agreement and
all other documents, instruments and agreements evidencing, securing or
otherwise related to the obligations of QCS and QCI to Silicon, are hereinafter
collectively referred to as "Loan Documents". Capitalized terms used but not
defined in this Assumption Agreement shall have the meanings set forth in the
Loan Agreement.)
B. Silicon and CSI and Cadent Medical Corporation ("CMC") are parties to
that certain Loan and Security Agreement dated February 6, 2004 (as amended, the
"CSI Loan Agreement"). The CSI Loan Agreement and all other documents,
instruments and agreements evidencing, securing or otherwise related to the
obligations of CSI and CMC to Silicon, are hereinafter collectively referred to
as the "CSI Loan Documents." CMC has subsequently been dissolved.
C. Rhythm Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Surviving Company, has merged with and into QCS with QCS as
the surviving corporation (the "QCS Merger") in accordance with that certain
Agreement and Plan of Merger dated as of February 28, 2005, as amended by that
certain Amendment to Agreement and Plan of Merger dated as of June 23, 2005
(collectively, the "Merger Agreement").
D. Immediately following the QCS Merger, QCS, as the surviving corporation
of the QCS Merger, has merged with and into the Surviving Company, in accordance
with the Merger Agreement (such merger transaction is referred to herein as the
"Merger"). As a result of the Merger, the Surviving Company is the surviving
corporation.
E. Immediately following the Merger, (i) the name of the Surviving Company
was changed to Cardiac Science Corporation; (ii) Heart Acquisition Corporation,
a Delaware corporation and a wholly owned subsidiary of the Surviving Company,
merged
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with and into CSI with CSI as the surviving corporation (the "CSI Merger"), and
(iii) CSI changed its name to Cardiac Science Operating Company, all in
accordance with the Merger Agreement. As a result of the CSI Merger, CSI has
become a wholly owned subsidiary of the Surviving Company. In conjunction with
the CSI Merger, the indebtedness of CSI to Perseus Acquisition/Recapitalization
Fund, L.L.C., Perseus Market Opportunity Fund, L.P. and Cardiac Science
Co-Investment, L.P. (collectively, the "Subordinating Creditors") shall be
converted into a combination of equity of the Surviving Company and cash, and
all liens and security interests in favor of the Subordinating Creditors and
HSBC Bank USA (as agent for the Subordinating Creditors) will be terminated.
NOW, THEREFORE, the parties hereto agree as follows:
1. ASSUMPTION BY SURVIVING COMPANY. Effective as of the effective time of
the Merger, the Surviving Company, without any further action, hereby assumes
and agrees to perform for the benefit of Silicon all of the "Obligations" (as
defined in the Loan Agreement) of QCS, and the Surviving Company agrees to
honor, perform and in all respects comply with all terms and provisions of all
of the Loan Documents, to the same extent as though the Surviving Company were
named therein in place of QCS. All references in the Loan Agreement to
"Collateral" and "Obligations" shall be deemed to refer to all present and
future Collateral and Obligations (as therein defined) of the Surviving Company
as well as QCS. The Surviving Company acknowledges that QCS's Accounts, General
Intangibles, Inventory, Equipment and all other Collateral have been transferred
to the Surviving Company as a result of the Merger, subject in all respects to
the continuing security interest in favor of Silicon, and, as security for all
of the Obligations, the Surviving Company hereby grants Silicon a security
interest in all of its present and future Collateral, including, without
limitation, all present and future Accounts, General Intangibles, Inventory,
Equipment and all other Collateral. The Surviving Company acknowledges that,
effective as of the effective date of the Merger, all of the Obligations are
owing to Silicon from the Surviving Company.
2. ASSUMPTION BY NEW BORROWER. Effective as of the effective date of the
CSI Merger, New Borrower hereby assumes and agrees to pay and perform when due
all present and future indebtedness, liabilities and obligations of Existing
Borrower under, based upon, or arising out of the Loan Agreement and any and all
documents, instruments and agreements relating thereto, including without
limitation all of the "Obligations" as defined in the Loan Agreement. Existing
Borrower shall remain as an obligor with respect to all of the Obligations, and
Existing Borrower and New Borrower shall be jointly and severally liable for all
of the Obligations. All references in the Loan Agreement, and in all related
documents, to "Borrower" shall be deemed to refer, jointly and severally, to
Existing Borrower and New Borrower.
3. GRANT OF SECURITY INTEREST BY NEW BORROWER. Without limiting the
generality of the provisions of Section 2 above, as security for all
Obligations, New Borrower hereby grants Silicon a continuing security interest
in all of New Borrower's interest in the "Collateral" (as defined in the Loan
Agreement) including, without limitation, the types of property described below,
whether now owned or hereafter acquired and wherever located:
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(a) All accounts, contract rights, chattel paper, letters of credit, documents,
securities, money, and instruments, and all other obligations now or in the
future owing to New Borrower; (b) All inventory, goods, merchandise, materials,
raw materials, work in process, finished goods, farm products, advertising,
packaging and shipping materials, supplies, and all other tangible personal
property which is held for sale or lease or furnished under contracts of service
or consumed in the New Borrower's business, and all warehouse receipts and other
documents; and (c) All equipment, including without limitation all machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, materials, tools,
machine tools, office equipment, computers and peripheral devices, appliances,
apparatus, parts, dies, and jigs; (d) All general intangibles including, but not
limited to, deposit accounts, goodwill, names, trade names, trademarks and the
goodwill of the business symbolized thereby, trade secrets, drawings,
blueprints, customer lists, patents, patent applications, copyrights, security
deposits, loan commitment fees, federal, state and local tax refunds and claims,
all rights in all litigation presently or hereafter pending for any cause or
claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of New Borrower against Silicon, all
rights to purchase or sell real or personal property, all rights as a licensor
or licensee of any kind, all royalties, licenses, processes, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other insurance),
and all other rights, privileges and franchises of every kind; (e) All books and
records, whether stored on computers or otherwise maintained; and (f) All
substitutions, additions and accessions to any of the foregoing, and all
products, proceeds and insurance proceeds of the foregoing, and all guaranties
of and security for the foregoing; and all books and records relating to any of
the foregoing. By the execution hereof, New Borrower hereby authorizes Silicon
to prepare and file UCC-1 Financing Statements listing New Borrower as the
debtor therein and in such form as Silicon shall specify.
4. AMENDMENT TO CSI LOAN DOCUMENTS. New Borrower acknowledges that the
present unpaid principal balance of the New Borrower's indebtedness, liabilities
and obligations to Silicon under the CSI Loan Documents, including interest
accrued through the date hereof is $0.00, with certain Letters of Credit
outstanding (the "Present CSI Loan Balance"), and that said sum is owing without
any defense, offset, or counterclaim of any kind. The CSI Loan Documents are
hereby amended in their entirety to read as set forth in the Loan Agreement, and
related documents. New Borrower acknowledges that the Present CSI Loan Balance
shall, for all purposes, be deemed to be Loans made by Silicon to the New
Borrower pursuant to the Loan Documents. Notwithstanding the assumption of the
Loan Documents, the following CSI Loan Documents shall continue in full force
and effect and shall continue to secure all present and future indebtedness,
liabilities, guarantees and other Obligations (as defined in the Loan
Documents): All standard documents of Silicon entered into by the New Borrower
in connection with Letters of Credit and/or Foreign Exchange Contracts; all
security agreements, collateral assignments and mortgages, including but not
limited to those relating to patents, trademarks, copyrights and other
intellectual property; all lockbox agreements and/or blocked account agreements;
and all UCC-1 financing statements and other documents filed with governmental
offices which
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perfect liens or security interests in favor of Silicon. In addition, in the
event the New Borrower has previously issued any stock options, stock purchase
warrants or securities to Silicon, the same and all documents and agreements
relating thereto shall also continue in full force and effect.
5. AMENDMENT TO SCHEDULE. The Schedule to Loan and Security Agreement is
hereby deleted and replaced with the Amended Schedule being executed
concurrently herewith.
6. AMENDMENT TO LOAN AGREEMENT. The following provisions of the Loan
Agreement are hereby amended as set forth below:
a. MODIFIED AUDIT PROVISION. Section 5.4 of the Loan Agreement is
hereby amended to read as follows:
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times,
and on one Business Day's notice, Silicon, or its agents, shall
have the right to inspect the Collateral, and the right to audit
and copy Borrower's books and records. After an initial audit to
be conducted in conjunction herewith (which Silicon acknowledges
has been completed), the parties contemplate that such audits
will be performed no more frequently than annually, but nothing
herein restricts Silicon's right to conduct such audits more
frequently if (i) Silicon believes that it is advisable to do so
in Silicon's good faith business judgment, or (ii) Silicon
believes in good faith that a Default or Event of Default has
occurred. Silicon shall take reasonable steps to keep
confidential all information obtained in any such inspection or
audit, but Silicon shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys,
and pursuant to any subpoena or other legal process. The
foregoing inspections and audits shall be at Borrower's expense
and the charge therefor shall be $750 per person per day (or such
higher amount as shall represent Silicon's then current standard
charge for the same), plus reasonable out-of-pocket expenses. In
the event Borrower and Silicon schedule an audit more than 10
days in advance, and Borrower seeks to reschedule the audit with
less than 10 days written notice to Silicon, then (without
limiting any of Silicon's rights or remedies), Borrower shall pay
Silicon a cancellation fee of $1,000 plus any out-of-pocket
expenses incurred by Silicon, to compensate Silicon for the
anticipated costs and expenses of the cancellation.
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b. MODIFIED ACQUISITION PROVISION. The single asterisk (*) insert at
the end of Section 5.5(i) is hereby amended to read as follows:
; provided however, notwithstanding anything to the contrary
in this Section 5.5, Borrower will be permitted to merge or
consolidate with another corporation or entity without the
prior written consent of Silicon if such acquisition satisfies
each of the following requirements: (a) the acquired entity is
in the same or similar line of business as Borrower, (b) the
acquisition is a non-hostile acquisition (as determined by
Silicon in its good faith business judgment), (c) no Default
or Event of Default exists both before such acquisition and
after giving effect to such acquisition, (d) the acquired
entity must show a positive trailing twelve month EBITDA, (e)
the total cash consideration paid by Borrower in each such
acquisition cannot exceed $10,000,000 and (f) the Borrower
must be the surviving corporation of such merger or
consolidation.
c. MODIFIED PREPAYMENT PROVISION. Section 6.2 of the Loan Agreement
is hereby amended to read as follows:
6.2 EARLY TERMINATION. This Agreement may be terminated prior
to the Maturity Date as follows: (i) by Borrower, effective
three Business Days after written notice of termination is
given to Silicon; or (ii) by Silicon at any time after the
occurrence and during the continuance of an Event of Default,
without notice, effective immediately. If this Agreement is
terminated by Borrower or by Silicon under this Section 6.2,
Borrower shall pay to Silicon a termination fee in an amount
equal to the following: (a) 1.0% of the Maximum Credit Limit
if terminated before December 31, 2005; (b) 0.875% of the
Maximum Credit Limit if terminated after December 31, 2005 but
before March 31, 2006; (c) 0.75% of the Maximum Credit Limit
if terminated after March 31, 2006 but before June 30, 2006;
(d) 0.625% of the Maximum Credit Limit if terminated after
June 30, 2006 but before September 30, 2006; (e) 0.50% of the
Maximum Credit Limit if terminated after September 30, 2006
but before December 31, 2006; (f) 0.375% of the Maximum Credit
Limit if terminated after December 31, 2006 but before March
31, 2007; (g) 0.25% of the Maximum Credit Limit if terminated
after March 31, 2007 but before June 30, 2007; and (h) 0.125%
of the Maximum Credit Limit if terminated after June 30, 2007
but before the Maturity Date. Notwithstanding the
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foregoing, no termination fee shall be charged if the credit
facility hereunder is replaced with a new facility from
another division of Silicon Valley Bank. The termination fee
shall be due and payable on the effective date of termination
and thereafter shall bear interest at a rate equal to the
highest rate applicable to any of the Obligations.
d. ADDING DEFINITION OF FOREIGN ACCOUNTS. Subclause (viii) of the
Minimum Eligibility Requirements set forth in the definition of "Eligible
Accounts" set forth in Section 8 of the Loan Agreement is hereby amended to read
as follows:
(viii) the Account must not be owing from an Account Debtor
located outside the United States or Canada (each a "Foreign
Account") (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to Silicon),
e. MODIFIED DEFINITION OF ELIGIBLE ACCOUNTS REGARDING DEFERRED
REVENUE. The following sentences at the end of the definition of "Eligible
Accounts" set forth in Section 8 of the Loan Agreement that read as follows:
Without limiting the generality of the foregoing, deferred
revenue shall be reviewed by Silicon monthly and associated
potential offsets by Account Debtors will be deducted from the
Accounts owing from such Account Debtors; provided, however,
the foregoing clause will not be applicable once Borrower
achieves, and as long as Borrower maintains, an Adjusted Quick
Ratio of not less than 0.60 to 1.0 (provided, further, that
the foregoing will not limit Silicon's rights to establish
reserves with respect to such deferred revenue offsets in the
amounts deemed necessary by Silicon in its discretion). For
the purposes hereof, the term "Adjusted Quick Ratio" shall
mean, as of any applicable date, the ratio of (i) Borrower's
cash and Accounts to (ii) Borrower's current liabilities less
deferred revenues; provided, however, any accrued warranty
shall be included in Borrower's current liabilities.
are hereby amended to read as follows:
Without limiting the generality of the foregoing, deferred
revenue shall be reviewed by Silicon monthly (provided, that
the foregoing will not limit Silicon's rights to establish
reserves with respect to such deferred revenue offsets in the
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amounts deemed necessary by Silicon in its discretion nor will
it limit Silicon's rights, in its discretion, to deduct such
associated potential offsets by Account Debtors from the
Accounts owing from such Account Debtors).
7. AMENDED AND RESTATED GUARANTY. Reference is made to that certain Cross-
Corporate Continuing Guaranty dated December 30, 2002, executed by each of QCS
and QCI (fka Xxxxxxx, Inc.) in favor of Silicon (the "Guaranty"). The Guaranty
is hereby amended and restated in accordance with the Cross-Corporate Continuing
Guaranty of even date herewith to be executed by each of the Borrowers in favor
of Silicon.
8. CONTROL AGREEMENTS. As to any U.S. Deposit Accounts and investment
accounts maintained with another institution, Borrower shall cause such
institution, within 30 days after the date of this Agreement, to enter into a
control agreement in form acceptable to Silicon in its good faith business
judgment in order to perfect Silicon's security interest in said Deposit
Accounts and investment accounts.
9. FEE. In consideration for Silicon entering into this Assumption and
Amendment Agreement, Borrower shall pay Silicon a fee in the following amounts:
(a) $100,000 (the "Year 1 Fee"), which is fully earned on a monthly
basis going forward and which shall be non-refundable and in addition to all
interest and other fees payable to Silicon under the Loan Documents (including,
without limitation, $10,000 of the remaining $30,000 owed from the $60,000 fee
under that certain Amendment to Loan Documents dated December 30, 2004; the
remaining $20,000 of such $30,000 shall be included within the Year 1 Fee). The
Year 1 Fee shall accrue at the rate of $8,333.33 per month for each month (or
partial month) ending after the date hereof and shall be payable at the end of
each quarter. Silicon is authorized to charge said Year 1 Fee, as provided for
above, to Borrower's loan account.
(b) $75,000 (the "Year 2 Fee"), which will be fully earned on a
monthly basis going forward, commencing with the first anniversary date of this
Agreement and which shall be non-refundable and in addition to all interest and
other fees payable to Silicon under the Loan Documents. The Year 2 Fee shall
accrue at the rate of $6,250 per month for each month (or partial month) ending
after the first anniversary date of this Agreement and shall be payable at the
end of each quarter. Silicon is authorized to charge said Year 2 Fee, as
provided for above, to Borrower's loan account.
10. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct. Without limiting the generality of the foregoing,
the Surviving Company hereby represents and warrants to Silicon that all
representations and warranties in the Loan Documents made on the part of QCS are
true and correct on the date hereof with respect to the Surviving Company, with
the same force and effect as if the Surviving Company were named as the borrower
in the Loan Documents in place of QCS.
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11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. This Agreement and the
other Loan Documents shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Silicon hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Xxxxx, State of California. BORROWER AND SILICON EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. INTEGRATION. This will confirm that this Agreement, the Loan Agreement
and the other Loan Documents represent the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
13. GENERAL PROVISIONS. This Agreement and the Loan Documents set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof. All agreements, covenants, representations and
warranties, express or implied, oral and written, of the parties with regard to
the subject matter hereof are contained herein and in the Loan Documents. No
other agreements, covenants, representations or warranties, express or implied,
oral or written, have been made by either party to the other with respect to the
subject matter of this Agreement. This Agreement may not be modified or amended,
nor may any rights hereunder be waived, except in a writing signed by the
parties hereto. Without limiting the terms of the Loan Documents, Borrower shall
reimburse Silicon for all costs, fees and expenses incurred by Silicon in
connection with the negotiation, preparation and conclusion of, and the
enforcement of Silicon's rights and remedies under, this Agreement, any
amendment hereof, and any agreements and documents relating hereto, including,
but not limited to, reasonable attorneys' fees, and all other costs, fees and
expenses. Borrower agrees to cooperate fully with Silicon and take all further
actions and execute all further documents from time to time as Silicon may deem
necessary or advisable to carry out the purposes of this Agreement.
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CARDIAC SCIENCE CORPORATION, SILICON VALLEY BANK
a Delaware corporation
By /s/ Xxxxxxx Xxxxxxx By /s/ Xxxxxxxx Xxxxxxx
------------------------------ ---------------------------------
Title SVP/CFO Title XX
XXXXXXX CARDIOLOGY, INC., CARDIAC SCIENCE OPERATING COMPANY,
a Washington corporation a Delaware corporation
By /s/Xxxxxxx Xxxxxxx By /s/ Xxxxxxx Xxxxxxx
------------------------------ ---------------------------------
Title CFO Title CFO
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SILICON VALLEY BANK
AMENDED SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: CARDIAC SCIENCE CORPORATION (SUCCESSOR BY MERGER TO XXXXXXX
CARDIOLOGY SYSTEMS, INC.)
XXXXXXX CARDIOLOGY, INC.
CARDIAC SCIENCE OPERATING COMPANY
ADDRESS: 0000 XXXXX XXXXX XXXXXXX
XXXXXXX, XX 00000
DATE: SEPTEMBER 28, 2005
This Amended Schedule is executed and delivered pursuant to an Assumption and
Amendment Agreement of even date between Silicon Valley Bank ("Silicon") and the
above-borrower (the "Borrower"), forms an integral part of the Loan and Security
Agreement between Silicon and Xxxxxxx Cardiology Systems, Inc. and Xxxxxxx
Cardiology, Inc. (fka Xxxxxxx, Inc.) dated as of December 30, 2002 (the "Loan
Agreement") and amends and restates the Schedule to the Loan Agreement (the
"Original Schedule"). All reference to the "Loan Agreement" and to "this
Agreement" shall be deemed to refer to the Loan Agreement and the Schedule to
the Loan Agreement (including this Amended Schedule).
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the following:
(A) The lesser of:
(i) $20,000,000 at any one time outstanding (the
"Maximum Credit Limit"), or
(ii) (a) or (b) below, whichever is applicable:
(a) the sum of (I), (II), (III) and (IV) below
(the "Borrowing Base"):
(I) 85% (an "Advance Rate") of the amount
of Borrower's Eligible Accounts (as
defined in Section 8 above),
plus
(II) 50% (an "Advance Rate") of the amount
of Borrower's unrestricted cash in
accounts maintained at Silicon,
plus
(III) an amount not to exceed the lesser of:
(1) 30% (an "Advance Rate") of the
value of Borrower's Eligible
Inventory (as defined in Section
8 above), calculated at the
lower of cost or market value
and determined on a weighted
average basis; or
(2) an amount equal to 35% (an
"Advance Rate") of the
Borrower's Eligible Receivables
(as defined in Section 8 above);
or
(3) $5,000,000,
plus
(IV) 85% of Borrower's Foreign Accounts
(that are otherwise Eligible Accounts
except for the Account Debtor being
located outside the United States or
Canada and which have not been
pre-approved by Silicon in writing,
are not backed by a letter of credit
satisfactory to Silicon or are not
FCIA insured satisfactory to Silicon)
that are billed and collected within
the United States, up to a maximum of
$2,500,000.
OR
(b) Loans in the aggregate principal amount
outstanding of not more than $7,500,000 (the
"Non-Formula Loan").
Loans will be made pursuant to subclause
(A)(ii)(b) above only if, and as long as, Borrower
maintains, as of the end of each month, an
Adjusted Quick Ratio (as defined herein) of not
less than 1.10 to 1.0. At all other times, or if
Borrower desires Loans to exceed $7,500,000
(regardless of whether or not Borrower's Adjusted
Quick Ratio is 1.10 to 1.0 or greater), Loans will
be made pursuant to subclause (A)(ii)(a) above.
minus
(B) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit),
and minus the FX Reserve, and
minus all amounts for Cash Management Services utilized
under the Cash Management Services Sublimit.
Silicon may, from time to time, modify the Advance
Rates, in its good faith business judgment, upon notice
to the Borrower, based on changes in collection
experience with respect to Accounts, its evaluation of
the Inventory or other issues or factors relating to the
Accounts, Inventory or other Collateral. Silicon shall
have the right, in its good faith business judgment to
have appraisals of the orderly liquidation value of the
Eligible Inventory done periodically by an appraiser
acceptable to Silicon, in order to assist it in
determining Advance Rates.
Loans will be made to each Borrower based on the
Eligible Receivables and Eligible Inventory of each
Borrower, subject to the Maximum Credit Limit set forth
above for all Loans to all Borrowers combined.
LETTER OF CREDIT
SUBLIMIT
(Section 1.6): An amount equal to (A) the lesser of the Maximum Credit
Limit or the Borrowing Base or the Non-Formula Loan
(whichever is applicable), minus (B) the FX Reserve, and
minus (C) all amounts for Cash Management Services
utilized under the Cash Management Services Sublimit,
and minus (D) all outstanding Loans; provided that the
total of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), and the FX
Reserve, and all amounts for Cash Management Services
utilized under the Cash Management Services Sublimit may
not exceed $10,000,000.
CASH MANAGEMENT
SUBLIMIT: An amount equal to (A) the lesser of the Maximum Credit
Limit or the Borrowing Base or the Non-Formula Loan
(whichever is applicable), minus (B) the amount of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and minus (C) the FX
Reserve, and minus (D) all outstanding Loans; provided
that the total of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit),
and the FX Reserve, and all amounts for Cash Management
Services utilized under the Cash Management Services
Sublimit may not exceed $10,000,000.
CASH MANAGEMENT
SERVICES: Borrower may use up to the Cash Management Sublimit
above, for Silicon's Cash Management Services (as
defined below), including, merchant services, business
credit card, ACH and other services identified in the
cash management services agreement related to such
service (the "Cash Management Services"). Silicon may
charge to Borrower's Loan account, any amounts that may
become due or owing
to Silicon in connection with the Cash Management
Services. Borrower agrees to execute and deliver to
Silicon all standard form applications and agreements of
Silicon in connection with the Cash Management Services,
and, without limiting any of the terms of such
applications and agreements, Borrower will pay all
standard fees and charges of Silicon in connection with
the Cash Management Services. The Cash Management
Services shall terminate on the Maturity Date.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT: An amount equal to (A) the lesser of the Maximum Credit
Limit or the Borrowing Base or the Non-Formula Loan
(whichever is applicable), minus (B) the amount of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and minus (C) all
amounts for Cash Management Services utilized under the
Cash Management Services Sublimit, and minus (D) all
outstanding Loans; provided that the total of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and the FX Reserve, and
all amounts for Cash Management Services utilized under
the Cash Management Services Sublimit may not exceed
$10,000,000.
FX RESERVE: Borrower may enter into foreign exchange forward
contracts with Silicon, on its standard forms, under
which Borrower commits to purchase from or sell to
Silicon a set amount of foreign currency more than one
business day after the contract date (the "FX Forward
Contracts"); provided that (1) at the time the FX
Forward Contract is entered into Borrower has Loans
available to it under this Agreement in an amount at
least equal to 10% of the amount of the FX Forward
Contract; and (2) the total FX Forward Contracts at any
one time outstanding may not exceed 10 times the amount
of the FX Sublimit set forth above. The "FX Reserve"
shall be a reserve (which shall be in addition to all
other reserves) in an amount equal to 10% of the total
FX Forward Contracts from time to time outstanding.
Silicon may, in its discretion, terminate the FX Forward
Contracts at any time that an Event of Default occurs
and is continuing. Borrower shall execute all standard
form applications and agreements of Silicon in
connection with the FX Forward Contracts, and without
limiting any of the terms of such applications and
agreements, Borrower shall pay all standard fees and
charges of Silicon in connection with the FX Forward
Contracts.
2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in effect from
time to time, plus 0.0% per annum, provided that
the interest rate in effect on any day shall not
be less than 6.25% per annum. Interest shall be
calculated on the basis of a 360-day year for the
actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as
its "prime rate;" it is a base rate upon which
other rates charged by Silicon are based, and it
is not necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date there is a
change in the Prime Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not Applicable.
3. FEES (Section 1.4):
Loan Fee: See Assumption and Amendment Agreement of even
date herewith.
Unused Line Fee: In the event, in any calendar month (or portion
thereof at the beginning and end of the term
hereof), the sum of (i) the average daily
principal balance of the Loans outstanding during
the month and (ii) the face amount of any
outstanding Letters of Credit is less than the
amount of the Maximum Credit Limit, Borrower shall
pay Silicon an unused line fee in an amount equal
to 0.25% per annum on the difference between the
amount of the Maximum Credit Limit and the sum of
(i) the average daily principal balance of the
Loans outstanding during the month and (ii) the
face amount of any Letters of Credit, computed on
the basis of a 360-day year, which unused line fee
shall be computed and paid monthly, in arrears, on
the first day of the following month.
4. MATURITY DATE
(Section 6.1): September 28, 2007 [Two years from the date of
this Agreement].
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall, on a consolidated basis, comply
with each of the following covenants. Compliance
shall be determined as of the end of each month,
except as otherwise specifically provided below:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of
not less than $39,000,000 plus (i) 100% 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 after the date hereof. Increases in the
Minimum Tangible Net Worth Covenant 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 Covenant 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 Covenant be
decreased, except in circumstances described in
the next paragraph.
If any change in Borrower's consolidated Tangible
Net Worth is shown in its consolidated financial
statements as a result of the Merger, Silicon will
reset the Minimum Tangible Net Worth Financial
Covenant to be $5,000,000 less than the
consolidated Tangible Net Worth of the Borrower
(as shown on the Borrower's consolidated financial
statements).
MINIMUM ADJUSTED
QUICK RATIO: Borrower shall maintain an Adjusted Quick Ratio of
not less than 0.75 TO 1.0.
DEFINITIONS. For purposes of the foregoing financial covenants,
the following term shall have the following
meaning:
"Adjusted Quick Ratio" shall mean, as of any
applicable date, the ratio of (i) Borrower's
unrestricted cash and net Accounts to (ii)
Borrower's current liabilities less deferred
revenues less warranty reserves.
"Current assets", "current liabilities" and
"liabilities" shall have the meaning ascribed
thereto by GAAP.
"Tangible Net Worth" shall mean the excess of
total assets over total liabilities, determined in
accordance with GAAP, with the following
adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other
obligations owing to Borrower from its officers
or other Affiliates, and (ii) all assets which
would be classified as intangible assets under
GAAP, including without limitation goodwill,
licenses, patents, trademarks, trade names,
copyrights, capitalized software and
organizational costs, licenses and franchises
and Borrower's shareholder's interest in
ScImage;
(B) there shall be excluded from liabilities:
all indebtedness which is subordinated to the
Obligations under a subordination agreement in
form specified by Silicon or by language in the
instrument evidencing the indebtedness which
Silicon agrees in writing is acceptable to
Silicon in its good faith business judgment.
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. For any month in which any Loans are
outstanding, monthly transaction reports and
borrowing base and schedules of collections, on
Silicon's standard form within fifteen days
after the end of such month. However, no
monthly transaction report will be required if
the only Loans that were or are outstanding is
the Non-Formula Loan and if Borrower maintains
an Adjusted Quick Ratio equal to or greater
than 1.10 to 1.0.
2. For any month in which any Loans are
outstanding, monthly accounts receivable
agings, aged by invoice date, within fifteen
days after the end of each month.
3. For any month in which any Loans are
outstanding, monthly accounts payable agings,
aged by invoice date, and outstanding or held
check registers, if any, within fifteen days
after the end of each month.
4. For any month in which any Loans are
outstanding, monthly reconciliations of
accounts receivable agings (aged by invoice
date), transaction reports, and general ledger,
within fifteen days after the end of each
month.
5. For any month in which any Loans are
outstanding, monthly perpetual inventory
reports for the Inventory valued on a first-in,
first-out basis at the lower of cost or market
(in accordance with GAAP) or such other
inventory reports as are requested by Silicon
in its good faith business judgment, all within
fifteen days after the end of each month.
6. Monthly unaudited financial statements, as soon
as available, and in any event within thirty
days after the end of each month.
7. Monthly Compliance Certificates, within thirty
days after the end of each month, in such form
as Silicon shall reasonably specify, signed by
the Chief Financial Officer of Borrower,
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 Silicon
shall reasonably request, including, without
limitation, a statement that at the end of such
month there were no held checks.
8. Quarterly unaudited financial statements, as
soon as available, and in any event within
forty-five days after the end of each fiscal
quarter of Borrower.
9. Annual operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal
year of Borrower within thirty days after the
end of each fiscal year of Borrower.
10. Annual financial statements, as soon as
available, and in any event within 120 days
following the end of Borrower's fiscal year,
certified by, and with an unqualified opinion
of, independent certified public accountants
acceptable to Silicon.
7. BORROWER INFORMATION:
Borrower represents and warrants that other than
as disclosed in publicly available financial
statements and securities filings, since December
12, 2002, there have been no material adverse
changes in its business or operations. Borrower
covenants that it will complete, execute and
deliver to Silicon an updated Representations and
Warranties, on Silicon's standard form, within 30
days of the date of this Agreement.
8. ADDITIONAL PROVISIONS
(1) BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking relationship
with Silicon, including, without limitation,
its primary operating and investment accounts.
As to any Deposit Accounts and investment
accounts maintained with another institution,
Borrower shall cause such institution, within
30 days after the date of this Agreement, to
enter into a control agreement in form
acceptable to Silicon in its good faith
business judgment in order to perfect Silicon's
first-priority security interest in said
Deposit Accounts and investment accounts.
(2) SUBORDINATION OF INSIDE DEBT. All present and
future indebtedness of Borrower to its
officers, directors and shareholders exclusive
of expense reimbursements and advances made in
the ordinary course of business ("Inside Debt")
shall, at all times, be subordinated to the
Obligations pursuant to a subordination
agreement on Silicon's standard form. Borrower
represents and warrants that there is no Inside
Debt presently outstanding, except for the
following: NONE. Prior to incurring any Inside
Debt in the future, Borrower shall cause the
person to whom such Inside Debt will be owed to
execute and deliver to Silicon a subordination
agreement on Silicon's standard form.
Borrower: Silicon:
CARDIAC SCIENCE CORPORATION SILICON VALLEY BANK
By /s/ Xxxxxxx Xxxxxxx By /s/ Xxxxxxxx Xxxxxxx
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President or Vice President Title RM
By
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Secretary or Ass't Secretary
Borrower:
XXXXXXX CARDIOLOGY, INC.
By /s/ Xxxxxxx Xxxxxxx
----------------------------------
President or Vice President
By
----------------------------------
Secretary or Ass't Secretary
Borrower:
CARDIAC SCIENCE OPERATING COMPANY
By /s/ Xxxxxxx Xxxxxxx
----------------------------------
President or Vice President
By
----------------------------------
Secretary or Ass't Secretary
