FIRST AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT
Exhibit 10.11
This First Amendment and Waiver to Loan and Security Agreement (this “Amendment”) is entered into
as of May 15, 2008 by and between COMERICA BANK (“Bank”)
and ZONARE MEDICAL SYSTEMS, INC (“Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of May 15, 2007,
as it may be amended from time to time (the “Agreement”).
The parties desire to amend the Agreement
in accordance with the terms of this Amendment.
NOW,
THEREFORE, the parties agree as follows:
1. Bank hereby waives Borrower’s failure to comply with (a) Section 6.2(ii) (Audited
Financial Statements) for the fiscal years ended December 31, 2005 and December 31, 2006; and (b)
Section 7.11 (Maximum Cash at Subsidiaries) of the Agreement for periods ending January 31, 2008,
February 29, 2008 and March 31, 2008 (the “Existing Defaults”). Subject to the conditions
contained herein and performance by Borrower of all of the terms of this Amendment and the
Agreement after the date hereof, Bank waives Borrower’s failure to comply with the Existing
Defaults. Bank does not waive Borrower’s obligations under such section for any period other than
as stated above, and Bank does not waive any other failure by Borrower to perform its Obligations
under the Loan Documents. This waiver is not a continuing waiver with respect to any failure to
perform any Obligation after March 31, 2008.
2. Section 7.11
of the Agreement is hereby amended in its entirety to read as follows:
7.11
Maximum Cash at Subsidiaries. Borrower shall not permit any individual Subsidiary to own or
maintain an aggregate amount of Cash greater than $200,000 at any time; provided, however, that
Borrower’s Subsidiary, ZONARE GmbH, shall not own or maintain an aggregate amount of Cash greater
than $500,000 at any time.
3. Unless otherwise defined, all initially capitalized terms in this Amendment shall be
as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force
and effect in accordance with its respective terms and hereby is ratified and confirmed in all
respects. Except as expressly set forth herein, the execution,
delivery, and performance of this
Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms
the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages,
deeds of trust, environmental agreements, and all other instruments, documents and agreements
entered into in connection with the Agreement.
4. Borrower
is a party to certain documents, instruments and/or agreements
(collectively, the “Documents”) with or between the
undersigned and Comerica Bank, a Michigan
banking corporation (the “Merged Bank”). The Merged Bank has been merged with and into Comerica
Bank, a Texas banking association (the “Surviving Bank”). Borrower hereby acknowledges and agrees
that any reference in the Documents to Comerica Bank, a Michigan banking corporation, shall mean
Comerica Bank, a Texas banking association, as successor by merger to the Merged Bank.
5. Borrower represents and warrants that the representations and warranties contained
in the Agreement are true and correct as of the date of this Amendment, and that no Event of
Default has occurred and is continuing.
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6. This Amendment may be executed in two or more counterparts, each of which shall be
deemed an
original, but all of which together shall constitute one instrument.
7. As a condition to the effectiveness of this Amendment, Bank shall have received, in
form and
substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower;
(b) an amount equal to all Bank Expenses incurred through the date of this Amendment; and
(c) such
other documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above
written.
| ZONARE MEDICAL SYSTEMS, INC. | ||||||
| By: | /s/ Xxxxxxx Xxxxxxxx | |||||
| Title: | VP & CFO | |||||
| COMERICA BANK | ||||||
| By: | /s/ Xxxxxxxxx X. Highlander | |||||
| Title: | VP | |||||
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This LOAN AND SECURITY AGREEMENT is entered into as of May 15, 2007, by and between Comerica Bank
(“Bank”) and ZONARE MEDICAL SYSTEMS, INC. (“Borrower”).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to
Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and
Borrower will repay the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, all capitalized terms shall have the definitions
set forth on Exhibit A. Any term used in the Code and not defined herein shall have the meaning
given to the term in the Code.
1.2 Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be
construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The
term “financial statements” shall include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United States of
America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower,
together with interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.
(b) Advances Under Revolving Line.
(i) Amount. Subject to and upon the terms and conditions of this Agreement (1) Borrower may
request Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving
Line or (B) the Borrowing Base, and (2) amounts borrowed pursuant to this Section 2.1(b) may be
repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances
under this Section 2.1(b) shall be immediately due and payable.
(ii) Form of Request. Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 1:00 p.m. Pacific time, on the Business Day that
the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit C. Bank is authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to
meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a
designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss
suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under
this Section 2.1(b) to Borrower’s deposit account.
(c) Term
Advances.
1.
(i) Subject to and upon the terms and conditions of this Agreement, at any time from the
Closing Date through May 15, 2008, Bank agrees to make term advances to Borrower (each a “Term
Advance” and collectively, the “Term Advances”) in an aggregate amount not to exceed the Term Line.
(ii) Interest shall accrue from the date of each Term Advance at the rate specified in Section
2.3(a) and shall be payable in accordance with Section 2.3(c). Any Term Advances that are
outstanding on November 15, 2007 shall be payable in 36 equal monthly installments of principal,
plus all accrued interest, beginning on December 1, 2007, and continuing on the same day of each
month thereafter through the Term Maturity Date, at which time all amounts owing in connection with
the Term Advances and any other amounts owing under this Agreement shall be immediately due and
payable. Any Term Advances that are outstanding on May 15, 2008 (which were not outstanding on
November 15, 2007) shall be payable in 36 equal monthly installments of principal, plus all accrued
interest, beginning on June 1, 2008, and continuing on the same day of each month thereafter
through the Term Maturity Date, at which time all amounts owing in connection with the Term
Advances and any other amounts owing under this Agreement shall be immediately due and payable.
The Term Advances or any portion thereof, once repaid, may not be reborrowed.
(iii) When Borrower desires to obtain a Term Advance, Borrower shall notify Bank (which notice
shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time
three Business Days before the day on which the Term Advance is to be made. Such notice shall be
substantially in the form of Exhibit C. The notice shall be signed by a Responsible Officer or its
designee.
2.2 Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of
the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in
cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the
outstanding daily balance thereof, as set forth in the LIBOR Addendum to Loan & Security Agreement
executed in connection herewith.
(ii) Term Advances. Except as set forth in Section 2.3(b), the Term Advances shall bear
interest, on the outstanding daily balance thereof, as set forth in the LIBOR Addendum to Loan &
Security Agreement executed in connection herewith.
(b) Late Fee; Default Rate. If any payment is not made within 10 days after the date such
payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of
such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the continuance of an
Event of Default, at a rate equal to 5 percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest on the outstanding Advances and Term Advances hereunder shall be due
and payable on the first calendar day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments against any of
Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall
thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest shall thereafter
accrue interest at the rate then applicable hereunder.
(d) Prepayment. Borrower may prepay the Term Advances only upon written notice to Bank, which
shall be irrevocable, at least three Business Days before the proposed prepayment date (the
“Prepayment Date”), such notice shall specify the Prepayment Date and the amount to be prepaid. On
the Prepayment Date, Borrower shall pay Bank, in addition to the principal amount to be prepaid and
the interest accrued thereon through the Prepayment Date, a premium equal to (i) four percent (4%)
of the prepaid principal
2.
amount of the Term Advance if the prepayment takes place during the period beginning on the
Closing Date through the first anniversary of the Closing Date, (ii) one and one half of one
percent (1.5%) of the prepaid principal amount of the Term Advance if the prepayment takes place
during the period beginning on the day after the first anniversary of the Closing Date through the
second anniversary of the Closing Date, and (iii) one percent (1%) of the prepaid principal amount
of the Term Advance if the prepayment takes place during the period beginning on the day after the
second anniversary of the Closing Date through the Revolving Maturity Date. Borrower may prepay
any Advances without penalty or premium.
(e) Interest Computation. All interest chargeable under the Loan Documents at the LIBOR Rate
as defined and set forth in the LIBOR Addendum to Loan & Security Agreement executed in connection
herewith shall be computed on the basis of a 360 day year for the actual number of days elapsed.
All interest chargeable under the Loan Documents at the Prime Rate or the base rate set forth in
the LIBOR Addendum to Loan & Security Agreement executed in connection herewith shall be computed
on the basis of a 365 day year for the actual number of days elapsed.
(f) Prime Rate. In the event the Prime Rate is changed from time to time hereafter, the
applicable rate of interest hereunder shall be increased or decreased, effective as of the day the
Prime Rate is changed, by an amount equal to such change in the Prime Rate.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a
wire transfer of funds, check or other item of payment to such deposit account or Obligation as
Borrower specifies. After the occurrence of an Event of Default, Bank shall have the right, in its
sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment
Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be
considered a payment on account unless such payment is of immediately available federal funds or
unless and until such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by
Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a Facility Fee equal to $50,000, which shall be
nonrefundable and, on the first anniversary of the Closing Date, a Facility Fee equal to $50,000,
which shall be nonrefundable;
(b) Non-Usage Fee. A per annum fee equal to 0.5% of the difference between (1) the amount of
the Revolving Line available on each date of determination, and (2) the average daily balance owing
on account of the Revolving Line during the term hereof, paid monthly in arrears, which shall be
nonrefundable; and
(c) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date,
and, after the Closing Date, all Bank Expenses, as and when they become due.
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section
13.7, shall continue in full force and effect for so long as any Obligations remain outstanding or
Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the
foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the continuance of an
Event of Default.
3. CONDITIONS OF LOANS.
3.
3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the
initial Credit Extension is subject to the condition precedent that Bank shall have received, in
form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) an officer’s certificate of Borrower with respect to incumbency and resolutions
authorizing the execution and delivery of this Agreement;
(c) stock powers for the shares of stock which are part of the Collateral, executed in blank
by Borrower for each of Borrower’s Subsidiaries;
(d) LIBOR Addendum to Loan & Security Agreement;
(e) a UCC financing statement;
(f) agreement to provide insurance;
(g) payment of the fees and Bank Expenses then due specified in Section 2.5;
(h) current SOS Reports indicating that except for Permitted Liens, there are no other
security interests or Liens of record in the Collateral;
(i) an audit of the Collateral, the results of which shall be satisfactory to Bank;
(j) current financial statements and such other updated financial information as Bank may
reasonably request;
(k) current Compliance Certificate in accordance with Section 6.2; and
(l) such other documents or certificates, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit
Extension, including the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and
(b) after giving effect to any updates to the Schedules referred to therein (provided such
updates are approved by Bank), the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such Payment/Advance Form and on
the effective date of each Credit Extension as though made at and as of each such date, and no
Event of Default shall have occurred and be continuing, or would exist after giving effect to such
Credit Extension (provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as of such date). The
making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on
the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security
interest in the Collateral to secure prompt repayment of any and all Obligations and to secure
prompt performance by Borrower of each of its covenants and duties under the Loan Documents.
Except as set forth in the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will
4.
constitute a valid, first priority security interest in later-acquired Collateral.
Notwithstanding any termination, Bank’s Lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding.
4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any time financing
statements, continuation statements, and amendments thereto that (i) either specifically describe
the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder,
and (ii) contain any other information required by the Code for the sufficiency of filing office
acceptance of any financing statement, continuation statement, or amendment, including whether
Borrower is an organization, the type of organization and any organizational identification number
issued to Borrower, if applicable. Any such financing statements may be signed by Bank on behalf
of Borrower, as provided in the Code, and may be filed at any time in any jurisdiction whether or
not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time
to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other
documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue
to perfect Bank’s security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents. Borrower shall have possession of the
Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to
perfect its security interest by possession in addition to the filing of a financing statement.
Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank
reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to
Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, (ii) obtain
“control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit
rights or electronic chattel paper (as such items and the term “control” are defined in Revised
Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing
bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not
create any chattel paper without placing a legend on the chattel paper acceptable to Bank
indicating that Bank has a security interest in the chattel paper. Borrower from time to time may
deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank
to hold such specific balances in pledge and to decline to honor any drafts thereon or any request
by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long
as the specific Obligations are outstanding.
4.3 Pledge of Shares. Borrower hereby pledges, assigns and grants to Bank a security interest
in all shares of stock of any entity formed under the laws of the United States which are part of
the Collateral and 65% of the stock of any entity formed under the laws of a jurisdiction other
than the United States and directly or indirectly owned by Borrower or by one of Borrower’s US
Subsidiaries which are part of the Collateral including without limitation, in each case,
Borrower’s equity interests in each of its Subsidiaries (collectively, the “Shares”), together with
all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon,
all rights to subscribe for securities declared or granted in connection therewith, and all other
cash and noncash proceeds of the foregoing, as security for the performance of the Obligations.
The certificate or certificates for the Shares will be delivered to Bank, accompanied by an
instrument of assignment duly executed in blank by Borrower, and Borrower shall cause the books of
each entity whose shares are part of the Shares and any transfer agent to reflect the pledge of the
Shares. Upon the occurrence of an Event of Default, Bank may effect the transfer of the Shares
into the name of Bank and cause new certificates representing such securities to be issued in the
name of Bank or its transferee. Borrower will execute and deliver such documents, and take or
cause to be taken such actions, as Bank may reasonably request to perfect or continue the
perfection of Bank’s security interest in the Shares. Unless an Event of Default shall have
occurred and be continuing, Borrower shall be entitled to exercise any rights with respect to the
Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which would be inconsistent
with any of the terms of this Agreement or which would constitute or create any violation of any of
such terms. All such rights to vote and give consents, waivers and ratifications shall terminate
upon the occurrence and continuance of an Event of Default. The Shares are not held in a brokerage
or similar securities account.
4.4 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the
right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but
no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect
Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower’s financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
5.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a corporation duly
existing under the laws of the state in which it is incorporated and qualified and licensed to do
business in any state in which the conduct of its business or its ownership of property requires
that it be so qualified, except where the failure to do so would not reasonably be expected to
cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan
Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor
constitute a breach of any provision contained in Borrower’s Articles of Incorporation or Bylaws,
nor will they constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement by which it is bound, except to the extent
such default would not reasonably be expected to cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and its title
to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or
pledge except for Permitted Liens. All Collateral is located solely in the Collateral States. The
Eligible Accounts are bona fide existing obligations. The property or services giving rise to such
Eligible Accounts has been delivered or rendered to the account debtor or its agent for immediate
shipment to and unconditional acceptance by the account debtor. Borrower has not received notice
of an actual or imminent Insolvency Proceeding of any account debtor whose accounts are included in
any Borrowing Base Certificate as an Eligible Account. All Inventory is in all material respects
of good and merchantable quality, free from all material defects, except for Inventory for which
adequate reserves have been made. Except as set forth in the Schedule, none of the Collateral is
maintained or invested with a Person other than Bank or Bank’s Affiliates.
5.4 Intellectual Property. Borrower is the sole owner of the Intellectual Property, except
for licenses granted by Borrower to its customers in the ordinary course of business. To the best
of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable,
and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in
part, and no claim has been made to Borrower that any part of the Intellectual Property violates
the rights of any third party except to the extent such claim would not reasonably be expected to
cause a Material Adverse Effect.
5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower
has not done business under any name other than that specified on the signature page hereof, and
its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive
office of Borrower is located in the Chief Executive Office State at the address indicated in
Section 10 hereof.
5.6 Litigation. Except as set forth in the Schedule, there are no actions or proceedings
pending by or against Borrower or any Subsidiary before any court or administrative agency in which
a likely adverse decision would reasonably be expected to have a Material Adverse Effect.
5.7 No Material Adverse Change in Financial Statements. All consolidated and consolidating
financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank
fairly present in all material respects Borrower’s consolidated and consolidating financial
condition as of the date thereof and Borrower’s consolidated and consolidating results of
operations for the period then ended. There has not been a material adverse change in the
consolidated or in the consolidating financial condition of Borrower since the date of the most
recent of such financial statements submitted to Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as
they mature; the fair saleable value of Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small
capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No
event
6.
has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely
to result in Borrower’s incurring any liability that could reasonably be expected to have a
Material Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an
“investment company” within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of
the Board of Governors of the Federal Reserve System). Borrower has complied in all material
respects with all the provisions of the Federal Fair Labor Standards Act. Borrower is in
compliance with all environmental laws, regulations and ordinances except where the failure to
comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be
expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to
be filed all tax returns required to be filed, and have paid, or have made adequate provision for
the payment of, all taxes reflected therein except those being contested in good faith with
adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not
reasonably be expected to have a Material Adverse Effect.
5.10 Subsidiaries. Except as set forth on the Schedule and for Permitted Investments,
Borrower does not own any stock, partnership interest or other equity securities of any Person.
5.11 Government Consents. Borrower and each Subsidiary have obtained all consents, approvals
and authorizations of, made all declarations or filings with, and given all notices to, all
governmental authorities that are necessary for the continued operation of Borrower’s business as
currently conducted, except where the failure to do so would not reasonably be expected to cause a
Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on the Schedule, Borrower is not a party to, nor
is bound by, any license or other agreement that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower’s interest in such license or agreement or any other
property.
5.13 Shares. Borrower has full power and authority to create a first lien on the Shares and
no disability or contractual obligation exists that would prohibit Borrower from pledging the
Shares pursuant to this Agreement. There are no subscriptions, warrants, rights of first refusal
or other restrictions on, or options exercisable with respect to the Shares. The Shares have been
and will be duly authorized and validly issued, and are fully paid and non-assessable. The Shares
are not the subject of any present or threatened suit, action, arbitration, administrative or other
proceeding, and Borrower knows of no reasonable grounds for the institution of any such
proceedings.
5.14 Full Disclosure. No representation, warranty or other statement made by Borrower in any
certificate or written statement furnished to Bank taken together with all such certificates and
written statements furnished to Bank contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in such 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 to be viewed as facts and
that actual results during the period or periods covered by any such projections and forecasts may
differ from the projected or forecasted results.
6. AFFIRMATIVE COVENANTS.
Borrower covenants that, until payment in full of all outstanding Obligations, and for so long
as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the
following :
6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of its
Subsidiaries’ corporate existence and good standing in the Borrower State, shall maintain
qualification and good standing in each other jurisdiction in which the failure to so qualify would
reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the
organizational identification number issued to Borrower by the authorities of the state in which
Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to
meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. Borrower shall comply in all material respects with all applicable Environmental Laws,
and maintain all material permits, licenses and approvals required thereunder where the failure to
do so would
7.
reasonably be expected to have a Material Adverse Effect. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and
regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to
maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply
with which would reasonably be expected to have a Material Adverse Effect.
6.2 Financial Statements, Reports, Certificates. Borrower shall deliver to Bank: (i) as soon
as available, but in any event within 30 days after the end of each calendar month, a company
prepared consolidated and consolidating balance sheet and income statement covering Borrower’s
operations during such period, in a form reasonably acceptable to Bank and certified by a
Responsible Officer; (ii) as soon as available, but in any event within 120 days after the end of
Borrower’s fiscal year, audited consolidated and consolidating financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an opinion which is
unqualified or otherwise consented to in writing by Bank on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank (provided that Borrower
shall deliver drafts of such financial statements for the fiscal years ending December 31, 2005 and
December 31, 2006 on or before April 30, 2007 and such final audited financial statements for the
fiscal years ending December 31, 2005 and December 31, 2006 on or before June 30, 2007); (iii) if
applicable, copies of all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could reasonably be expected to result in damages or costs to Borrower or any
Subsidiary of $250,000 or more; (v) promptly upon receipt, each management letter prepared by
Borrower’s independent certified public accounting firm regarding Borrower’s management control
systems; (vi) as soon as available, but in any event within 30 days prior to Borrower’s fiscal year
end, operating budgets, annual budgets and financial forecasts for the subsequent fiscal year, and
(vii) such budgets, sales projections, operating plans or other financial information generally
prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to
time.
(a) Within 30 days after the last day of each month, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit D
hereto, together with aged listings by invoice date of accounts receivable and accounts payable.
(b) Within 30 days after the last day of each month, Borrower shall deliver to Bank with the
monthly financial statements a Compliance Certificate certified as of the last day of the
applicable month and signed by a Responsible Officer in substantially the form of Exhibit E hereto.
(c) As soon as possible and in any event within 3 Business Days after becoming aware of the
occurrence or existence of an Event of Default hereunder, a written statement of a Responsible
Officer setting forth details of the Event of Default, and the action which Borrower has taken or
proposes to take with respect thereto.
(d) Bank shall have a right from time to time hereafter to audit or request that its
designated agent audit Borrower’s Accounts and appraise Collateral at Borrower’s expense (each a
“Collateral Audit”), with results satisfactory to Bank, provided that such audits will be conducted
no more often than every 6 months unless an Event of Default has occurred and is continuing.
Borrower may deliver to Bank on an electronic basis any certificates, reports or information
required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information
contained in the electronic files, provided that Bank in good faith believes that the files were
delivered by a Responsible Officer. If Borrower delivers this information electronically, it shall
also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or
..pdf file within 5 Business Days of submission of the unsigned electronic copy the certification of
monthly financial statements, the Borrowing Base Certificate and the Compliance Certificate, each
bearing the physical signature of the Responsible Officer.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and merchantable condition,
free from all material defects except for Inventory for which adequate reserves have been made.
Returns and allowances, if any, as between Borrower and its account debtors shall be on the same
basis and in accordance
8.
with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving
more than $100,000.
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or
deposit of all material federal, state, and local taxes, assessments, or contributions required of
it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A.
and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank
indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate
certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary
need not make any payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as
ordinarily insured against by other owners in similar businesses conducted in the locations where
Borrower’s business is conducted on the date hereof. Borrower shall also maintain liability and
other insurance in amounts and of a type that are customary to businesses similar to Borrower’s.
(b) All such policies of insurance shall be in such form, with such companies, and in such
amounts as reasonably satisfactory to Bank. All policies of property insurance shall contain a
lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional
loss payee, and all liability insurance policies shall show Bank as an additional insured and
specify that the insurer must give at least 20 days notice to Bank before canceling its policy for
any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of the policies
of insurance and evidence of all premium payments. If no Event of Default has occurred and is
continuing, proceeds payable under any casualty policy will, at Borrower’s option, be payable to
Borrower to replace the property subject to the claim, provided that any such replacement property
shall be deemed Collateral in which Bank has been granted a first priority security interest. If
an Event of Default has occurred and is continuing, all proceeds payable under any such policy
shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.
6.6 Depository and Investment Accounts. Borrower shall, within 60 days after the Closing
Date, maintain all its depository, operating, and investment accounts with Bank or Bank’s
Affiliates.
6.7 Financial Covenants. Borrower shall maintain the following financial covenants:
(a) Minimum Quarterly Billed Sales. Borrower shall maintain, measured on a trailing twelve
month basis, minimum billed sales in an amount equal to the following amounts for each
corresponding period: (i) $16,400,000 for the period beginning January 1, 2007 and ending Xxxxx 00,
0000, (xx) $18,400,000 for the period beginning April 1, 2007 and ending June 30, 2007, (iii)
$20,800,000 for the period beginning July 1, 2007 and ending September 30, 2007, (iv) $24,000,000
for the period beginning October 1, 2007 and ending December 31, 2007, (v) $27,427,000 for the
period beginning January 1, 2008 and ending March 31, 2008, (vi) $30,855,000 for the period
beginning April 1, 2008 and ending June 30, 2008, (vii) $34,282,000 for the period beginning July
1, 2008 and ending September 30, 2008, (viii) $37,709,000 for the period beginning October 1, 2008
and ending December 31, 2008, (ix)$38,652,000 for the period beginning January 1, 2009 and ending
March 31, 2009, (x) $39,594,000 for the period beginning April 1, 2009 and ending June 30, 2009,
(xi) $40,537,000 for the period beginning July 1, 2009 and ending September 30, 2009, (xii)
$41,480,000 for the period beginning October 1, 2009 and ending December 31, 2009, (xiii)
$41,480,000 for the period beginning January 1, 2010 and ending March 31, 2010, (xiv) $41,480,000
for the period beginning April 1, 2010 and ending June 30, 2010. At all times thereafter,
Borrower shall maintain, measured on a trailing twelve month basis, minimum gross invoiced revenue
equal to no less than $41,480,000.
(b) Liquidity Ratio. Borrower shall maintain at all times a Liquidity Ratio of 1.25 to 1.00.
As used herein, “Liquidity Ratio” means the ratio of (i) the sum of unrestricted cash and cash
equivalents
9.
plus all foreign and domestic accounts receivable invoiced in North America to (ii) all
Indebtedness owing by Borrower to Bank.
6.8 Intellectual Property Rights. Borrower shall (i) protect, defend and maintain the
validity and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) detect
infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of
material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights
to be abandoned, forfeited or dedicated to the public.
6.9 Future Stock Pledges and Guaranties. Borrower and each Subsidiary shall execute and
deliver promptly and in any event within three (3) Business Days after the formation or acquisition
of a Subsidiary such documents and share certificates as may be requested by Bank in order for Bank
to take and perfect a security interest in 100% of the Capital Stock of a Subsidiary incorporated
or formed under the laws of a United States jurisdiction and 65% of the Capital Stock of a
Subsidiary formed under the laws of a jurisdiction other than the United States and directly or
indirectly owned by Borrower or by one of Borrower’s US Subsidiaries. As used herein “Capital
Stock” means (i) with respect to any Person that is a corporation, any and all shares, interests,
participations or other equivalents (however designated and whether or not voting) of corporate
stock, and (ii) with respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.
6.10 Further Assurances. At any time and from time to time Borrower shall execute and deliver
such further instruments and take such further action as may reasonably be requested by Bank
consistent with the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall be available and
until the outstanding Obligations are paid in full or for so long as Bank may have any commitment
to make any Credit Extensions, Borrower will not do any of the following without Bank’s prior
written consent, which shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of
(collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, or move cash balances on deposit with Bank to accounts opened at another
financial institution, other than Permitted Transfers.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business;
Change in Fiscal Year; Change in Control. Change its name or the Borrower State or relocate its
chief executive office without 30 days prior written notification to Bank; replace its chief
executive officer or chief financial officer without 30 days prior written notification to Bank;
engage in any business, or permit any of its Subsidiaries to engage in any business, other than or
reasonably related or incidental to the businesses currently engaged in by Borrower; change its
fiscal year end; have a Change in Control.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with or into any other business organization (other than mergers or consolidations
of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or property of another
Person except where (i) such transactions do not in the aggregate exceed $250,000 during any fiscal
year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to
such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower
is the surviving entity.
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any
Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness,
except Indebtedness to Bank.
10.
7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of its
property, including without limitation its Intellectual Property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so
to do, except for Permitted Liens, or covenant to any other Person that Borrower in the future will
refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s
property, including without limitation its Intellectual Property.
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of
or in redemption, retirement or purchase of any capital stock, except that Borrower may make
Permitted Investments.
7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain
or invest any of its property with a Person other than Bank or Bank’s Affiliates or permit any
Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form and
substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound
by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions that are in the
ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of
its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated
Debt, or amend any provision affecting Bank’s rights contained in any documentation relating to the
Subordinated Debt without Bank’s prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee,
warehouseman, or similar third party unless the third party has been notified of Bank’s security
interest and Bank (a) has received an acknowledgment from the third party that it is holding or
will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse
receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and
such other locations of which Borrower gives Bank prior written notice and as to which Bank files a
financing statement where needed to perfect its security interest.
7.11 Maximum Cash at Subsidiaries. Borrower shall not permit any individual Subsidiary to own
or maintain an aggregate amount of Cash greater than $200,000 at any time.
7.12 No Investment Company; Margin Regulation. Become or be controlled by an “investment
company,” within the meaning of the Investment Company Act of 1940, or become principally engaged
in, or undertake as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for
such purpose.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of Default by Borrower under
this Agreement:
8.1 Payment Default. If Borrower fails to (a) make any payment of principal or interest on
the Obligations when due, or (b) pay any other Obligations within three (3) Business Days after the
date such Obligations are due;
8.2 Covenant Default.
11.
(a) If Borrower fails to perform any obligation under Sections 6.2, 6.5, 6.6, 6.7 or 6.9 or
violates any of the covenants contained in Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform or observe any other material term, provision,
condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default under such other term,
provision, condition or covenant that can be cured, has failed to cure such default within 10
Business Days after Borrower receives notice thereof or any officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured within such 10
Business Day period or cannot after diligent attempts by Borrower be cured within such 10 Business
Day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional reasonable period (which shall not in any case exceed 30 calendar days) to
attempt to cure such default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default but no Credit Extensions will be made;
8.3 Material Adverse Change. If there occurs a material adverse change in Borrower’s
prospects, business or financial condition, or if there is a material impairment in the prospect of
repayment of any portion of the Obligations or a material impairment in the perfection, value or
priority of Bank’s security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower’s assets is attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee,
receiver or person acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within 10 Business Days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days after Borrower receives
notice thereof, provided that none of the foregoing shall constitute an Event of Default where such
action or event is stayed or an adequate bond has been posted pending a good faith contest by
Borrower (provided that no Credit Extensions will be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or
stayed within 45 days (provided that no Credit Extensions will be made prior to the dismissal of
such Insolvency Proceeding);
8.6 Other Agreements Governing Indebtedness. If there is a default or other failure to
perform in any agreement to which Borrower 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 would reasonably be expected to have a
Material Adverse Effect;
8.7 Judgments. If a judgment or judgments for the payment of money in an amount, individually
or in the aggregate, of at least $100,000 (excluding any amount thereof covered by insurance) shall
be rendered against Borrower and shall remain unsatisfied and unstayed for a period of 10 Business
Days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the
judgment);
8.8 Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt, except
to the extent the payment is allowed under any subordination agreement entered into with Bank; or
8.9 Misrepresentations. If any material misrepresentation or material misstatement exists now
or hereafter in any warranty or representation set forth herein or in any certificate delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK’S RIGHTS AND REMEDIES
12.
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of
Default, Bank may, at its election, without notice of its election and without demand, do any one
or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event
of Default described in Section 8.5 (insolvency), all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit of Borrower under this
Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms
and in whatever order that Bank reasonably considers advisable;
(d) Make such payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank’s determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With respect to any of
Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or
remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower
held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a
license or other right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a similar nature, 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 9.1, Borrower’s
rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
(g) Sell the Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral
without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties
of title or the like. This procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit,
Borrower will be credited only with payments actually made by the purchaser, received by Bank, and
applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral,
Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;
(h) Bank may credit bid and purchase at any public sale;
(i) Apply for the appointment of a receiver, trustee, liquidator or conservator of the
Collateral, without notice and without regard to the adequacy of the security for the Obligations
and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of
the Obligations; and
(j) Any deficiency that exists after disposition of the Collateral as provided above will be
paid immediately by Borrower.
13.
Bank may comply with any applicable state or federal law requirements in connection with a
disposition of the Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.
9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an
Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers,
or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may come into Bank’s
possession; (c) sign Borrower’s name on any invoice or xxxx of lading relating to any Account,
drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts,
and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all
claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust
disputes and claims respecting the Accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; and (g) file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of the Collateral
without the signature of Borrower where permitted by law; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in clause (g) above,
regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s
attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and performed and
Bank’s obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and during the continuation of an
Event of Default Bank may notify any Person owing funds to Borrower of Bank’s security interest in
such funds and verify the amount of such Account, and Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such
payments to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of
payment due to third persons or entities, as required under the terms of this Agreement, then Bank
may do any or all of the following after reasonable notice to Borrower: (a) make payment of the
same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary
to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect
to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute
Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall
not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.
9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or otherwise prepare
the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne
by Borrower.
9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the
Obligations by collecting them from any other person liable for them and Bank may release, modify
or waive any collateral provided by any other Person to secure any of the Obligations, all without
affecting Bank’s rights against Borrower. Borrower waives any right it may have to require Bank to
pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents,
and all other agreements shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one
right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written
document signed on behalf of Bank and then shall be effective only in the specific instance and for
the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may
not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.
14.
9.8 Shares. Borrower recognizes that Bank may be unable to effect a public sale of any or all
the Shares, by reason of certain prohibitions contained in federal securities laws and applicable
state securities laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree, among other things, to
acquire such securities for their own account for investment and not with a view to the
distribution or resale thereof. Borrower acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Bank shall be under no obligation to delay a sale of any
of the Shares for the period of time necessary to permit the issuer thereof to register such
securities for public sale under federal securities laws or under applicable state securities laws,
even if such issuer would agree to do so.
9.9 Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any
other notices relating to the Obligations.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party relating to
this Agreement or any other agreement entered into in connection herewith shall be in writing and
(except for financial statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower
or to Bank, as the case may be, at its addresses set forth below:
| If to Borrower: | Zonare Medical Systems, Inc. | |||
| 0000 Xxxxx Xxxxx Xxxxxx | ||||
| Xxxxxxxx Xxxx, XX 00000 | ||||
| Attn: Chief Financial Officer | ||||
| FAX: (000) 000-0000 | ||||
| If to Bank: | Comerica Bank | |||
| 00 X Xxxxxxx Xxxx | ||||
| Mail Code 4770 | ||||
| Xxx Xxxx, XX 00000 | ||||
| Attn: Manager | ||||
| FAX: (000) 000-0000 | ||||
| with a copy to: | Comerica Bank | |||
| 00000 XX 0xx Xxxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxxxx, XX 00000 | ||||
| Attn: Xxxx Xxxxxxx and Nate Highlander |
||||
| FAX: (000) 000-0000 |
The parties hereto may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement 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. Jurisdiction shall lie in
the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED
BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES,
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
15.
LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR
AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
12. REFERENCE PROVISION.
12.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect
to proceed under this Judicial Reference Provision.
12.2 With the exception of the items specified in clause 12.3, below, any controversy, dispute
or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any
other document, instrument or agreement between the undersigned parties (collectively in this
Section, the “Comerica Documents”), will be resolved by a reference proceeding in California in
accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure
(“CCP”), or their successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except
as otherwise provided in the Comerica Documents, venue for the reference proceeding will be in the
state or federal court in the county or district where the real property involved in the action, if
any, is located or in the state or federal court in the county or district where venue is otherwise
appropriate under applicable law (the “Court”).
12.3 The matters that shall not be subject to a reference are the following: (i) nonjudicial
foreclosure of any security interests in real or personal property, (ii) exercise of self-help
remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv)
temporary, provisional or ancillary remedies (including, without limitation, writs of attachment,
writs of possession, temporary restraining orders or preliminary injunctions). This reference
provision does not limit the right of any party to exercise or oppose any of the rights and
remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent
jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition
to, any of those items does not waive the right of any party to a reference pursuant to this
reference provision as provided herein.
12.4 The referee shall be a retired judge or justice selected by mutual written agreement of
the parties. If the parties do not agree within ten (10) days of a written request to do so by any
party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the
Court (or his or her representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would result if ex parte
relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to
the referee selected by the Presiding Judge of the Court (or his or her representative).
12.5 The parties agree that time is of the essence in conducting the reference proceedings.
Accordingly, the referee shall be requested, subject to change in the time periods specified herein
for good cause shown, to (i) set the matter for a status and trial-setting conference within
fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues
of law or fact within one hundred twenty (120) days after the date of the conference and (iii)
report a statement of decision within twenty (20) days after the matter has been submitted for
decision.
12.6 The referee will have power to expand or limit the amount and duration of discovery. The
referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s
failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based
upon good cause shown, no party shall be entitled to “priority” in conducting discovery,
depositions may be taken by either party upon seven (7) days written notice, and all other
discovery shall be responded to within fifteen (15) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the referee whose decision
shall be final and binding.
12.7 Except as expressly set forth herein, the referee shall determine the manner in which the
reference proceeding is conducted including the time and place of hearings, the order of
presentation of evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee, except for trial,
shall be conducted without a court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee, and the referee will be provided
a courtesy copy of the transcript. The party making such a request shall have the obligation to
arrange for and pay the court reporter. Subject to the referee’s power to award costs to the
prevailing party, the parties will
16.
equally share the cost of the referee and the court reporter at trial.
12.8 The referee shall be required to determine all issues in accordance with existing case
law and the statutory laws of the State of California. The rules of evidence applicable to
proceedings at law in the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that
will be binding on the parties and rule on any motion which would be authorized in a court
proceeding, including without limitation motions for summary judgment or summary adjudication. The
referee shall issue a decision at the close of the reference proceeding which disposes of all
claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision
shall be entered by the Court as a judgment or an order in the same manner as if the action had
been tried by the Court and any such decision will be final, binding and conclusive. The parties
reserve the right to appeal from the final judgment or order or from any appealable decision or
order entered by the referee. The parties reserve the right to findings of fact, conclusions of
laws, a written statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
12.9 If the enabling legislation which provides for appointment of a referee is repealed (and
no successor statute is enacted), any dispute between the parties that would otherwise be
determined by reference procedure will be resolved and determined by arbitration. The arbitration
will be conducted by a retired judge or justice, in accordance with the California Arbitration Act
§1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery set forth above shall apply to any such arbitration proceeding.
12.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED
UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY
KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE
PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR
IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.
13. GENERAL PROVISIONS.
13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties and shall bind all persons who
become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent
may be granted or withheld in Bank’s sole discretion. Bank shall have 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 hereunder.
13.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other party in connection with the transactions contemplated by this
Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its
officers, employees and agents as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise
(including without limitation reasonable attorneys fees and expenses), except for losses caused by
Bank’s gross negligence or willful misconduct.
13.3 Time of Essence. Time is of the essence for the performance of all obligations set forth
in this Agreement.
13.4 Severability of Provisions. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining the legal enforceability of
any specific provision.
17.
13.5 Amendments in Writing, Integration. All amendments to or terminations of this Agreement
or the other Loan Documents must be in writing. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement and the other Loan Documents, if any, are merged into this
Agreement and the Loan Documents.
13.6 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, shall be
deemed to be an original, and all of which, when taken together, shall constitute but one and the
same Agreement.
13.7 Survival. All covenants, representations and warranties made in this Agreement shall
continue in full force and effect so long as any Obligations remain outstanding or Bank has any
obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2
shall survive until all applicable statute of limitations periods with respect to actions that may
be brought against Bank have run.
13.8 Confidentiality. In handling any confidential information, Bank and all employees and
agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement except that disclosure of such
information may be made (i) to the subsidiaries or Affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective transferees or
purchasers of any interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may
be required in connection with the examination, audit or similar investigation of Bank and (v) as
Bank may determine in connection with the enforcement of any remedies hereunder. Confidential
information hereunder shall not include information that either: (a) is in the public domain or in
the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited from disclosing
such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date
first above written.
| ZONARE MEDICAL SYSTEMS, INC. | ||||||
| By: | /s/ Xxxxx Xxxxxxx | |||||
| Title: | V.P. Finance | |||||
| COMERICA BANK | ||||||
| By: | /s/ [Illegible] | |||||
| Title: | VP | |||||
18.
EXHIBIT A
DEFINITIONS
“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment
intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease
of goods (including, without limitation, the licensing of software and other technology) or the
rendering of services by Borrower and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books
relating to any of the foregoing.
“Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is under common control
with such Person, and each of such Person’s senior executive officers, directors, and partners.
“Bank Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and
expenses, whether generated in-house or by outside counsel) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether generated
in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.
“Borrower State” means Delaware, the state under whose laws Borrower is organized.
“Borrower’s Books” means all of Borrower’s books and records including: ledgers; records
concerning Borrower’s assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment, containing such
information.
“Borrowing Base” means an amount equal to 85% of Eligible Accounts, as determined by Bank with
reference to the most recent Borrowing Base Certificate delivered by Borrower plus an amount equal
to 95% of the amount of any letters of credit issued on behalf of Borrower by a domestic bank or
other financial institution reasonably acceptable to Bank and provided that Bank maintains a
perfected first priority security interest in such letters of credit.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the
State of California or the State of Washington are authorized or required to close.
“Cash” means unrestricted cash and cash equivalents.
“Change in Control” shall mean a transaction in which any “person” or “group” (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of a sufficient number of shares of all classes of stock then outstanding of
Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not have such power
before such transaction.
“Chief Executive Office State” means California, where Borrower’s chief executive office is
located.
“Closing Date” means the date of this Agreement.
“Code” means the California Uniform Commercial Code as amended or supplemented from time to time.
“Collateral” means the property described on Exhibit B attached hereto.
1.
“Collateral State” means the state or states where the Collateral is located, which is California.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend,
letter of credit or other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit, corporate credit cards or merchant services
issued for the account of that Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement,
or other agreement or arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof as determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
“Copyrights” means any and all copyright rights, copyright applications, copyright registrations
and like protections in each work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing,
created, acquired or held.
“Credit Extension” means each Advance, Term Advance, or any other extension of credit by Bank
to or for the benefit of Borrower hereunder.
“Eligible Accounts” means those Accounts that arise in the ordinary course of Borrower’s business
that comply with all of Borrower’s representations and warranties to Bank set forth in Section 5.3;
provided, that Bank may change the standards of eligibility based on the results of a Collateral
audit or otherwise in its good faith business discretion by giving Borrower 30 days prior written
notice. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay in full within 90 days of invoice date;
(b) Credit balances over 90 days;
(c) Accounts with respect to an account debtor, 25% of whose Accounts the account debtor has failed
to pay within 90 days of invoice date;
(d) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(e) Accounts with respect to which the account debtor does not have its principal place of business
in the United States, except for Eligible Foreign Accounts;
(f) Accounts with respect to which the account debtor is the United States or any department,
agency, or instrumentality of the United States;
(g) Accounts with respect to which Borrower is liable to the account debtor for goods sold or
services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to
the account debtor against amounts owed to Borrower;
(h) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, xxxx and hold, demo or promotional, or other terms by reason of which the
payment by the account debtor may be conditional;
2.
(i) Accounts with respect to which the account debtor is an officer, employee, agent or Affiliate
of Borrower;
(j) Accounts that have not yet been billed to the account debtor or that relate to deposits (such
as good faith deposits) or other property of the account debtor held by Borrower for the
performance of services or delivery of goods which Borrower has not yet performed or delivered;
(k) Accounts with respect to which the account debtor disputes liability or makes any claim with
respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(l) Accounts the collection of which Bank reasonably determines after inquiry and consultation with
Borrower to be doubtful; and
(m) Retentions and hold-backs.
“Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not have
its principal place of business in the United States and that are (i) domestically billed accounts
invoiced in North America with respect to which the account debtor is Fuji Photo Film, a division
of FujiFilm Holdings Corp., (ii) supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank, (iii) insured by the Export
Import Bank of the United States, (iv) generated by an account debtor with its principal place of
business in Canada, provided that the Bank has perfected its security interest in the appropriate
Canadian province, or (v) approved by Bank on a case-by-case basis. All Eligible Foreign Accounts
must be calculated in U.S. Dollars.
“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any
federal state, local foreign or other governmental or quasi-governmental authority or any agency
pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable,
explosive or radioactive materials, asbestos or other similar materials.
“Equipment” means all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereunder.
“Event of Default” has the meaning assigned in Article 8.
“GAAP” means generally accepted accounting principles, consistently applied, as in effect from
time to time.
“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of
property or services, including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.
“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any
provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
“Intellectual Property” means all of Borrower’s right, title, and interest in and to the following:
(n) Copyrights, Trademarks and Patents;
(o) Any and all trade secrets, and any and all intellectual property rights in computer software
and computer
3.
software products now or hereafter existing, created, acquired or held;
(p) Any and all design rights which may be available to Borrower now or hereafter existing,
created, acquired or held;
(q) Any and all claims for damages by way of past, present and future infringement of any of the
rights included above, with the right, but not the obligation, to xxx for and collect such damages
for said use or infringement of the intellectual property rights identified above;
(r) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all
license fees and royalties arising from such use to the extent permitted by such license or rights;
(s) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
(t) All proceeds and products of the foregoing, including without limitation all payments under
insurance or any indemnity or warranty payable in respect of any of the foregoing.
“Inventory” means all present and future inventory in which Borrower has any interest.
“Investment” means any beneficial ownership of (including stock, partnership or limited liability
company interest or other securities) any Person, or any loan, advance or capital contribution to
any Person.
“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and
any other document, instrument or agreement entered into in connection with this Agreement, all as
amended or extended from time to time.
“Material Adverse Effect” means a material adverse effect on (i) the business operations or
condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole, (ii) the
ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan
Documents, or (iii) Borrower’s interest in, or the value, perfection or priority of Bank’s security
interest in the Collateral.
“Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is
a beneficiary, drafts, instruments (including promissory notes), securities, documents of title,
and chattel paper, and Borrower’s Books relating to any of the foregoing.
“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by
Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or
to become due, now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
“Patents” means all patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of
the same.
“Periodic Payments” means all installments or similar recurring payments that Borrower may now or
hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument,
or agreement now or hereafter in existence between Borrower and Bank.
“Permitted Indebtedness” means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan
Document;
4.
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness not to exceed $250,000 in the aggregate at any time outstanding of Borrower
secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such
Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed
with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary course of business; and
(f) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the
principal amount is not increased or the terms modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.
“Permitted Investment” means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and
currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Xxxxx’x
Investors Service, (iii) Bank’s certificates of deposit maturing no more than one year from the
date of investment therein, and (iv) Bank’s money market accounts;
(c) Repurchases of stock from former employees or directors of Borrower under the terms of
applicable repurchase agreements (i) in an aggregate amount not to exceed $100,000 in any fiscal
year, provided that no Event of Default has occurred, is continuing or would exist after giving
effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the
cancellation of indebtedness owed by such former employees to Borrower regardless of whether an
Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower
in Subsidiaries not to exceed $250,000 in the aggregate in any fiscal year;
(f) Investments not to exceed $250,000 in the aggregate in any fiscal year 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 plan agreements
approved by Borrower’s Board of Directors;
(g) 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 Borrower’s business;
(h) 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 subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary;
and
(i) Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting
of the non-exclusive licensing of technology, the development of technology or the providing of
technical support, provided that any cash Investments by Borrower do not exceed $100,000 in the
aggregate in any fiscal year.
“Permitted Liens” means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be
satisfied with
5.
the proceeds of the Advances) or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings and for which Borrower
maintains adequate reserves, provided the same have no priority over any of Bank’s security
interests;
(c) Liens not to exceed $250,000 in the aggregate at any one time (i) upon or in any Equipment
acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of
such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that
the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds
of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (a) through (e)c) above, provided that any
extension, renewal or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not
increase;
(e) Liens of materialmen, warehousemen, carrier, artisans or other similar Liens arising in the
ordinary course of Borrower’s business or by operation of law, which are not past due or which are
being contested in good faith by appropriate proceedings and for which reserves have been
established in accordance with GAAP;
(f) Leases and subleases and licenses and sublicenses granted to others which do not interfere in
any material respects with the business of Borrower and its Subsidiaries taken as a whole;
(g) Deposits in the ordinary course of business under worker’s compensation, unemployment
insurance, social security and other similar laws, or to secure performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or
other similar bonds for the performance of bids, tenders or contracts (other than for the repayment
of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or
environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other
similar bonds; and
(h) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event
of Default under Sections 8.4 (attachment) or 8.8 (judgments).
“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any
Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business;
(c) worn-out or obsolete Equipment; or
(d) other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $100,000
during any fiscal year.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint
venture, trust, unincorporated organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as
its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer,
the Chief Financial Officer and the Controller of Borrower.
6.
“Revolving Line” means a Credit Extension of up to $5,000,000.
“Revolving Maturity Date” means 36 months from the Closing Date.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“SOS Reports” means the official reports from the Secretaries of State of each Collateral State,
Chief Executive Office State and the Borrower State and other applicable federal, state or local
government offices identifying all current security interests filed in the Collateral and Liens of
record as of the date of such report.
“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt
owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by
Borrower and Bank).
“Subsidiary” means any corporation, partnership or limited liability company or joint venture in
which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability
company interest or joint venture of which by the terms thereof ordinary voting power to elect the
Board of Directors, managers or trustees of the entity, at the time as of which any determination
is being made, is owned by Borrower, either directly or through an Affiliate.
“Term Advance” means a cash advance or cash advances under the Term Line in accordance with Section
2.1(c).
“Term Line” means a Credit Extension of up to $5,000,000.
“Term Maturity Date” means 48 months from the Closing Date.
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to
register and registrations of the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by such trademarks.
7.
DEBTOR:
|
ZONARE MEDICAL SYSTEMS, INC. | |
SECURED PARTY:
|
COMERICA BANK |
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) of every
kind, whether presently existing or hereafter created or acquired, and wherever located, including
but not limited to: (a) all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents (including
negotiable documents), equipment (including all accessions and additions thereto), general
intangibles (including payment intangibles and software), goods (including fixtures), instruments
(including promissory notes), inventory (including all goods held for sale or lease or to be
furnished under a contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of credit rights, money, and
all of Debtor’s books and records with respect to any of the foregoing, and the computers and
equipment containing said books and records; and (b) any and all cash proceeds and/or noncash
proceeds thereof, including, without limitation, insurance proceeds, and all supporting obligations
and the security therefor or for any right to payment. All terms above have the meanings given to
them in the California Uniform Commercial Code, as amended or supplemented from time to time.
Notwithstanding the foregoing, the Collateral shall not include (i) the capital stock of a
controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all
classes of capital stock of such controlled foreign corporations entitled to vote and directly or
indirectly owned by Borrower or by one of Borrower’s US Subsidiaries, or (ii) any copyrights,
patents, trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or
any claims for damages by way of any past, present and future infringement of any of the foregoing
(collectively, the “Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment from the sale, licensing or
disposition of all or any part of, or rights in, the Intellectual Property (the “Rights to
Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy
Court) holds that a security interest in the underlying Intellectual Property is necessary to have
a security interest in the Rights to Payment, then the Collateral shall automatically, and
effective as of May 15, 2007, include the Intellectual Property to the extent necessary to permit
perfection of Bank’s security interest in the Rights to Payment.
1.
EXHIBIT C
TECHNOLOGY & LIFE SCIENCES DIVISION
LOAN ANALYSIS
PAYMENT/ADVANCE FORM
DEADLINE FOR PROCESSING IS 1:00* P.M., Pacific Time
LOAN ANALYSIS
PAYMENT/ADVANCE FORM
DEADLINE FOR PROCESSING IS 1:00* P.M., Pacific Time
TO: Loan Analysis
|
DATE: | TIME: | ||
FAX #: (000) 000-0000 |
FROM:
|
ZONARE MEDICAL SYSTEMS, INC. | TELEPHONE REQUEST (For Bank Use Only): | |||||
| Borrower’s Name | |||||||
FROM: |
The following person is authorized to request the loan payment transfer/loan advance on the designated account and is known to me. | ||||||
| Authorized Signer’s Name | |||||||
FROM: |
|||||||
| Authorized Signature (Borrower) | Authorized Request & Phone # | ||||||
PHONE #: |
|||||||
| Received by (Bank) & Phone # | |||||||
FROM ACCOUNT#: |
|||||||
| (please include Note number, if applicable) | |||||||
TO ACCOUNT #:
|
Authorized Signature (Bank) | ||||||
| (please include Note number, if applicable) | |||||||
| REQUESTED TRANSACTION TYPE | REQUESTED DOLLAR AMOUNT | For Bank Use Only |
|||||||
PRINCIPAL INCREASE* (ADVANCE)
|
$ | Date Rec’d: | |||||||
PRINCIPAL PAYMENT (ONLY)
|
$ | Time: | |||||||
| Comp. Status: | YES NO | ||||||||
OTHER INSTRUCTIONS:
|
Status Date: | ||||||||
| Time: | |||||||||
| Approval: | |||||||||
All representations and warranties of Borrower stated in the Loan Agreement are true, correct and complete in all material respects as of the date of the telephone
request for and advance confirmed by this Payment/Advance Form; provided, however, that those representations and warranties the date expressly referring to another
date shall be true, correct and complete in all material respects as of such date.
* IS THERE A WIRE REQUEST TIED TO THIS LOAN ADVANCE? (PLEASE CIRCLE ONE)
YES
NO
If YES, the Outgoing Wire Transfer Instructions must be completed below.
| OUTGOING WIRE TRANSFER INSTRUCTIONS | Fed Reference Number | Bank Transfer Number | |||||||
| The items marked with an asterisk (*) are required to be completed. |
|||||||||
*Beneficiary Name |
|||||||||
*Beneficiary Account Number |
|||||||||
*Beneficiary Address |
|||||||||
Currency Type
|
US DOLLARS ONLY | ||||||||
*ABA Routing Number (9 Digits) |
|||||||||
*Receiving Institution Name |
|||||||||
*Receiving Institution Address |
|||||||||
*Wire Account
|
$ | ||||||||
2.
EXHIBIT D
BORROWING BASE CERTIFICATE
| Borrower: ZONARE MEDICAL SYSTEMS, INC. | Lender: Comerica Bank | |
| Commitment Amount: $5,000,000 |
ACCOUNTS RECEIVABLE |
||||||||
1. Accounts Receivable Book Value as of ___ |
$ | |||||||
2. Additions (please explain on reverse) |
$ | |||||||
3. TOTAL ACCOUNTS RECEIVABLE |
$ | |||||||
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) |
||||||||
4. Amounts over 90 days due |
$ | |||||||
5. Balance of 25% over 90 day accounts |
$ | |||||||
6. Concentration Limits |
$ | |||||||
7. Foreign Accounts |
$ | |||||||
8. Governmental Accounts |
$ | |||||||
9. Contra Accounts |
$ | |||||||
10. Demo Accounts |
$ | |||||||
11. Intercompany/Employee Accounts |
$ | |||||||
12. Other (please explain on reverse) |
$ | |||||||
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS |
$ | |||||||
14. Eligible Accounts (#3 minus #13) |
$ | |||||||
15. LOAN VALUE OF ACCOUNTS (85% of #14 plus 95% of Letters of Credit* ) |
$ | |||||||
BALANCES |
||||||||
16. Maximum Loan Amount |
$ | 5,000,000 | ||||||
17. Total Funds Available [Lesser of #16 or #15] |
$ | |||||||
18. Present balance owing on Line of Credit |
$ | |||||||
19. RESERVE POSITION (#17 minus #18) |
$ |
* “Letters of Credit” shall mean the amount of any letters of credit issued on behalf of Borrower by
a domestic bank or other financial institution acceptable to Bank and in which Bank maintains a
perfected first priority security interest,
The undersigned represents and warrants that the foregoing is true, complete and correct, and that
the information reflected in this Borrowing Base Certificate complies with the representations and
warranties set forth in the Loan and Security Agreement between the undersigned and Comerica Bank.
ZONARE MEDICAL SYSTEMS, INC.
By:
Authorized Signer
1.
EXHIBIT E
COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
TO:
|
COMERICA BANK | |
FROM:
|
ZONARE MEDICAL SYSTEMS, INC. |
The undersigned authorized officer of ZONARE MEDICAL SYSTEMS, INC. hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the “Agreement”), (i) Borrower is in complete compliance for the period ending
with all required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct as of the date hereof.
Attached herewith are the required documents supporting the above certification. The undersigned
further certifies that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next except as explained in
an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | ||||
Monthly financial statements
|
Monthly within 30 days | Yes | No | |||
Annual (CPA Audited)
|
FYE within 120 days* | Yes | No | |||
10K and 10Q
|
(as applicable) | Yes | No | |||
A/R & A/P Agings, Borrowing Base Cert.
|
Monthly within 30 days | Yes | No | |||
Operating & annual budgets, forecasts
|
30 days prior to FYE | Yes | No | |||
A/R Audit
|
Initial and Semi-Annual | Yes | No | |||
Total amount of Borrower’s cash and investments
|
Amount: $___ | Yes | No | |||
Total amount of Borrower’s cash and investments
maintained with Bank
|
Amount: $___ | Yes | No | |||
* drafts on or before 4/30/07 for FYE 12/31/05 and 12/31/06; final audited statements on or before 6/30/07 for FYE
12/31/05 and 12/31/06.
12/31/05 and 12/31/06.
| Financial Covenant | Required | Actual | Complies | |||||
Minimum Quarterly Billed Sales
|
See Section 6.7 of Agreement | $___ | Yes | No | ||||
Liquidity Ratio**
|
1.25:1.00 | ___: 1.00 | Yes | No | ||||
** “Liquidity Ratio” means the ratio of (i) the sum of unrestricted cash and cash equivalents plus all foreign and
domestic accounts receivable invoiced in North America to (ii) all Indebtedness owing by Borrower to Bank.
Comments Regarding Exceptions: See Attached.
Sincerely,
SIGNATURE
TITLE
BANK USE ONLY
Received by: |
||
| AUTHORIZED SIGNER | ||
Date: |
||
Verified: |
||
| AUTHORIZED SIGNER | ||
Date: |
||
| Compliance Status Yes No | ||
1.
DATE
2.
LIBOR
Addendum To Loan and Security Agreement
Addendum To Loan and Security Agreement
This LIBOR Addendum to Loan and Security Agreement (this “Addendum”) is entered into as of
this 15th day of May, 2007 by and between Comerica Bank (“Bank”) and ZONARE
MEDICAL SYSTEMS, INC. (“Borrower”). This Addendum supplements the terms of the Loan Agreement (as
defined below).
| 1. Definitions. |
a. Advance. As used herein, “Advance” means a borrowing requested by Borrower and made by Bank under the Loan Agreement, including a LIBOR Option Advance and/or a
Base Rate Option Advance.
b. Business Day. As used herein, “Business Day” means any day except a Saturday,
Sunday or any other day designated as a holiday under Federal or California statute or regulation.
c. LIBOR. As used herein, “LIBOR” means the rate per annum (rounded upward if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula;
LIBOR =
|
Base LIBOR | ||
| 100% — LIBOR Reserve Percentage |
| (1) | “Base LIBOR” means the rate per annum determined by Bank at which deposits for the relevant LIBOR Period would be offered to Bank in the approximate amount of the relevant LIBOR Option Advance in the interbank LIBOR market selected by Bank, upon request of Bank at 10:00 a.m. California time, on the day that is the first day of such LIBOR Period. | ||
| (2) | “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable LIBOR Period. |
d. LIBOR Business Day. As used herein, “LIBOR Business Day” means a Business Day on which dealings in Dollar deposits may be carried out in the interbank LIBOR market.
e. LIBOR Period. As used herein, “LIBOR Period” means, with respect to a LIBOR Option Advance:
| (1) | initially, the period commencing on, as the case may be, the date the Advance is made or the date on which the Advance is converted to a LIBOR Option Advance, and continuing for, in every case, a 1, 2, 3, 6, or 12 month period thereafter so long as the LIBOR Option is quoted for such period in the applicable interbank LIBOR market, as such period is |
1.
| -selected by Borrower in the notice of Advance as provided in the Loan Agreement or in the notice of conversion as provided in this Addendum; and | |||
| (2) | thereafter, each period commencing on the last day of the next preceding LIBOR Period applicable to such LIBOR Option Advance and continuing for, in every case, a 1, 2, 3, 6, or 12 month period thereafter so long as the LIBOR Option is quoted for such period in the applicable interbank LIBOR market, as such period is selected by Borrower in the notice of continuation as provided in this Addendum. |
f. Loan Agreement. As used herein, “Loan Agreement” means the Loan and Security Agreement, dated as of the date of this Addendum.
g. Regulation D. As used herein, “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as amended or supplemented from time to time.
h. Regulatory Development. As used herein, “Regulatory Development” means any or all of the
following: (i) any change in any law, regulation or interpretation thereof by any public authority
(whether or not having the force of law); (ii) the application of any existing law, regulation or
the interpretation thereof by any public authority (whether or not having the force of law); and
(iii) compliance by Bank with any request or directive (whether or not having the force of law) of
any public authority.
2. Interest Rate Options. Borrower shall have the following options regarding the interest rate to be paid by Borrower on Advances under the Loan Agreement:
a. A rate equal to four and three quarters of one percent (4.75%) above Bank’s
LIBOR for each Term Advance (as defined in the Loan Agreement) and a rate equal to three and
three quarters of one percent (3.75%) above Bank’s LIBOR for each Advance (as defined in the
Loan Agreement) under the Revolving Line (as defined in the Loan Agreement) (collectively,
the “LIBOR Option”), which LIBOR Option shall be in effect during the relevant LIBOR
Period; or
b. A rate equal to two percent (2.0%) above the “Prime Rate” as referenced in the
Loan Agreement for and quoted from time to time by Bank for each Term Advance (as defined
in the Loan Agreement) and a rate equal to one percent (1.00%) above the “Prime Rate” as
referenced in the Loan Agreement for and quoted from time to time by Bank for each Advance
(as defined in the Loan Agreement) under the Revolving Line (as defined in the Loan
Agreement), in each case as such rate may change from time to time
(collectively, the “Base Rate Option”).
3. LIBOR Option Advance. The minimum LIBOR Option Advance will not be less than
Five Hundred Thousand and 00/100 Dollars ($500,0000) for any LIBOR Option Advance.
Borrower shall not be permitted to have more than four (4) LIBOR Option Advances outstanding
at any time.
2.
4. Payment of Interest on LIBOR Option Advances. Interest on each LIBOR
Option Advance shall be payable pursuant to the terms of the Loan Agreement. Interest on such
LIBOR Option Advance shall be computed on the basis of a 360-day year and shall be assessed
for the actual number of days elapsed from the first day of the LIBOR Period applicable thereto
but not including the last day thereof.
5. Bank’s Records Re: LIBOR Option Advances. With respect to each LIBOR
Option Advance, Bank is hereby authorized to note the date, principal amount, interest rate and
LIBOR Period applicable thereto and any payments made thereon on Bank’s books and records
(either manually or by electronic entry) and/or on any schedule attached to the Loan Agreement,
which notations shall be prima facie evidence of the accuracy of the information noted.
6. Selection/Conversion of Interest Rate Options. At the time any Advance is
requested under the Loan Agreement and/or Borrower wishes to select the LIBOR Option for all
or a portion of the outstanding principal balance of the Loan Agreement, and at the end of each
LIBOR Period, Borrower shall give Bank notice specifying (a) the interest rate option selected
by Borrower; (b) the principal amount subject thereto; and (c) if the LIBOR Option is selected,
the length of the applicable LIBOR Period. Any such notice may be given by telephone so long
as, with respect to each LIBOR Option selected by Borrower, (i) Bank receives written
confirmation from Borrower not later than three (3) LIBOR Business Days after such telephone
notice is given; and (ii) such notice is given to Bank prior to 10:00 a.m., California time, on the
first day of the LIBOR Period. For each LIBOR Option requested hereunder, Bank will quote
the applicable fixed LIBOR Rate to Borrower at approximately 10:00 a.m., California time, on
the first day of the LIBOR Period. If Borrower does not immediately accept the rate quoted by
Bank, any subsequent acceptance by Borrower shall be subject to a redetermination of the rate by
Bank; provided, however, that if Borrower fails to accept any such quotation given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR Option to be
selected on such day. If no specific designation of interest is made at the time any Advance is
requested under the Loan Agreement or at the end of any LIBOR Period, Borrower shall be
deemed to have selected the Base Rate Option for such Advance or the principal amount to
which such LIBOR Period applied. At any time the LIBOR Option is in effect, Borrower may,
at the end of the applicable LIBOR Period, convert to the Base Rate Option. At any time the
Base Rate Option is in effect, Borrower may convert to the LIBOR Option, and shall designate a
LIBOR Period.
7. Default Interest Rate. From and after the maturity date of the Loan Agreement, or
such earlier date as all principal owing hereunder becomes due and payable by acceleration or
otherwise, the outstanding principal balance of the Loan Agreement shall bear interest until paid
in full at an increased rate per annum as set forth in Section 2.3 of the Loan Agreement.
8. Prepayment. In the event that the LIBOR Option is the applicable interest rate for all
or any part of the outstanding principal balance of the Loan Agreement, and any payment or
prepayment of any such outstanding principal balance of the Loan Agreement shall occur on any
day other than the last day of the applicable LIBOR Period (whether voluntarily, by acceleration,
required payment, or otherwise), or if Borrower elects the LIBOR Option as the applicable
interest rate for all or any part of the outstanding principal balance of the Loan Agreement in
accordance with the terms and conditions hereof, and, subsequent to such election, but prior to
3.
the commencement of the applicable LIBOR Period, Borrower revokes such election for any reason
whatsoever, or if the applicable interest rate in respect of any outstanding principal balance of
the Loan Agreement hereunder shall be changed, for any reason whatsoever, from the LIBOR Option to
the Base Rate Option prior to the last day of the applicable LIBOR Period, or if Borrower shall
fail to make any payment of principal or interest hereunder at any time that the LIBOR Option is
the applicable interest rate hereunder in respect of such outstanding principal balance of the Loan
Agreement, Borrower shall reimburse Bank, on demand, for any resulting loss, cost or expense
incurred by Bank as a result thereof, including, without limitation, any such loss, cost or expense
incurred in obtaining, liquidating, employing or redeploying deposits from third parties. Such
amount payable by Borrower to Bank may include, without limitation, an amount equal to the excess,
if any, of (a) the amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, refunded or converted, for the period from the date of such prepayment or of such failure
to borrow, refund or convert, through the last day of the relevant LIBOR Period, at the applicable
rate of interest for such outstanding principal balance of the Loan Agreement, as provided under
this Loan Agreement, over (b) the amount of interest (as reasonably determined by Bank) which would
have accrued to Bank on such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank LIBOR market. Calculation of any amounts payable to Bank under this
paragraph shall be made as though Bank shall have actually funded or committed to fund the relevant
outstanding principal balance of the Loan Agreement hereunder through the purchase of an underlying
deposit in an amount equal to the amount of such outstanding principal balance of the Loan
Agreement and having a maturity comparable to the relevant LIBOR Period; provided, however, that
Bank may fund the outstanding principal balance of the Loan Agreement hereunder in any manner it
deems fit and the foregoing assumptions shall be utilized only for the purpose of the calculation
of amounts payable under this paragraph. Upon the written request of Borrower, Bank shall deliver
to Borrower a certificate setting forth the basis for determining such losses, costs and expenses,
which certificate shall be conclusively presumed correct, absent manifest error. Any prepayment
hereunder shall also be accompanied by the payment of all accrued and unpaid interest on the amount
so prepaid. Any outstanding principal balance of the Loan Agreement which is bearing interest at
such time at the Base Rate Option may be prepaid without penalty or premium. Partial prepayments
hereunder shall be applied to the installments hereunder in the inverse order of their maturities.
BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE IS NO RIGHT TO PREPAY
ANY LIBOR OPTION ADVANCE, IN WHOLE OR IN PART, WITHOUT PAYING THE PREPAYMENT AMOUNT SET FORTH
HEREIN (“PREPAYMENT AMOUNT”), EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B) BORROWER
SHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF BANK EXERCISES ITS RIGHT TO ACCELERATE
PAYMENT OF ANY LIBOR OPTION ADVANCE AS PART OR ALL OF THE OBLIGATIONS OWING UNDER THE LOAN
AGREEMENT, INCLUDING WITHOUT LIMITATION, ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) BORROWER
WAIVES ANY RIGHTS UNDER SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE OR ANY SUCCESSOR STATUTE; AND
(D) BANK HAS MADE EACH LIBOR OPTION ADVANCE PURSUANT TO THE LOAN AGREEMENT IN RELIANCE ON THESE
AGREEMENTS.
4.
/s/ KD |
BORROWER’S INITIALS |
9. Hold Harmless and Indemnification. Borrower agrees to indemnify Bank and to
hold Bank harmless from, and to reimburse Bank on demand for, all losses and expenses which
Bank sustains or incurs as a result of (i) any payment of a LIBOR Option Advance prior to the
last day of the applicable LIBOR Period for any reason, including, without limitation,
termination of the Loan Agreement, whether pursuant to this Addendum or the occurrence of an
Event of Default; (ii) any termination of a LIBOR Period prior to the date it would otherwise end
in accordance with this Addendum; or (iii) any failure by Borrower, for any reason, to borrow
any portion of a LIBOR Option Advance.
10. Funding Losses. The indemnification and hold harmless provisions set forth in this
Addendum shall include, without limitation, all losses and expenses arising from interest and
fees that Bank pays to lenders of funds it obtains in order to fund the loans to Borrower on the
basis of the LIBOR Option(s) and all losses incurred in liquidating or re-deploying deposits from
which such funds were obtained and loss of profit for the period after termination. A written
statement by Bank to Borrower of such losses and expenses shall be conclusive and binding,
absent manifest error, for all purposes. This obligation shall survive the termination of this
Addendum and the payment of the Loan Agreement.
11. Regulatory Developments Or Other Circumstances Relating To Illegality or Impracticality of LIBOR. If any Regulatory Development (as defined in
Section 1 (h) above) or other circumstances relating to the interbank Euro-dollar markets shall, at
any time, in Bank’s reasonable determination, make it unlawful or impractical for Bank to fund
or maintain, during any LIBOR Period, to determine or charge interest rates based upon LIBOR,
Bank shall give notice of such circumstances to Borrower and:
| (i) | In the case of a LIBOR Period in progress, Borrower shall, if requested by Bank, promptly pay any interest which had accrued prior to such request and the date of such request shall be deemed to be the last day of the term of the LIBOR Period; and | ||
| (ii) | No LIBOR Period may be designated thereafter until Bank determines that such would be practical. |
12. Additional Costs. Borrower shall pay to Bank from time to time, upon Bank’s
request, such amounts as Bank determines are needed to compensate Bank for any costs it
incurred which are attributable to Bank having made or maintained a LIBOR Option Advance or
to Bank’s obligation to make a LIBOR Option Advance, or any reduction in any amount
receivable by Bank hereunder with respect to any LIBOR Option or such obligation (such
increases in costs and reductions in amounts receivable being herein called “Additional Costs”),
resulting from any Regulatory Developments, which (i) change the basis of taxation of any
amounts payable to Bank hereunder with respect to taxation of any amounts payable to Bank
hereunder with respect to any LIBOR Option Advance (other than taxes imposed on the overall
net income of Bank for any LIBOR Option Advance by the jurisdiction where Bank is
headquartered or the jurisdiction where Bank extends the LIBOR Option Advance; (ii) impose
5.
or modify any reserve, special deposit, or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, Bank (including any LIBOR
Option Advance or any deposits referred to in the definition of LIBOR); or (iii) impose any other
condition affecting this Addendum (or any of such extension of credit or liabilities). Bank shall
notify Borrower of any event occurring after the date hereof which entitles Bank to compensation
pursuant to this paragraph as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation. Determinations by Bank for purposes of this paragraph
shall be conclusive, provided that such determinations are made on a reasonable basis.
13. Legal Effect. Except as specifically modified hereby, all of the terms and conditions
of the Loan Agreement remain in full force and effect.
In Witness Whereof, the parties have agreed to the foregoing as of the date first set forth above.
| ZONARE MEDICAL SYSTEMS, INC. | COMERICA BANK | |||||
By:
|
/s/ Xxxxx Xxxxxxx | By: | /s/ [Illegible] | |||
Title:
|
V.P. Finance | Title: | VP | |||
By: |
||||||
Title: |
||||||
6.
