SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Exhibit
99.1
SECOND
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT (this “Agreement”) dated as of August
9, 2010 (the “Effective
Date”) between SILICON
VALLEY BANK, a California corporation (“Bank”), and OTIX GLOBAL, INC., a Delaware
corporation, formerly known as Sonic Innovations, Inc., and HEARINGLIFE USA, INC., a
Delaware corporation (collectively “Borrower”), provides the terms
on which Bank shall lend to Borrower and Borrower shall repay Bank.
RECITALS
A. Bank
and Borrower are parties to that certain Amended and Restated Loan and Security
Agreement with an Effective Date of August 11, 2009, as amended by that certain
First Amendment to Loan and Security Agreement by and between Bank and Borrower
dated as of February 10, 2010, as amended by that certain Second Amendment to
Loan and Security Agreement by and between Bank and Borrower dated as of March
10, 2010 (collectively, the “Original Agreement”).
B. Borrower
and Bank desire in this Agreement to set forth their agreement with respect to a
revolving loan and to amend and restate in its entirety without novation the
Original Agreement in accordance with the provisions herein.
C. The
loan documents executed and delivered on or about the date of the Original
Agreement or in relation to the Original Agreement remain in full force and
effect, except as expressly amended herein, including without limitation the
Security Account Control Agreement and all other control agreements, UCC
financing statements and any Consent to Removal of Personal Property and all
amendments and modifications thereto.
The
parties agree as follows:
1
ACCOUNTING AND OTHER
TERMS
Accounting
terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following
GAAP. Capitalized terms not otherwise defined in this Agreement shall
have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning
provided by the Code to the extent such terms are defined therein.
2
LOAN AND TERMS OF
PAYMENT
2.1 Promise to
Pay. Borrower hereby unconditionally promises to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.
2.1.1 Revolving
Advances.
(a) Availability. Subject
to the terms and conditions of this Agreement and to deduction of Reserves, Bank
shall make Advances not exceeding the Availability Amount. Amounts
borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions precedent
herein.
(b) Termination;
Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable.
2.1.2 Letters of Credit
Sublimit.
(a) As
part of the Revolving Line, Bank shall issue or have issued Letters of Credit
denominated in Dollars or a Foreign Currency for Borrower’s
account. The aggregate Dollar Equivalent amount utilized for the
issuance of Letters of Credit shall at all times reduce the amount otherwise
available for Advances under the Revolving Line. The aggregate Dollar
Equivalent amount available to be used for the issuance of Letters of Credit may
not exceed (i) the lesser of (A) the Revolving Line or (B) the Borrowing
Base, minus (ii) the sum of all outstanding principal amounts of any
Advances (including any amounts used for Cash Management Services and the Dollar
Equivalent of the face amount of any outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve).
(b) If,
on the Revolving Line Maturity Date (or the effective date of any termination of
this Agreement), there are any outstanding Letters of Credit, then on such date
Borrower shall provide to Bank cash collateral in an amount equal to
110% of the Dollar Equivalent of the face amount of all such Letters
of Credit plus all interest, fees, and costs due or to become due in connection
therewith (as estimated by Bank in its good faith business judgment), to secure
all of the Obligations relating to such Letters of Credit. All
Letters of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank’s standard
Application and Letter of Credit Agreement (the “Letter of Credit
Application”). Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request. Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto.
(c) The
obligation of Borrower to immediately reimburse Bank for drawings made under
Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.
(d) Borrower
may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to Borrower of the Dollar
Equivalent of the amount thereof (plus fees and charges in connection therewith
such as wire, cable, SWIFT or similar charges).
(e) To
guard against fluctuations in currency exchange rates, upon the issuance of any
Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the
“Letter of Credit
Reserve”) under the Revolving Line in an amount equal to ten percent
(10%) of the face amount of such Letter of Credit. The amount of the
Letter of Credit Reserve may be adjusted by Bank from time to time to account
for fluctuations in the exchange rate. The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.
2.1.3 [Intentionally
omitted]
2.1.4 Cash Management Services
Sublimit. Borrower may use the Revolving Line for Bank’s cash
management services, which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s
various cash management services agreements (collectively, the “Cash Management Services”), in
an aggregate amount not to exceed the lesser of the Revolving Line or the
Borrowing Base, minus the sum of all outstanding principal amounts of any
Advance, minus the Dollar Equivalent of the face amount of any outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve). Any amounts Bank pays on behalf of
Borrower for any Cash Management Services will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.
2.2 Overadvances. If, at any
time, the sum of (a) the outstanding principal amount of any Advances (including
any amounts used for Cash Management Services), plus (b) the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) (such sum being an “Overadvance”) exceeds the
lesser of either the Revolving Line or the Borrowing Base, Borrower shall
immediately pay to Bank in cash such Overadvance. Without limiting
Borrower’s obligation to repay Bank any amount of the Overadvance, Borrower
agrees to pay Bank interest on the outstanding amount of any Overadvance, on
demand, at the Default Rate.
2.3 Payment of Interest on the Credit
Extensions.
(a) Advances. Subject
to Section 2.3(b), the principal amount outstanding under the Revolving Line
shall accrue interest at the following floating per annum rates: (i)
if the Adjusted Quick Ratio is greater than or equal to 1.0 to 1.0, then the
interest rate is one percentage point (1.00%) above the Prime Rate; and (ii) if
the Adjusted Quick Ratio is less than 1.0 to 1.0, then the interest rate is one
and one-half percentage points (1.50%) above the Prime Rate. If any
change in the interest rate is due to a change in the Adjusted Quick Ratio, the
change shall take effect on the first day of the month following the Bank's
receipt of Borrower's financial statements for which the Adjusted Quick Ratio
was calculated.
-2-
If, as a result of any restatement of
or other adjustment to the financial statements of Borrower or for any other
reason, Borrower or Bank determines that (i) the Adjusted Quick Ratio as
calculated by Borrower as of any applicable date was inaccurate and (ii) a
proper calculation of the Adjusted Quick Ratio would have resulted in higher
pricing for such period, Borrower shall immediately and retroactively be
obligated to pay to Bank, promptly on demand by Bank (or, after the occurrence
of an actual or deemed entry of an order for relief with respect to Borrower
under the Bankruptcy Code of the United States, automatically and without
further action by Bank), an amount equal to the excess of the amount of interest
and fees that should have been paid for such period over the amount of interest
and fees actually paid for such period. This paragraph shall not
limit the rights of Bank under Section 8. Borrower’s obligations
under this paragraph shall survive the termination of this Agreement and the
repayment of all other Obligations hereunder.
(b) Default
Rate. Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is five percentage points (5.00%) above the rate that is
otherwise applicable thereto (the “Default Rate”) unless Bank
otherwise elects from time to time in its sole discretion to impose a smaller
increase. Fees and expenses which are required to be paid by Borrower
pursuant to the Loan Documents (including, without limitation, Bank Expenses)
but are not paid when due shall bear interest until paid at a rate equal to the
highest rate applicable to the Obligations. Payment or acceptance of
the increased interest rate provided in this Section 2.3(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of
Bank.
(c) Adjustment to Interest
Rate. Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of
any change to the Prime Rate and to the extent of any such change.
(d) Debit of
Accounts. Bank may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or
any other amounts Borrower owes Bank when due. These debits shall not
constitute a set-off.
(e) Payment; Interest
Computation; Float Charge. Interest is payable monthly on the
last calendar day of each month and shall be computed on the basis of a 360-day
year for the actual number of days elapsed. In computing interest,
(i) all Payments received after 12:00 p.m. Pacific time on any day shall be
deemed received at the opening of business on the next Business Day, and
(ii) the date of the making of any Credit Extension shall be included and
the date of payment shall be excluded; provided, however, that if
any Credit Extension is repaid on the same day on which it is made, such day
shall be included in computing interest on such Credit Extension.
2.4 Fees. Borrower
shall pay to Bank:
(a) Commitment
Fee. A fully earned, non-refundable commitment fee of
$10,000.00, on the Effective Date; and
(b) Letter of Credit
Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, upon the issuance of such Letter of Credit, each
anniversary of the issuance during the term of such Letter of Credit, and upon
the renewal of such Letter of Credit by Bank;
(c) Unused Revolving Line
Facility Fee. A fee (the “Unused Revolving Line Facility
Fee”), payable monthly, in arrears, on a calendar year basis, in an
amount equal to three-eighths of one percent (.375%) per annum of the average
unused portion of the Revolving Line, as determined by Bank. The
unused portion of the Revolving Line, for purposes of this calculation, shall
equal the difference between (x) the Revolving Line amount (as it may be reduced
from time to time) and (y) the average for the period of the daily closing
balance of the Revolving Line outstanding plus the sum of the aggregate amount
of outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve). Borrower shall not be
entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder;
-3-
(d) Collateral Monitoring
Fee. A monthly collateral monitoring fee of $1,000.00, payable
in arrears on the last day of each month (prorated for any partial month at the
beginning and upon termination of this Agreement); and
(e) Bank
Expenses. All Bank Expenses (including reasonable attorneys’
fees and expenses for documentation and negotiation of this Agreement) incurred
through and after the Effective Date, when due.
2.5 Payments; Application of
Payments.
(a) All
payments (including prepayments) to be made by Borrower under any Loan Document
shall be made in immediately available funds in U.S. Dollars, without setoff or
counterclaim, before 12:00 p.m. Pacific time on the date when
due. Payments of principal and/or interest received after 12:00 p.m.
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business
Day, the payment shall be due the next Business Day, and additional fees or
interest, as applicable, shall continue to accrue until paid.
(b) All
payments with respect to the Obligations may be applied in such order and manner
as Bank shall determine in its sole discretion. Borrower shall have
no right to specify the order or the accounts to which Bank shall allocate or
apply any payments required to be made by Borrower to Bank or otherwise received
by Bank under this Agreement when any such allocation or application is not
specified elsewhere in this Agreement.
3
CONDITIONS OF
LOANS
3.1 Conditions Precedent to Initial
Credit Extension. Bank’s obligation to make the initial Credit
Extension is subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, such documents, and completion of
such other matters, as Bank may reasonably deem necessary or appropriate,
including, without limitation:
(a) duly
executed original signatures to the Loan Documents; and
(b) payment
of the fees and Bank Expenses then due as specified in Section 2.4
hereof.
3.2 Conditions Precedent to all Credit
Extensions. Bank’s obligations to make each Credit Extension,
including the initial Credit Extension, is subject to the following conditions
precedent:
(a) except
as otherwise provided in Section 3.4, timely receipt of an executed Transaction
Report;
(b) the
representations and warranties in this Agreement shall be true, accurate, and
complete in all material respects on the date of the Transaction Report and on
the Funding Date of each Credit Extension; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, and no Event of Default shall have
occurred and be continuing or result from the Credit Extension. Each
Credit Extension is Borrower’s representation and warranty on that date that the
representations and warranties in this Agreement remain true, accurate, and
complete in all material respects; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date; and
(c) in
Bank’s sole discretion, there has not been any material impairment in
the general affairs, management, results of operation, financial condition or
the prospect of repayment of the Obligations, or any material adverse deviation
by Borrower from the most recent business plan of Borrower presented to and
accepted by Bank.
3.3 Covenant to Deliver. Borrower
agrees to deliver to Bank each item required to be delivered to Bank under this
Agreement as a condition precedent to any Credit Extension. Borrower
expressly agrees that a Credit Extension made prior to the receipt by Bank of
any such item shall not constitute a waiver by Bank of Borrower’s obligation to
deliver such item, and the making of any Credit Extension in the absence of a
required item shall be in Bank’s sole discretion.
-4-
3.4 Procedures for
Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of an Advance set forth in this Agreement,
to obtain an Advance (other than Advances under Sections 2.1.2 or 2.1.4),
Borrower shall notify Bank (which notice shall be irrevocable) by electronic
mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of
the Advance. Together with such notification, Borrower must promptly
deliver to Bank by electronic mail or facsimile a completed Transaction Report
executed by a Responsible Officer or his or her designee. Bank shall
credit Advances to the Designated Deposit Account. Bank may make
Advances under this Agreement based on instructions from a Responsible Officer
or his or her designee or without instructions if the Advances are necessary to
meet Obligations which have become due. Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer
or designee.
4
CREATION
OF SECURITY INTEREST
4.1 Grant of Security
Interest. Borrower hereby grants Bank, to secure the payment
and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products
thereof.
4.2
Priority of Security
Interest. Borrower represents, warrants, and covenants that
the security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement). If Borrower shall acquire a commercial tort claim,
Borrower shall promptly notify Bank in a writing signed by Borrower of the
general details thereof and grant to Bank in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to
Bank.
If this
Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in
cash. Upon payment in full in cash of the Obligations and at such
time as Bank’s obligation to make Credit Extensions has terminated, Bank shall,
at Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.
4.3 Authorization to File Financing
Statements. Borrower hereby authorizes Bank to file financing
statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Bank’s interest or rights hereunder, including a notice that
any disposition of the Collateral, by either Borrower or any other Person, shall
be deemed to violate the rights of Bank under the Code.
5
REPRESENTATIONS AND
WARRANTIES
Borrower
represents and warrants as follows:
5.1 Due Organization, Authorization;
Power and Authority. Borrower is duly existing and in good
standing as a Registered Organization in its jurisdiction of formation and is
qualified and licensed to do business and is in good standing in any
jurisdiction in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to have a material adverse effect on Borrower’s
business. In connection with this Agreement, Borrower has delivered
to Bank a completed certificate signed by Borrower, entitled “Perfection
Certificate”. Borrower represents and warrants to Bank that (a)
Borrower’s exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; (b) Borrower is an organization of the type
and is organized in the jurisdiction set forth in the Perfection Certificate;
(c) the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement). If Borrower is not
now a Registered Organization but later becomes one, Borrower shall promptly
notify Bank of such occurrence and provide Bank with Borrower’s organizational
identification number.
-5-
The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized, and do not (i) conflict with any of
Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect or (v) constitute an event of default under any
material agreement by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound in
which the default could reasonably be expected to have a material adverse effect
on Borrower’s business.
5.2 Collateral. Borrower
has good title to, has rights in, and the power to transfer each item of the
Collateral upon which it purports to xxxxx x Xxxx hereunder, free and clear of
any and all Liens except Permitted Liens. Borrower has no deposit
accounts other than the deposit accounts with Bank, the deposit accounts, if
any, described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein. The
Accounts are bona fide, existing obligations of the Account
Debtors.
The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection
Certificate. None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.2.
All
Inventory is in all material respects of good and marketable quality, free from
material defects.
Borrower
is the sole owner of the Intellectual Property which it owns or purports to own
except for (a) non-exclusive licenses granted to its customers in the ordinary
course of business, (b) over-the-counter software that is commercially available
to the public, and (c) material Intellectual Property licensed to Borrower and
noted on the Perfection Certificate. Each Patent which it owns or
purports to own and which is material to Borrower’s business is valid and
enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To the best of
Borrower’s knowledge, no claim has been made that any part of the Intellectual
Property violates the rights of any third party except to the extent such claim
would not reasonably be expected to have a material adverse effect on Borrower’s
business. Except as noted on the Perfection Certificate, Borrower is
not a party to, nor is it bound by, any Restricted License.
5.3 Accounts Receivable;
Inventory.
(a) For
each Account with respect to which Advances are requested, on the date each
Advance is requested and made, such Account shall be an Eligible
Account.
(b) All
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing the Eligible Accounts are and shall be true and
correct and all such invoices, instruments and other documents, and all of
Borrower's Books are genuine and in all respects what they purport to
be. Whether or not an Event of Default has occurred and is
continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s
security interest in such funds and verify the amount of such Eligible
Account. All sales and other transactions underlying or giving rise
to each Eligible Account shall comply in all material respects with all
applicable laws and governmental rules and regulations. Borrower has
no knowledge of any actual or imminent Insolvency Proceeding of any Account
Debtor whose accounts are Eligible Accounts in any Transaction
Report. To the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Eligible Accounts are genuine, and all such documents, instruments and
agreements are legally enforceable in accordance with their terms.
(c) For
any item of Inventory consisting of Eligible Inventory in any
Transaction Report, such Inventory (i) consists of finished goods, in good, new,
and salable condition, which is not perishable, returned, consigned, obsolete,
not sellable, damaged, or defective, and is not comprised of demonstrative or
custom inventory, works in progress, packaging or shipping materials, or
supplies; (ii) meets all applicable governmental standards; (iii) has been
manufactured in compliance with the Fair Labor Standards Act; (iv) is not
subject to any Liens, except the first priority Liens granted or in favor of
Bank under this Agreement or any of the other Loan Documents; and (v)
is located at the locations identified by Borrower in the Perfection Certificate
where it maintains Inventory (or at any location permitted under Section
7.2).
-6-
5.4 Litigation. There
are no actions or proceedings pending or, to the knowledge of the Responsible
Officers, threatened in writing by or against Borrower or any of its
Subsidiaries involving more than Five Hundred Thousand Dollars ($500,000),
individually or in the aggregate.
5.5 Financial Statements; Financial
Condition. All consolidated financial statements for Borrower
and any of its Subsidiaries delivered to Bank fairly present in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated
results of operations. There has not been any material deterioration
in Borrower’s consolidated financial condition since the date of the most recent
financial statements submitted to Bank.
5.6 Solvency. The fair
salable value of Borrower’s assets (including goodwill minus disposition costs)
exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and
Borrower is able to pay its debts (including trade debts) as they
mature.
5.7 Regulatory
Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important
activities in extending credit for margin stock (under Regulations X, T and U of
the Federal Reserve Board of Governors). Borrower has complied in all
material respects with the Federal Fair Labor Standards Act. Neither
Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of
a “holding company” or a “subsidiary company” of a “holding company” as each
term is defined and used in the Public Utility Holding Company Act of
2005. Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to have a material adverse
effect on its business. None of Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each of its Subsidiaries have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all Government Authorities that are necessary to
continue their respective businesses as currently conducted.
5.8 Subsidiaries;
Investments. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted
Investments.
5.9 Tax Returns and Payments; Pension
Contributions. Borrower has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may defer payment of any contested taxes, provided
that Borrower (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (b)
notifies Bank in writing of the commencement of, and any material development
in, the proceedings, (c) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a
Lien upon any of the Collateral that is other than a “Permitted
Lien”. Borrower is unaware of any claims or adjustments proposed for
any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, and has not permitted partial or complete termination of, or
permitted the occurrence of any other event with respect to, any such plan which
could reasonably be expected to result in any liability of Borrower, including
any liability to the Pension Benefit Guaranty Corporation or its successors or
any other governmental agency.
5.10 Use of
Proceeds. Borrower shall use the proceeds of the Credit
Extensions solely as working capital and to fund its general business
requirements and not for personal, family, household or agricultural
purposes.
5.11 Full Disclosure. No
written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank, as of the date such
representation, warranty, or other statement was made, taken together with all
such written certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).
-7-
5.12 Definition of “Knowledge.” For purposes of
the Loan Documents, whenever a representation or warranty is made to Borrower’s
knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar
qualification, knowledge or awareness means the actual knowledge, after
reasonable investigation, of the Responsible Officers.
6
AFFIRMATIVE
COVENANTS
Borrower
shall do all of the following:
6.1 Government
Compliance.
(a) Maintain
its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or
operations. Borrower shall comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower’s
business.
(b) Obtain
all of the Governmental Approvals necessary for the performance by Borrower of
its obligations under the Loan Documents to which it is a party and the grant of
a security interest to Bank in all of its property. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to
Bank.
6.2 Financial Statements, Reports,
Certificates. Provide Bank with the following:
(a) weekly,
a Transaction Report (and any schedules related thereto);
(b) within
twenty (20) days after the end of each month, (A) monthly accounts receivable
agings, aged by invoice date, (B) monthly accounts payable agings, aged by
invoice date, and outstanding or held check registers, if any, (C) monthly
reconciliations of accounts receivable agings (aged by invoice date),
transaction reports and general ledger, and (D) monthly perpetual inventory
reports for Inventory valued on a first-in, first-out basis at the lower of cost
or market (in accordance with GAAP) or such other inventory reports as are
requested by Bank in its good faith business judgment;
(c) as
soon as available, but no later than thirty (30) days after the last day of each
month, a company prepared consolidating balance sheet and income statement
covering Borrower’s and each of its Subsidiary’s operations for such month
certified by a Responsible Officer and in a form acceptable to Bank (the “Monthly Financial
Statements”);
(d) within
thirty (30) days after the last day of each month and together with the Monthly
Financial Statements, a duly completed Compliance Certificate signed by a
Responsible Officer, certifying that as of the end of such month, Borrower was
in full compliance with all of the terms and conditions of this Agreement, and
setting forth calculations showing compliance with the financial covenants set
forth in this Agreement and such other information as Bank shall reasonably
request, including, without limitation, a statement that at the end of such
month there were no held checks;
(e) as
soon as available, but no later than five (5) days after filing with the
Securities Exchange Commission, Borrower’s 10K, 10Q, and 8K
reports. Documents required to be delivered pursuant to the terms
hereof (to the extent any such documents are included in materials otherwise
filed with the SEC) may be delivered electronically and if so delivered, shall
be deemed to have been delivered on the date on which Borrower posts such
documents, or provides a link thereto, on Borrower’s website on the Internet at
Borrower’s website address;
(f) Within
twenty (20) days after the last day of each month and together with the
Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a
Responsible Officer;
(g) within
five (5) days of delivery, copies of all statements, reports and notices made
available to Borrower’s security holders or to any holders of Subordinated
Debt;
-8-
(h) prompt
written notice of (i) any material change in the composition of the Intellectual
Property, (ii) the registration of any copyright, including any subsequent
ownership right of Borrower in or to any copyright, patent or trademark not
previously disclosed in writing to Bank, and (iii) Borrower’s knowledge of
an event that could reasonably be expected to materially and adversely affect
the value of the Intellectual Property;
(i) prompt
report of any legal actions pending or threatened in writing against Borrower or
any of its Subsidiaries that could result in damages or costs to Borrower or any
of its Subsidiaries of, individually or in the aggregate, Five Hundred Thousand
Dollars ($500,000) or more; and
(j) other
financial information reasonably requested by Bank.
6.3 Accounts
Receivable.
(a) Schedules and Documents
Relating to Accounts.
Borrower shall deliver to Bank transaction reports and schedules of
collections, as provided in Section 6.2, on Bank’s standard forms; provided,
however, that Borrower’s failure to execute and deliver the same shall not
affect or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor
shall Bank’s failure to advance or lend against a specific Account affect or
limit Bank’s Lien and other rights therein. If requested by Bank,
Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of
all contracts, orders, invoices, and other similar documents, and all shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts. In addition, Borrower shall deliver to Bank, on its
request, the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any Accounts,
in the same form as received, with all necessary indorsements, and copies of all
credit memos.
(b) Disputes. Borrower
shall promptly notify Bank of all disputes or claims relating to Accounts in
excess of $10,000. Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do
any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the regular reports
provided to Bank; (ii) no Event of Default has occurred and is continuing;
and (iii) after taking into account all such discounts, settlements and
forgiveness, the total outstanding Advances will not exceed the Availability
Amount.
(c) Collection of
Accounts. Borrower shall have the right to collect all
Accounts, unless and until an Event of Default has occurred and is
continuing. Bank may, in its good faith business judgment, require
that all proceeds of Accounts be deposited by Borrower into a lockbox account,
or such other “blocked account” as specified by Bank, pursuant to a blocked
account agreement in such form as Bank may specify in its good faith business
judgment. Whether or not an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Bank, and Borrower shall immediately deliver all such payments and
proceeds to Bank in their original form, duly endorsed, to be applied (i) prior
to an Event of Default, pursuant to the terms of Section 2.5(b) hereof, and (ii)
after the occurrence and during the continuance of an Event of Default, pursuant
to the terms of Section 9.4 hereof.
(d) Returns. Provided no
Event of Default has occurred and is continuing, if any Account Debtor returns
any Inventory to Borrower, Borrower shall promptly (i) determine the reason
for such return, (ii) issue a credit memorandum to the Account Debtor in
the appropriate amount, and (iii) provide a copy of such credit memorandum
to Bank, upon request from Bank. In the event any attempted return
occurs after the occurrence and during the continuance of any Event of Default,
Borrower shall hold the returned Inventory in trust for Bank,
and immediately notify Bank of the return of the
Inventory.
(e) Verification. Bank may, from
time to time, verify directly with the respective Account Debtors the validity,
amount and other matters relating to the Accounts, either in the name of
Borrower or Bank or such other name as Bank may choose.
(f) No Liability. Bank shall not
be responsible or liable for any shortage or discrepancy in, damage to, or loss
or destruction of, any goods, the sale or other disposition of which gives rise
to an Account, or for any error, act, omission, or delay of any kind occurring
in the settlement, failure to settle, collection or failure to collect any
Account, or for settling any Account in good faith for less than the full amount
thereof, nor shall Bank be deemed to be responsible for any of Borrower's
obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve Bank from liability
for its own gross negligence or willful misconduct.
-9-
6.4 Remittance of
Proceeds. Except as otherwise provided in Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral to
Bank in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations (a) prior to an Event of Default, pursuant to the terms of Section
2.5(b) hereof, and (b) after the occurrence and during the continuance of an
Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if
no Event of Default has occurred and is continuing, Borrower shall not be
obligated to remit to Bank the proceeds of the sale of worn out or obsolete
Equipment disposed of by Borrower in good faith in an arm’s length transaction
for an aggregate purchase price of $25,000 or less (for all such transactions in
any fiscal year). Borrower agrees that it will not commingle proceeds
of Collateral with any of Borrower’s other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Bank. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
6.5 Taxes;
Pensions. Timely file, and require each of its Subsidiaries to
timely file, all required tax returns and reports and timely pay, and require
each of its Subsidiaries to timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower and each of its
Subsidiaries, except for deferred payment of any taxes contested pursuant to the
terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.
6.6 Access to Collateral; Books and
Records. Allow Bank, or its agents, at reasonable times, on
one (1) Business Day’s notice (provided no notice is required if an Event of
Default has occurred and is continuing), to inspect the Collateral and audit and
copy Borrower’s Books. Such inspections or audits shall be conducted
no more often than once every twelve (12) months unless an Event of Default has
occurred and is continuing. The foregoing inspections and audits
shall be at Borrower’s expense.
6.7 Insurance. Keep its
business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location and as Bank may reasonably
request. Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank. All property policies shall
have a lender’s loss payable endorsement showing Bank as a lender loss payee and
waive subrogation against Bank. All liability policies shall show, or
have endorsements showing, Bank as an additional insured. All
policies (or the loss payable and additional insured endorsements) shall provide
that the insurer shall endeavor to give Bank at least twenty (20) days notice
before canceling, amending, or declining to renew its policy. At
Bank’s request, Borrower shall deliver certified copies of policies and evidence
of all premium payments. Proceeds payable under any property policy
shall, at Bank’s option, be payable to Bank on account of the
Obligations. Notwithstanding the foregoing, (a) so long as no Event
of Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to $999,999.99 with respect to
any loss, toward the replacement or repair of destroyed or damaged property;
provided that any such replaced or repaired property (i) shall be of equal or
like value as the replaced or repaired Collateral and (ii) shall be deemed
Collateral in which Bank has been granted a first priority security interest,
(b) after the occurrence and during the continuance of an Event of Default, all
proceeds payable under such casualty policy shall, at the option of Bank, be
payable to Bank on account of the Obligations, and (c) if the insurance proceeds
related to a loss or claim are equal to or greater than $1,000,000.00, all
proceeds payable under such casualty policy shall, at the option of Bank, be
payable to Bank on account of the Obligations. If Borrower fails to
obtain insurance as required under this Section 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.7, and take any action under the policies Bank deems
prudent.
6.8 Operating
Accounts.
(a) Maintain
all of its primary operating and other deposit accounts and securities accounts
with Bank and Bank’s Affiliates, except for Borrower’s securities account at
Xxxxxxx Xxxxx Xxxxxx, Xxxxxx & Xxxxx Incorporated and other operating
accounts reasonably necessary to support Borrower’s retail operations.
(b) Provide
Bank five (5) days prior written notice before establishing any Collateral
Account at or with any bank or financial institution other than Bank or Bank’s
Affiliates. For each Collateral Account that Borrower at any time maintains,
Borrower shall cause the applicable bank or financial institution (other than
Bank) at or with which any Collateral Account is maintained to execute and
deliver a Control Agreement or other appropriate instrument with respect to such
Collateral Account to perfect Bank’s Lien in such Collateral Account in
accordance with the terms hereunder which Control Agreement may not be
terminated without the prior written consent of Bank. The provisions
of the previous sentence shall not apply to deposit accounts exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of Borrower’s employees and identified to Bank by Borrower as
such.
-10-
6.9 Financial
Covenants.
The
parties agree to suspend compliance with the Adjusted Quick Ratio and EBITDA
Losses and Profits covenants set forth in Section 6.7(a) and (b) of the Original
Agreement for the months of May and June, 2010. Borrower agrees to
maintain as of the last day of each month, unless otherwise noted, beginning as
of June 30, 2010, on a consolidated basis with respect to Borrower and its
Subsidiaries:
(a) Liquidity Coverage. A
ratio of unrestricted cash and Cash Equivalents maintained with Bank or its
Affiliate plus Eligible Accounts to Obligations owed to Bank of not less than
1.50:1.00. This ratio will be tested monthly and with each Advance
request.
(b) Tangible Net
Worth. A Tangible Net Worth of at least $5,500,000, plus 50%
of all equity or capital contributed to Borrower after June 30, 2010, and 50% of
all positive quarterly Net Income from and after June 30, 2010.
6.10 Protection of Intellectual Property
Rights.
(a) (i) Protect,
defend and maintain the validity and enforceability of its Intellectual
Property; (ii) promptly advise Bank in writing of material infringements of
its Intellectual Property; and (iii) not allow any Intellectual Property
material to Borrower’s business to be abandoned, forfeited or dedicated to the
public without Bank’s written consent.
(b) Provide
written notice to Bank within thirty (30) days of entering or becoming bound by
any Restricted License (other than over-the-counter software that is
commercially available to the public).
6.11 Litigation
Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.
6.12 Milestone
Covenant. On or before August 9, 2010, Borrower shall execute
and deliver to Bank this Second Amended and Restated Loan and Security
Agreement.
6.13 Further
Assurances. Execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the
Collateral or to effect the purposes of this Agreement.
7
NEGATIVE
COVENANTS
Borrower
shall not do any of the following without Bank’s prior written
consent:
7.1 Dispositions. Convey,
sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property,
except for Transfers (a) of Inventory in the ordinary course of business;
(b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens
and Permitted Investments; (d) a single Subsidiary with total assets worth less
than $25,000; and (e) of non-exclusive licenses for the use of the property
of Borrower or its Subsidiaries in the ordinary course of business and licenses
that could not result in a legal transfer of title of the licensed property but
that may be exclusive in respects other than territory and that may be exclusive
as to territory only as to discreet geographical areas outside of the United
States.
7.2 Changes in Business; Changes in
Control; Jurisdiction of Formation. Engage in any material
line of business other than those lines of business conducted by Borrower and
its Subsidiaries on the date hereof and any businesses reasonably related,
complementary or incidental thereto or reasonable extensions thereof; permit or
suffer any Change in Control. Borrower will not, without prior
written notice, change its jurisdiction of formation.
-11-
7.3 Mergers or
Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any Person other than with Borrower
or any Subsidiary, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of a Person other than
Borrower or any Subsidiary, except where no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement,
and (a) (i) Borrower is the surviving entity or (ii) such merger or
consolidation is a Transfer otherwise permitted pursuant to Section 7.1 hereof,
and (b) any Indebtedness incurred by Borrower to pay the balance of the purchase
price or other consideration due in any merger, consolidation or acquisition is
subordinated in right of payment to this Agreement pursuant to either a
Subordination Agreement satisfactory to Bank or by inserting the subordination
language set forth in Exhibit E hereto in
the promissory note or other agreement evidencing such
Indebtedness.
7.4 Indebtedness. Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do
so, other than Permitted Indebtedness.
7.5 Encumbrance. Create,
incur, allow, or suffer any Lien on any of its property, or assign or convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not
to be subject to the first priority security interest granted
herein.
7.6 Maintenance of Collateral
Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.8(b) hereof.
7.7 Distributions;
Investments. (a) Pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock other than Permitted
Distributions; or (b) directly or indirectly acquire or own any Person, or make
any Investment in any Person, other than Permitted Investments, or permit any of
its Subsidiaries to do so.
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 or permit any payment on or amendments of any
Subordinated Debt, except (a) payments pursuant to the terms of the Subordinated
Debt; provided however that Borrower may prepay any Subordinated Debt so long as
no Default or Event of Default has occurred and is continuing and no Default or
Event of Default would occur after giving effect to such prepayment; (b)
payments made with Borrower’s capital stock or other Subordinated Debt; or
(c) amendments to Subordinated Debt so long as such Subordinated Debt
remains subordinated in right of payment to this Agreement and any Liens
securing such Subordinated Debt remain subordinate in priority to Bank’s Lien
hereunder; provided however that Liens on assets acquired by Borrower or any of
its Subsidiaries in mergers or acquisitions permitted under Section 7.3 hereof
to secure the Borrower’s or Subsidiaries’ Subordinated Debt incurred to finance
such merger or acquisition are not required to be subordinate to Bank’s
Lien. Notwithstanding the foregoing, in no event may Borrower make
any payment on any Subordinated Debt if a Default or Event of Default has
occurred and is continuing.
7.10 Compliance. Become
an “investment company” or a company controlled by an “investment company”,
under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve
System), or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or
permit any Subsidiary to withdraw from participation in, permit partial or
complete termination of, or permit the occurrence of any other event with
respect to, any present pension, profit sharing and deferred compensation plan
which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
-12-
8
EVENTS OF
DEFAULT
Any one
of the following shall constitute an event of default (an “Event of Default”) under this
Agreement:
8.1 Payment
Default. Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay
any other Obligations within three (3) Business Days after such Obligations are
due and payable (which three (3) Business Day cure period shall not apply to
payments due on the Revolving Line Maturity Date). During the cure
period, the failure to make or pay any payment specified under clause (a) or (b)
hereunder is not an Event of Default (but no Credit Extension will be made
during the cure period);
8.2 Covenant Default.
(a)
Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.7,
6.8, 6.9, 6.10(b) or violates any covenant in Section 7; or
(b)
Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Cure periods provided under this section
shall not apply, among other things, to financial covenants or any other
covenants set forth in clause(s) (a) above;
8.3 Material Adverse
Change. A Material Adverse Change occurs;
8.4 Attachment; Levy; Restraint on
Business.
(a) (i)
The service of process seeking to attach, by trustee or similar process, any
funds of Borrower or of any entity under the control of Borrower (including a
Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate,
or (ii) a notice of lien or levy is filed against any of Borrower’s assets by
any government agency, and the same under subclauses (i) and (ii) hereof are
not, within ten (10) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no
Credit Extensions shall be made during any ten (10) day cure period;
or
(b) (i)
any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order
enjoins, restrains, or prevents Borrower from conducting any material part of
its business;
8.5 Insolvency. (a)
Borrower is unable to pay its debts (including trade debts) as they become due
or otherwise becomes insolvent; (b) Borrower begins an Insolvency
Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and
not dismissed or stayed within thirty (30) days (but no Credit Extensions shall
be made while of any of the conditions described in clause (a) exist and/or
until any Insolvency Proceeding is dismissed);
8.6 Other
Agreements. If Borrower fails to (a) make any payment that is
due and payable with respect to any Material Indebtedness and such failure
continues after the applicable grace or notice period, if any, specified in the
agreement or instrument relating thereto, or (b) perform or observe any
other condition or covenant, or any other event shall occur or condition exist
under any agreement or instrument relating to any Material Indebtedness, and
such failure continues after the applicable grace or notice period, if any,
specified in the agreement or instrument relating thereto and the effect of such
failure, event or condition is to cause the holder or holders of such Material
Indebtedness to accelerate the maturity of such Material Indebtedness or cause
the mandatory repurchase of any Material Indebtedness;
-13-
8.7 Judgments. One or
more final judgments, orders, or decrees for the payment of money in an amount,
individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars
($250,000) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of
ten (10) days after the entry thereof, (provided that no Credit Extensions will
be made prior to the satisfaction, vacation, or stay of such judgment, order, or
decree); provided however that the Borrower’s pending judgment and
lawsuits in Germany disclosed in Borrower’s Perfection Certificate are excluded
from this Section 8.7 until all appeals therefrom have been exhausted or the
time for any further appeals has expired;
8.8 Misrepresentations. Borrower
or any Person acting for Borrower makes any representation, warranty, or other
statement now or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document, and such representation, warranty, or other statement is incorrect in
any material respect when made; or
8.9 Subordinated
Debt. Any document, instrument, or agreement evidencing any
Subordinated Debt shall for any reason be revoked or invalidated or otherwise
cease to be in full force and effect, any Person shall be in breach thereof or
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder, or the Obligations shall for any
reason be subordinated or shall not have the priority contemplated by this
Agreement or the Subordination Agreement.
9 BANK’S RIGHTS AND
REMEDIES
9.1 Rights and
Remedies. While an Event of Default occurs and continues Bank
may, without notice or demand, do any or all of the following:
(a) declare
all Obligations immediately due and payable (but if an Event of Default
described in Section 8.5 occurs all Obligations are immediately due and payable
without any action by Bank);
(b) stop
advancing money or extending credit for Borrower’s benefit under this Agreement
or under any other agreement between Borrower and Bank;
(c) demand
that Borrower (i) deposit cash with Bank in an amount equal to 110% of the
Dollar Equivalent of the aggregate face amount of all Letters of Credit
remaining undrawn (plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business
judgment)), to secure all of the Obligations relating to such Letters of Credit,
as collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such amounts,
and (ii) pay in advance all letter of credit fees scheduled to be paid or
payable over the remaining term of any Letters of Credit;
(d) settle
or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower
money of Bank’s security interest in such funds, and verify the amount of such
account;
(e) make
any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Bank a license
to enter and occupy any of its premises, without charge, to exercise any of
Bank’s rights or remedies;
(f) apply
to the Obligations any (i) balances and deposits of Borrower it holds, or (ii)
any amount held by Bank owing to or for the credit or the account of
Borrower;
(g) ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section, Borrower’s rights under all licenses
and all franchise agreements inure to Bank’s benefit;
-14-
(h) place
a “hold” on any account maintained with Bank and/or deliver a notice of
exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;
(i) demand
and receive possession of Borrower’s Books; and
(j) exercise
all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of
the Collateral pursuant to the terms thereof).
9.2 Power of
Attorney. Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower’s name
on any checks or other forms of payment or security; (b) sign Borrower’s name on
any invoice or xxxx of lading for any Account or drafts against Account Debtors;
(c) settle and adjust disputes and claims about the Accounts directly with
Account Debtors, for amounts and on terms Bank determines reasonable; (d) make,
settle, and adjust all claims under Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse
claim in or to the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the Collateral
into the name of Bank or a third party as the Code permits. Borrower
hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on
any documents necessary to perfect or continue the perfection of Bank’s security
interest in the Collateral regardless of whether an Event of Default has
occurred until all Obligations have been satisfied in full and Bank is under no
further obligation to make Credit Extensions hereunder. Bank’s
foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights
and powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank’s obligation to provide Credit
Extensions terminates.
9.3 Protective
Payments. If Borrower fails to obtain the insurance called for
by Section 6.7 or fails to pay any premium thereon or fails to pay any other
amount which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest rate applicable to the Obligations, and secured by
the Collateral. Bank will make reasonable efforts to provide Borrower
with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter. No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.
9.4 Application of Payments and Proceeds. If
an Event of Default has occurred and is continuing, Bank may apply any funds in
its possession, whether from Borrower account balances, payments, proceeds
realized as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion. Any surplus shall be paid to
Borrower by credit to the Designated Deposit Account or to other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any
deficiency. If Bank, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at
any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Bank of cash therefor.
9.5 Bank’s Liability for
Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under
the control of Bank, Bank shall not be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all
risk of loss, damage or destruction of the Collateral.
9.6 No Waiver; Remedies
Cumulative. Bank’s failure, at any time or times, to require
strict performance by Borrower of any provision of this Agreement or any other
Loan Document shall not waive, affect, or diminish any right of Bank thereafter
to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by the party granting the
waiver and then is only effective for the specific instance and purpose for
which it is given. Bank’s rights and remedies under this Agreement
and the other Loan Documents are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s
exercise of one right or remedy is not an election and shall not preclude Bank
from exercising any other remedy under this Agreement or other remedy available
at law or in equity, and Bank’s waiver of any Event of Default is not a
continuing waiver. Bank’s delay in exercising any remedy is not a
waiver, election, or acquiescence.
-15-
9.7 Demand
Waiver. Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All
notices, consents, requests, approvals, demands, or other communication by any
party to this Agreement or any other Loan Document must be in writing and shall
be deemed to have been validly served, given, or delivered: (a) upon the earlier
of actual receipt and three (3) Business Days after deposit in the U.S. mail,
first class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below. Bank or Borrower may change its mailing or electronic mail
address or facsimile number by giving the other party written notice thereof in
accordance with the terms of this Section 10.
If
to Borrower:
|
|
0000
X. Xxxxxxxxx Xxxx, Xxxxx 000
|
|
Xxxx
Xxxx Xxxx, XX 00000
|
|
Attn:
Corporate Secretary
|
|
Fax: 000.000.0000
|
|
Email:
|
|
If
to Bank:
|
Silicon
Valley Bank
|
4750
West 0000 Xxxxx, Xxxxx 000
|
|
Xxxx
Xxxx Xxxx, Xxxx 00000
|
|
Attn: Xxxx
Xxxxxxx
|
|
Fax: 000.000.0000
|
|
Email: xxxxxxxx@xxx.xxx
|
11 CHOICE OF LAW, VENUE, JURY
TRIAL WAIVER AND JUDICIAL REFERENCE
Oregon
law governs the Loan Documents without regard to principles of conflicts of
law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Multnomah County, Oregon; provided, however,
that nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives
personal service of the summons, complaints, and other process issued in such
action or suit and agrees that service of such summons, complaints, and other
process may be made by registered or certified mail addressed to Borrower at the
address set forth in, or subsequently provided by Borrower in accordance with,
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN
DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES
TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER
WITH ITS COUNSEL.
-16-
12 GENERAL
PROVISIONS
12.1 Termination Prior to Revolving Line
Maturity Date. This Agreement may be terminated prior to the
Revolving Line Maturity Date by Borrower, effective three (3) Business Days
after written notice of termination is given to Bank. Notwithstanding
any such termination, Bank’s lien and security interest in the Collateral shall
continue until Borrower fully satisfies its Obligations.
12.2 Successors and
Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or obligations under it without Bank’s prior
written consent (which may be granted or withheld in Bank’s
discretion). Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, assign, negotiate, or grant participation in all or
any part of, or any interest in, Bank’s obligations, rights, and benefits under
this Agreement and the other Loan Documents.
12.3 Indemnification. Borrower
agrees to indemnify, defend and hold Bank and its directors, officers,
employees, agents, attorneys, or any other Person affiliated with or
representing Bank (each, an “Indemnified Person”) harmless
against: (a) all obligations, demands, claims, and liabilities
(collectively, “Claims”)
claimed or asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or expenses (including
Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person
as a result of, following from, consequential to, or arising from transactions
between Bank and Borrower (including reasonable attorneys’ fees and expenses),
except for Claims and/or losses directly caused by such Indemnified Person’s
gross negligence or willful misconduct.
12.4 Time of
Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
12.5 Severability of
Provisions. Each provision of this Agreement is severable from
every other provision in determining the enforceability of any
provision.
12.6 Correction of Loan
Documents. Bank may correct patent errors and fill in any
blanks in the Loan Documents consistent with the agreement of the
parties.
12.7 Amendments in Writing; Waiver;
Integration. No purported amendment or modification of any
Loan Document, or waiver, discharge or termination of any obligation under any
Loan Document, shall be enforceable or admissible unless, and only to the
extent, expressly set forth in a writing signed by the party against which
enforcement or admission is sought. Without limiting the generality
of the foregoing, no oral promise or statement, nor any action, inaction, delay,
failure to require performance or course of conduct shall operate as, or
evidence, an amendment, supplement or waiver or have any other effect on any
Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan
Documents represent the entire agreement about this subject matter and supersede
prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of the Loan Documents merge into the Loan
Documents.
12.8 Counterparts. This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, is an
original, and all taken together, constitute one Agreement.
12.9 Survival. All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this Agreement) have
been satisfied. The obligation of Borrower in Section 12.3 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.
12.10 Confidentiality. In
handling any confidential information, Bank shall exercise the same degree of
care that it exercises for its own proprietary information, but disclosure of
information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to
prospective transferees or purchasers of any interest in the Credit Extensions
(provided, however, Bank shall use its commercially reasonable to obtain any
prospective transferee’s or purchaser’s agreement to the terms of this
provision); (c) as required by law, regulation, subpoena, or other order;
(d) to Bank’s regulators or as otherwise required in connection with Bank’s
examination or audit; (e) as Bank considers appropriate in exercising
remedies under the Loan Documents; and (f) to third-party service providers of
Bank so long as such service providers have executed a confidentiality agreement
with Bank with terms no less restrictive than those contained
herein. Confidential information does not include information that is
either: (i) in the public domain or in Bank’s possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or
(ii) disclosed to Bank by a third party, if Bank does not know that the
third party is prohibited from disclosing the information.
-17-
Bank may
use confidential information for the development of databases, reporting
purposes, and market analysis so long as such confidential information is
aggregated and anonymized prior to distribution unless otherwise expressly
permitted by Borrower. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.
12.11 Attorneys’ Fees, Costs and
Expenses. In any action or proceeding between Borrower and
Bank arising out of or relating to the Loan Documents, the prevailing party
shall be entitled to recover its reasonable attorneys’ fees and other costs and
expenses incurred, in addition to any other relief to which it may be entitled,
including without limitation its reasonable attorneys’ fees and other costs and
expenses incurred at trial, on appeal and in any arbitration or bankruptcy
proceeding.
12.12 Electronic Execution of
Documents. The words “execution,” “signed,” “signature” and
words of like import in any Loan Document shall be deemed to include electronic
signatures or the keeping of records in electronic form, each of which shall be
of the same legal effect, validity and enforceability as a manually executed
signature or the use of a paper-based recordkeeping systems, as the case may be,
to the extent and as provided for in any applicable law, including, without
limitation, any state law based on the Uniform Electronic Transactions
Act.
12.13 Captions. The
headings used in this Agreement are for convenience only and shall not affect
the interpretation of this Agreement.
12.14 Construction of
Agreement. The parties mutually acknowledge that they and
their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed
without regard to which of the parties caused the uncertainty to
exist.
12.15 Relationship. The
relationship of the parties to this Agreement is determined solely by the
provisions of this Agreement. The parties do not intend to create any
agency, partnership, joint venture, trust, fiduciary or other relationship with
duties or incidents different from those of parties to an arm’s-length
contract.
12.16 Third
Parties. Nothing in this Agreement, whether express or
implied, is intended to: (a) confer any benefits, rights or remedies under
or by reason of this Agreement on any persons other than the express parties to
it and their respective permitted successors and assigns; (b) relieve or
discharge the obligation or liability of any person not an express party to this
Agreement; or (c) give any person not an express party to this Agreement any
right of subrogation or action against any party to this Agreement.
13 DEFINITIONS
13.1 Definitions. As
used in the Loan Documents, the word “shall” is mandatory, the word “may” is
permissive, the word “or” is not exclusive, the words “includes” and “including”
are not limiting, the singular includes the plural, and numbers denoting amounts
that are set off in brackets are negative. As used in this Agreement,
the following capitalized terms have the following meanings:
“Account” is any “account” as
defined in the Code with such additions to such term as may hereafter be made,
and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
“Account Debtor” is any
“account debtor” as defined in the Code with such additions to such term as may
hereafter be made.
“Adjusted Quick
Ratio” is a ratio of Quick Assets to Current Liabilities minus
Deferred Revenue plus the long-term portion of all Credit Extensions and the
Commerzbank Loan.
“Advance” or “Advances” means an advance (or
advances) under the Revolving Line.
-18-
“Affiliate” is, with respect to
any Person, each other Person that owns or controls directly or indirectly the
Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person’s senior executive officers, directors,
partners and, for any Person that is a limited liability company, that Person’s
managers and members.
“Agreement” is defined in the
preamble hereof.
“Availability Amount” is (a)
the lesser of (i) the Revolving Line or (ii) the amount available under the
Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an
amount equal to the Letter of Credit Reserve, minus (c) any amounts used for
Cash Management Services, and minus (d) the outstanding principal balance of any
Advances.
“Bank” is defined in the
preamble hereof.
“Bank Expenses” are all audit
fees and expenses, costs, and expenses (including reasonable attorneys’ fees and
expenses) for preparing, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in
connection with appeals or Insolvency Proceedings) or otherwise incurred with
respect to Borrower.
“Borrower” is defined in the
preamble hereof
“Borrower’s Books” are all
Borrower’s books and records including ledgers, federal and state tax returns,
records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any
equipment containing such information.
“Borrowing Base” is (a) 70% of
Eligible Accounts plus (b) the lesser of (i) 30% of the value of Borrower’s
Eligible Inventory (valued at the lower of cost or wholesale fair market value)
or (ii) (A) $750,000 through September 30, 2010, (B) $500,000 from October 1,
2010 through December 31, 2010, (C) $250,000 from January 1, 2011 through March
31, 2011, or (D) $0.00 from and after April 1, 2011 (the portion of the
Borrowing Base determined under this subpart (b) may be referred to as the
“Inventory Borrowing
Base”), as determined by Bank from Borrower’s most recent Transaction
Report; provided, however, that Bank may decrease the foregoing amount or
percentages in its good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely affect
Collateral. In no event shall the Inventory Borrowing Base exceed an
amount equal to 30% of Eligible Accounts.
“Borrowing Resolutions” are,
with respect to any Person, those resolutions adopted by such Person’s Board of
Directors and delivered by such Person to Bank approving the Loan Documents to
which such Person is a party and the transactions contemplated thereby, together
with a certificate executed by its Secretary on behalf of such Person certifying
that (a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party,
(b) that attached as Exhibit A to such certificate is a true, correct, and
complete copy of the resolutions then in full force and effect authorizing and
ratifying the execution, delivery, and performance by such Person of the Loan
Documents to which it is a party, (c) the name(s) of the Person(s) authorized to
execute the Loan Documents on behalf of such Person, together with a sample of
the true signature(s) of such Person(s), and (d) that Bank may conclusively
rely on such certificate unless and until such Person shall have delivered to
Bank a further certificate canceling or amending such prior
certificate.
“Business Day” is any day that
is not a Saturday, Sunday or a day on which Bank is closed.
“Cash Equivalents” means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not
more than one (1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating from either Standard & Poor’s Ratings Group or Xxxxx’x Investors
Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue; and (d) money market funds at least ninety-five
percent (95%) of the assets of which constitute Cash Equivalents of the kinds
described in clauses (a) through (c) of this definition.
“Cash Management Services” is
defined in Section 2.1.4.
-19-
“Change in Control” means any
event, transaction, or occurrence as a result of which (a) any “person” (as such
term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of Borrower, is or becomes a beneficial owner (within the meaning Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of securities
of Borrower, representing twenty-five percent (25%) or more of the combined
voting power of Borrower’s then outstanding securities; or (b) during any period
of twelve consecutive calendar months, individuals who at the beginning of such
period constituted the Board of Directors of Borrower (together with any new
directors whose election by the Board of Directors of Borrower was approved by a
vote of not less than two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason other than death or disability to constitute a majority of the directors
then in office.
“Code” is the Uniform
Commercial Code, as the same may, from time to time, be enacted and in effect in
the State of Oregon; provided, that, to the extent that the Code is used to
define any term herein or in any Loan Document and such term is defined
differently in different Articles or Divisions of the Code, the definition of
such term contained in Article or Division 9 shall govern; provided further,
that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection, or priority of, or remedies with respect to, Bank’s
Lien on any Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the State of Oregon, the term “Code” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes of the provisions thereof relating to such attachment, perfection,
priority, or remedies and for purposes of definitions relating to such
provisions.
“Collateral” is any and all
properties, rights and assets of Borrower described on Exhibit
A.
“Collateral Account” is any
Deposit Account, Securities Account, or Commodity Account.
“Commerzbank Loan” means the
loan made by Commerzbank AG to Sonic Innovations GmbH and which Sonic
Innovations, Inc. (now known as OTIX Global, Inc). has guaranteed or will
guaranty, which guaranty shall not exceed €3,000,000.00.
“Commodity Account” is any
“commodity account” as defined in the Code with such additions to such term as
may hereafter be made.
“Compliance Certificate” is
that certain certificate in the form attached hereto as Exhibit
D.
“Contingent Obligation” is, for
any Person, any direct or indirect liability, contingent or not, of that Person
for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation, in each case, directly or indirectly
guaranteed, endorsed, co-made, discounted or sold with recourse by that Person,
or for which that Person is directly or indirectly liable; (b) any obligations
for undrawn letters of credit for the account of that Person; and (c) all
obligations from any interest rate, currency or commodity swap agreement,
interest rate cap or collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; but “Contingent Obligation” does not include
endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.
“Control Agreement” is any
control agreement entered into among the depository institution at which
Borrower maintains a Deposit Account or the securities intermediary or commodity
intermediary at which Borrower maintains a Securities Account or a Commodity
Account, Borrower, and Bank pursuant to which Bank obtains control (within the
meaning of the Code) over such Deposit Account, Securities Account, or Commodity
Account.
“Copyrights” are 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.
“Credit Extension” is any
Advance, Letter of Credit, amount utilized for Cash Management Services, or any
other extension of credit by Bank for Borrower’s benefit.
“Current Liabilities” are all
obligations and liabilities of Borrower to Bank, plus, without duplication, the
aggregate amount of Borrower’s Total Liabilities that mature within one (1)
year.
-20-
“Default Rate” is defined in
Section 2.3(b).
“Deferred Revenue” is all
amounts received or invoiced in advance of performance under contracts and not
yet recognized as revenue.
“Deposit Account” is any
“deposit account” as defined in the Code with such additions to such term as may
hereafter be made.
“Designated Deposit Account” is
Borrower’s deposit account, account number 3300240635, maintained with
Bank.
“Dollars,” “dollars” or use of the sign
“$” means only lawful
money of the United States and not any other currency, regardless of whether
that currency uses the “$” sign to denote its currency or may be readily
converted into lawful money of the United States.
“Dollar Equivalent” is, at any
time, (a) with respect to any amount denominated in Dollars, such amount, and
(b) with respect to any amount denominated in a Foreign Currency, the equivalent
amount therefor in Dollars as determined by Bank at such time on the basis of
the then-prevailing rate of exchange in San Francisco, California, for sales of
the Foreign Currency for transfer to the country issuing such Foreign
Currency.
“Effective Date” is defined in
the preamble hereof.
“Eligible Accounts” means
Accounts which arise in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5.3. Bank
reserves the right at any time after the Effective Date to adjust any of the
criteria set forth below and to establish new criteria in its good faith
business judgment. Unless Bank otherwise agrees in writing, Eligible
Accounts shall not include:
(a) Accounts
for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(b) Accounts
that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;
(c) Accounts
with credit balances over ninety (90) days from invoice date;
(d) Accounts
owing from an Account Debtor, in which fifty percent (50%) or more of the
Accounts have not been paid within ninety (90) days of invoice
date;
(e) Accounts
owing from an Account Debtor which does not have its principal place of business
in the United States, unless such Accounts are otherwise Eligible Accounts and
(i) covered in full by credit insurance satisfactory to Bank, less any
deductible, (ii) supported by letter(s) of credit acceptable to Bank,
(iii) supported by a guaranty from the Export-Import Bank of the United
States, or (iv) that Bank otherwise approves of in writing;
(f)
Accounts billed and/or payable outside of the United
States (sometimes called foreign invoiced accounts);
(g) Accounts
owing from an Account Debtor to the extent that Borrower is indebted or
obligated in any manner to the Account Debtor (as creditor, lessor, supplier or
otherwise - sometimes called “contra” accounts, accounts payable, customer
deposits or credit accounts).
(h) Accounts
owing from an Account Debtor, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, for the amounts that exceed that
percentage, unless Bank approves in writing;
(i)
Accounts owing from an Account Debtor which is a United States
government entity or any department, agency, or instrumentality thereof unless
Borrower has assigned its payment rights to Bank and the assignment has been
acknowledged under the Federal Assignment of Claims Act of 1940, as
amended;
(j)
Accounts for demonstration or promotional equipment, or in
which goods are consigned, or sold on a “sale guaranteed”, “sale or return”,
“sale on approval”, or other terms if Account Debtor’s payment may be
conditional;
-21-
(k) Accounts
owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called memo
xxxxxxxx or pre-xxxxxxxx);
(l)
Accounts subject to contractual arrangements between
Borrower and an Account Debtor where payments shall be scheduled or due
according to completion or fulfillment requirements where the Account Debtor has
a right of offset for damages suffered as a result of Borrower’s failure to
perform in accordance with the contract (sometimes called contracts accounts
receivable, progress xxxxxxxx, milestone xxxxxxxx, or fulfillment
contracts);
(m) Accounts
owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance
(but only to the extent of the amount withheld; sometimes called retainage
xxxxxxxx);
(n) Accounts
subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;
(o) Accounts
owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have
entered into an agreement acceptable to Bank in its sole discretion wherein the
Account Debtor acknowledges that (i) it has title to and has ownership of the
goods wherever located, (ii) a bona fide sale of the goods has occurred, and
(iii) it owes payment for such goods in accordance with invoices from Borrower
(sometimes called “xxxx and hold” accounts);
(p) Accounts
for which the Account Debtor has not been invoiced;
(q) Accounts
that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;
(r)
Accounts for which Borrower has permitted
Account Debtor’s payment to extend beyond 90 days;
(s) Accounts
arising from chargebacks, debit memos or others payment deductions taken by an
Account Debtor (but only to the extent the chargeback is determined invalid and
subsequently collected by Borrower);
(t)
Accounts arising from product returns and/or exchanges
(sometimes called “warranty” or “RMA” accounts);
(u) Accounts
owing from an Account Debtor with respect to which Borrower has received
Deferred Revenue (but only to the extent of such Deferred Revenue);
(v) Accounts
in which the Account Debtor disputes liability or makes any claim (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
and
(w) Accounts
for which Bank in its good faith business judgment determines collection to be
doubtful, including, without limitation, accounts represented by “refreshed” or
“recycled” invoices.
“Eligible Inventory” means
Inventory that meets all of Borrower’s representations and warranties in Section
5.3 and is otherwise acceptable to Bank in all respects.
“Equipment” is all “equipment”
as defined in the Code with such additions to such term as may hereafter be
made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing.
“ERISA” is the Employee
Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined
in Section 8.
“Exchange Act” is the
Securities Exchange Act of 1934, as amended.
“Foreign Currency” means
lawful money of a country other than the United States.
-22-
“Funding Date” is any date on
which a Credit Extension is made to or for the account of Borrower which shall
be a Business Day.
“GAAP” is generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other Person as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
“General Intangibles” is all
“general intangibles” as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation, all Intellectual Property, claims, income and other tax refunds,
security and other deposits, payment intangibles, contract rights, options to
purchase or sell real or personal property, rights in all litigation presently
or hereafter pending (whether in contract, tort or otherwise), insurance
policies (including without limitation key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any
kind.
“Governmental Approval” is any
consent, authorization, approval, order, license, franchise, permit,
certificate, accreditation, registration, filing or notice, of, issued by, from
or to, or other act by or in respect of, any Governmental
Authority.
“Governmental Authority” is any
nation or government, any state or other political subdivision thereof, any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization.
“Indebtedness” is (a)
indebtedness for borrowed money or the deferred price of property or services,
such as reimbursement and other obligations for surety bonds and letters of
credit, (b) obligations evidenced by notes, bonds, debentures or similar
instruments, (c) capital lease obligations, and (d) Contingent
Obligations.
“Indemnified Person” is defined
in Section 12.3.
“Insolvency Proceeding” is any
proceeding by or against any Person under the United States Bankruptcy Code, or
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, compositions, extensions generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
“Intellectual Property” means
all of Borrower’s right, title, and interest in and to the
following:
(a) its
Copyrights, Trademarks and Patents;
(b) any
and all trade secrets and trade secret rights, including, without limitation,
any rights to unpatented inventions, know-how, operating manuals;
(c) any
and all source code;
(d) any
and all design rights which may be available to a Borrower;
(e) any
and all claims for damages by way of past, present and future infringement of
any of the foregoing, 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; and
(f)
all amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents.
“Inventory” is all “inventory”
as defined in the Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process
and finished products, including without limitation such inventory as is
temporarily out of Borrower’s custody or possession or in transit and including
any returned goods and any documents of title representing any of the
above.
-23-
“Investment” is any beneficial
ownership interest in any Person (including stock, partnership interest or other
securities), and any loan, advance or capital contribution to any
Person.
“Letter of Credit” means a
standby letter of credit issued by Bank or another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Bank as
set forth in Section 2.1.2.
“Letter of Credit Application”
is defined in Section 2.1.2(b).
“Letter of Credit Reserve” has
the meaning set forth in Section 2.1.2(e).
“Lien” is a claim, mortgage,
deed of trust, levy, charge, pledge, security interest or other encumbrance of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise against any property.
“Loan Documents” are,
collectively, this Agreement, the Perfection Certificate, any note, or notes or
guaranties executed by Borrower or any Guarantor, and any other present or
future agreement between Borrower any Guarantor and/or for the benefit of Bank
in connection with this Agreement, all as amended, restated, or otherwise
modified.
“Material Adverse Change” is
(a) a material impairment in the perfection or priority of Bank’s Lien in the
Collateral or in the value of such Collateral; (b) a material adverse change in
the business, operations, or condition (financial or otherwise) of Borrower; (c)
a material impairment of the prospect of repayment of any portion of the
Obligations or (d)
Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
“Material Indebtedness” is any
Indebtedness in an amount individually or in the aggregate in excess of
$50,000.
“Net Income” means, as
calculated on a consolidated basis for Borrower and its Subsidiaries for any
period as at any date of determination, the net profit (or loss), after
provision for taxes, of Borrower and its Subsidiaries for such period taken as a
single accounting period.
“Obligations” are Borrower’s
obligations to pay when due any debts, principal, interest, Bank Expenses and
other amounts Borrower owes Bank now or later, whether under this Agreement, the
Loan Documents, or otherwise, including, without limitation, all obligations
relating to letters of credit (including reimbursement obligations for drawn and
undrawn letters of credit), cash management services, and foreign exchange
contracts, if any, and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank, and
to perform Borrower’s duties under the Loan Documents.
“Operating Documents” are, for
any Person, such Person’s formation documents, as certified with the Secretary
of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a corporation,
its bylaws in current form, (b) if such Person is a limited liability company,
its limited liability company agreement (or similar agreement), and (c) if such
Person is a partnership, its partnership agreement (or similar agreement), each
of the foregoing with all current amendments or modifications
thereto.
“Overadvance” is defined in
Section 2.2.
“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.
“Payment” means all checks,
wire transfers and other items of payment received by Bank (including proceeds
of Accounts and payment of the Obligations in full) for credit to Borrower’s
outstanding Credit Extensions or, if the balance of the Credit Extensions has
been reduced to zero, for credit to its deposit accounts.
“Perfection Certificate” is
defined in Section 5.1.
-24-
“Permitted Distributions”
means:
(a) purchases
of capital stock from former employees, consultants and directors pursuant to
repurchase agreements or other similar agreements in an aggregate amount not to
exceed $100,000.00 in any fiscal year provided that at the time of such purchase
no Default or Event of Default has occurred and is continuing;
(b) distributions
or dividends consisting solely of Borrower’s capital stock;
(c) purchases
for value of any rights distributed in connection with any stockholder rights
plan;
(d) purchases
of capital stock or options to acquire such capital stock with the proceeds
received from a substantially concurrent issuance of capital stock or
convertible securities;
(e) purchases
of capital stock pledged as collateral for loans to employees;
(f)
purchases of capital stock in connection with the exercise of
stock options or stock appreciation rights by way of cashless exercise or in
connection with the satisfaction of withholding tax obligations;
(g) purchases
of fractional shares of capital stock arising out of stock dividends, splits or
combinations or business combinations; and
(h) the
settlement or performance of such Person’s obligations under any equity
derivative transaction, option contract or similar transaction or combination of
transactions.
“Permitted Indebtedness”
is:
(a) Borrower’s
Indebtedness to Bank under this Agreement and the other Loan
Documents;
(b) Indebtedness
existing on the Effective Date and shown on the Perfection
Certificate;
(c) Subordinated
Debt;
(d) unsecured
Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness
incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(f)
Indebtedness secured by Liens permitted under clauses
(a) and (c) of the definition of “Permitted Liens” hereunder;
(g) Indebtedness
incurred by Borrower’s Australian subsidiary in favor of National Australia
Bank, which is not guaranteed by Borrower and is not secured by a Lien on any of
Borrower’s assets, but which may be guaranteed by Borrower’s Australian
subsidiary or secured by a Lien on the assets of Borrower’s Australian
subsidiary, in the sum of not more than $2,000,000 Australian;
(h) extensions,
refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (g) above, provided that the principal amount
thereof is not increased or the terms thereof are not modified to impose more
burdensome terms upon Borrower or its Subsidiary, as the case may
be.
“Permitted Investments”
are:
(a) Investments
(including, without limitation, Subsidiaries) existing on the Effective Date and
shown on the Perfection Certificate;
(b) (i) marketable
direct obligations issued or unconditionally guaranteed by the United States or
its agencies or any State maturing within 18 months from its acquisition, (ii)
commercial paper maturing no more than 2 years after its creation and having the
highest rating from either Standard & Poor’s Corporation or Xxxxx’x
Investors Service, Inc., and (iii) Bank’s certificates of deposit maturing no
more than 2 years after issue;
(c) Investments
consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
Borrower;
-25-
(d) Investments
consisting of deposit accounts in which Bank has a perfected security
interest;
(e) Investments
accepted in connection with Transfers permitted by Section 7.1;
(f)
Investments (i) by Borrower in Subsidiaries and
(ii) by Subsidiaries in other Subsidiaries or in Borrower;
(g) Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors;
(h) Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of business; AND
(i)
Investments consisting of notes receivable of, or prepaid royalties
and other credit extensions, to customers and suppliers who are not Affiliates,
in the ordinary course of business; provided that this paragraph (i) shall not
apply to Investments of Borrower in any Subsidiary.
“Permitted Liens”
are:
(a) Liens
existing on the Effective Date and shown on the Perfection Certificate or
arising under this Agreement and the other Loan Documents;
(b) Liens
for taxes, fees, assessments or other government charges or levies, either (i)
not due and payable or (ii) being contested in good faith and for which Borrower
maintains adequate reserves on its Books, provided that no
notice of any such Lien has been filed or recorded under the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations adopted
thereunder;
(c) capitalized
leases and purchase money Liens (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment securing no more than
$250,000 in the aggregate in any fiscal year, or (ii) existing on Equipment when
acquired, if
the Lien is confined to the property and improvements and the proceeds of the
Equipment;
(d) Liens
of carriers, warehousemen, suppliers, or other Persons that are possessory in
nature arising in the ordinary course of business so long as such Liens attach
only to Inventory, securing liabilities in the aggregate amount not to exceed
Fifty Thousand Dollars ($50,000) and which are not delinquent or remain payable
without penalty or which are being contested in good faith and by appropriate
proceedings which proceedings have the effect of preventing the forfeiture or
sale of the property subject thereto;
(e) Liens
to secure payment of workers’ compensation, employment insurance, old-age
pensions, social security and other like obligations incurred in the ordinary
course of business (other than Liens imposed by ERISA);
(f)
Liens incurred in the extension, renewal or
refinancing of the indebtedness secured by Liens described in (a) through (c),
but any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness may
not increase;
(g) leases
or subleases of real property granted in the ordinary course of Borrower’s
business (or, if referring to another Person, in the ordinary course of such
Person’s business), and leases, subleases, non-exclusive licenses or sublicenses
of personal property (other than Intellectual Property) granted in the ordinary
course of Borrower’s business (or, if referring to another Person, in the
ordinary course of such Person’s business), if the leases,
subleases, licenses and sublicenses do not prohibit granting Bank a security
interest therein;
(h) non-exclusive
license of Intellectual Property granted to third parties in the ordinary course
of business;
-26-
(i)
Liens arising from attachments or judgments, orders, or
decrees in circumstances not constituting an Event of Default under Sections 8.4
and 8.7;
(j)
Liens on assets acquired in mergers and acquisitions not
prohibited by Section 7 of this Agreement; and
(k) Liens
in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Bank
has a perfected security interest in the amounts held in such deposit and/or
securities accounts.
“Person” is any individual,
sole proprietorship, partnership, limited liability company, joint venture,
company, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.
“Prime Rate” is Bank’s most
recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Quick Assets” is, on any date,
Borrower’s consolidated, unrestricted cash and Cash Equivalents, net billed
accounts receivable and investments with maturities of fewer than 18 months
determined according to GAAP.
“Registered Organization” is
any “registered organization” as defined in the Code with such additions to such
term as may hereafter be made
“Requirement of Law” is as to
any Person, the organizational or governing documents of such Person, and any
law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
“Reserves” means, as of any
date of determination, such amounts as Bank may from time to time establish and
revise in its good faith business judgment, reducing the amount of Advances and
other financial accommodations which would otherwise be available to Borrower
(a) to reflect events, conditions, contingencies or risks which, as determined
by Bank in its good faith business judgment, do or may adversely affect (i) the
Collateral or any other property which is security for the Obligations or its
value (including without limitation any increase in delinquencies of Accounts),
(ii) the assets, business or prospects of Borrower or any Guarantor, or (iii)
the security interests and other rights of Bank in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Bank's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Guarantor to Bank is or may have been incomplete,
inaccurate or misleading in any material respect; or (c) in respect of any state
of facts which Bank determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event of
Default.
“Responsible Officer” is any of
the Chief Executive Officer, President, Chief Financial Officer and Controller
of Borrower.
“Restricted License” is any
material license or other agreement with respect to which Borrower is the
licensee (a) that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in such license or agreement or any
other property, or (b) for which a default under or termination of could
interfere with the Bank’s right to sell any Collateral.
“Revolving Line” is an Advance
or Advances in an amount equal to Four Million Dollars
($4,000,000).
“Revolving Line Maturity Date”
is April 11, 2011.
“SEC” shall mean the Securities
and Exchange Commission, any successor thereto, and any analogous Governmental
Authority.
“Securities Account” is any
“securities account” as defined in the Code with such additions to such term as
may hereafter be made.
“Settlement Date” is defined in Section
2.1.3.
-27-
“Subordinated Debt” is
indebtedness incurred by Borrower subordinated to all of Borrower’s now or
hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or
other similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to Bank.
“Subsidiary” is, as to any
Person, a corporation, partnership, limited liability company or other entity of
which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such
Person. Unless the context otherwise requires, each reference to a
Subsidiary herein shall be a reference to a Subsidiary of Borrower.
“Tangible Net Worth” is, on any
date, the consolidated total assets of Borrower and its Subsidiaries minus (a) any amounts
attributable to (i) goodwill, (ii) intangible items including unamortized debt
discount and expense, Patents, Trademarks, Copyrights, and research and
development expenses except prepaid expenses, (iii) notes, accounts receivable
and other obligations owing to Borrower from its officers or other Affiliates,
and (iv) reserves not already deducted from assets, minus (b) Total
Liabilities , plus (c) Subordinated
Debt.
“Total Liabilities” is on any
day, obligations that should, under GAAP, be classified as liabilities on
Borrower’s consolidated balance sheet, including all Indebtedness and current
portion of Subordinated Debt permitted by Bank to be paid by Borrower, but
excluding all other Subordinated Debt.
“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.
“Transaction Report” is that
certain report of transactions and schedule of collections in the form attached
hereto as Exhibit
B.
“Transfer” is defined in
Section 7.1.
“Unused Revolving Line Facility
Fee” is defined in Section 2.4(c).
UNDER
OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK CONCERNING
LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR
HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
[Signature page follows.]
-28-
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed as of the Effective
Date.
BORROWER:
|
|
By
|
|
Name:
|
|
Title:
|
|
HEARINGLIFE
USA, INC.
|
|
By
|
/s/
HearingLife USA, Inc.
|
Name:
|
|
Title:
|
|
BANK:
|
|
SILICON
VALLEY BANK
|
|
By
|
/s/
Silicon Valley Bank
|
Name:
|
|
Title:
|
EXHIBIT A – COLLATERAL
DESCRIPTION
The
Collateral consists of all of Borrower’s right, title and interest in and to the
following personal property:
All
goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, fixtures,
letters of credit rights (whether or not the letter of credit is evidenced by a
writing), securities, and all other investment property, supporting obligations,
and financial assets, whether now owned or hereafter acquired, wherever located;
and all
Borrower’s Books relating to the foregoing, and any and all claims, rights and
interests in any of the above and all substitutions for, additions, attachments,
accessories, accessions and improvements to and replacements, products, proceeds
and insurance proceeds of any or all of the foregoing.
Notwithstanding
the foregoing, the Collateral does not include any Intellectual Property;
provided, however, the Collateral shall include all Accounts and all proceeds of
Intellectual Property. If a judicial authority (including a U.S.
Bankruptcy Court) would hold that a security interest in the underlying
Intellectual Property is necessary to have a security interest in such Accounts
and such property that are proceeds of Intellectual Property, then the
Collateral shall automatically, and effective as of the Effective Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank’s
security interest in such Accounts and such other property of Borrower that are
proceeds of the Intellectual Property.
Notwithstanding the foregoing, the
Collateral does not include more than 65% of the presently existing and
hereafter arising issued and outstanding shares of capital stock owned by
Borrower of any Foreign Subsidiary which shares entitle the holder thereof to
vote for directors or any other matter.
Pursuant
to the terms of a certain negative pledge arrangement with Bank, Borrower has
agreed not to encumber any of its Intellectual Property without Bank’s prior
written consent.
1
EXHIBIT
B
Transaction
Report
[EXCEL
spreadsheet to be provided separately from lending officer.]
1
EXHIBIT C - BORROWING BASE
CERTIFICATE
Borrower:
OTIX Global, Inc. and HEARINGLife USA, Inc.
Lender: Silicon
Valley Bank
Commitment
Amount: $4,000,000
ACCOUNTS RECEIVABLE | ||
1.
|
Accounts
Receivable (invoiced) Book Value as of
____________________
|
$_______________
|
2.
|
Additions
(please explain on reverse)
|
$_______________
|
3.
|
TOTAL
ACCOUNTS RECEIVABLE
|
$_______________
|
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) | ||
4.
|
90
Days Past Invoice Date
|
$_______________
|
5.
|
Balance
of 50% over 90 Day Accounts
|
$_______________
|
6.
|
Foreign
Account Debtor Accounts
|
$_______________
|
7.
|
Foreign
Invoiced Accounts
|
$_______________
|
8.
|
Contra/Customer
Deposit Accounts
|
$_______________
|
9.
|
Intercompany/Employee
Accounts
|
$_______________
|
10.
|
Credit
Balances over 90 Days
|
$_______________
|
11.
|
Concentration
Limits
|
$_______________
|
12.
|
U.S.
Governmental Accounts
|
$_______________
|
13.
|
Promotion
or Demo Accounts; Guaranteed Sale or Consignment Sale
Accounts
|
$_______________
|
14.
|
Accounts
with Progress/Milestone/Pre-xxxxxxxx; Contract Accounts
|
$_______________
|
15.
|
Accounts
for Retainage Xxxxxxxx
|
$_______________
|
16.
|
Trust
Accounts
|
$_______________
|
17.
|
Xxxx
and Hold Accounts
|
$_______________
|
18.
|
Unbilled
Accounts
|
$_______________
|
19.
|
Non-Trade
Accounts
|
$_______________
|
20.
|
Accounts
with Extended Term Invoices
|
$_______________
|
21.
|
Accounts
Subject to Chargebacks
|
$_______________
|
22.
|
Disputed
Accounts
|
$_______________
|
23.
|
Other
(please explain on reverse)
|
$_______________
|
24.
|
TOTAL
ACCOUNTS RECEIVABLE DEDUCTIONS
|
$_______________
|
25.
|
Eligible
Accounts (#3 minus #24)
|
$_______________
|
26.
|
ELIGIBLE
AMOUNT OF ACCOUNTS ( 70% of #25)
|
$_______________
|
INVENTORY | ||
27.
|
Eligible
Inventory Value as of _______________
|
$_______________
|
28.
|
ELIBIGLE
AMOUNT OF INVENTORY (Lesser of (a) 30% of #27; (b)
(i)
$750,000 through September 30, 2010, (ii) $500,000 from October 1, 2010
through December 31, 2010, (iii) $250,000 from January 1, 2011 through
March 31, 2011, or (iv) $0.00 from and after April 1, 2011; or (c) 30% of
#26)
|
$_______________
|
BALANCES | ||
29.
|
Maximum
Loan Amount
|
$_______________
|
3.
|
Total
Funds Available [Lesser of #29 or (#26 plus #28)]
|
$_______________
|
31.
|
Present
balance owing on Line of Credit
|
$_______________
|
32.
|
Outstanding
under Sublimits
|
$_______________
|
33.
|
RESERVE
POSITION (#30 minus #31 and #32)
|
$_______________
|
[Continued
on following page.]
March 2009
1
The
undersigned represents and warrants that this is true, complete and correct, and
that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
By:
Name:
Title:
HEARINGLife
USA, Inc.
By:
Name:
Title:
|
BANK
USE ONLY
Received by: _____________________
authorized
signer
Date: __________________________
Verified:
________________________
authorized
signer
Date:
___________________________
Compliance
Status: Yes No
|
March 2009
2
EXHIBIT
D
COMPLIANCE
CERTIFICATE
TO:
|
SILICON
VALLEY BANK
|
Date:
|
|
FROM:
|
OTIX
GLOBAL, INC. and HEARINGLIFE USA, INC.
|
The
undersigned authorized officer of OTIX Global, Inc. and HEARINGLife USA, Inc.
(“Borrower”) certifies that under the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the “Agreement”):
(1) Borrower
is in complete compliance for the period ending _______________ with all
required covenants except as noted below; (2) there are no Events of
Default; (3) all representations and warranties in the Agreement are true
and correct in all material respects on this date except as noted below;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date;
(4) Borrower, and each of its Subsidiaries, has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
except as otherwise permitted pursuant to the terms of Section 5.9 of the
Agreement; and (5) no Liens have been levied or claims made against
Borrower or any of its Subsidiaries relating to unpaid employee payroll or
benefits of which Borrower has not previously provided written notification to
Bank.
Attached
are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein
shall have the meanings given them in the Agreement.
Please
indicate compliance status by circling Yes/No under “Complies”
column.
Reporting Covenant
|
Required
|
Complies
|
||
Monthly
financial statements with Compliance
Certificate
|
Monthly
within 30 days
|
Yes No
|
||
Transaction
Report
|
Weekly
and with each Advance request
|
Yes No
|
||
10-Q,
10-K and 8-K
|
Within
5 days after filing with SEC
|
Yes No
|
||
Borrowing
Base Certificate A/R & A/P Agings
|
|
Monthly
within 20 days
|
|
Yes No
|
Financial Covenant
|
Required
|
Actual
|
Complies
|
||||||
Maintain
on a Monthly Basis, and with each Advance request with
respect to the Liquidity Ratio:
|
|||||||||
Minimum
Liquidity Ratio
|
1.50:1.0
|
_____:1.0
|
Yes No
|
||||||
Minimum
Tangible Net Worth
|
$ | 5,500,000 | * | $ | _______ |
Yes No
|
*Plus 50%
of all equity or capital contributed to Borrower after June 30, 2010, and 50% of
all positive quarterly Net Income
from and after June 30, 2010
Performance Pricing*
|
Applies
|
|||
AQR
> 1.00:1.00
|
Prime
+ 1.0%
|
Yes No
|
||
AQR
< 1.00:1.00
|
|
Prime
+ 1.50%
|
|
Yes No
|
1
The following financial covenant
analyses and information set forth in Schedule 1 attached hereto are true and
accurate as of the date of this Certificate.
The following are the exceptions with
respect to the certification above: (If no exceptions exist, state
“No exceptions to note.”)
By:
Name:
Title:
HEARINGLife
USA, Inc.
By:
Name:
Title:
|
BANK
USE ONLY
Received by: _____________________
authorized
signer
Date: __________________________
Verified:
________________________
authorized
signer
Date:
___________________________
Compliance
Status: Yes No
|
2
Schedule 1 to Compliance
Certificate
Financial Covenants of
Borrower
In the event of a conflict between this
Schedule and the Loan Agreement, the terms of the Loan Agreement shall
govern.
Dated: ____________________
I. Tangible Net Worth (Section
6.9(b))
Required: $5,500,000,
plus 50% of all equity or capital contributed to Borrower or Subordinated Debt
incurred after June 30, 2010, and 50% of all positive quarterly Net Income from
and after June 30, 2010
Actual:
A.
|
Aggregate
value of total assets of Borrower and its Subsidiaries
|
$ | |||
B.
|
Aggregate
value of goodwill of Borrower and its Subsidiaries
|
$ | |||
C.
|
Aggregate
value of intangible assets of Borrower and its
Subsidiaries
|
$ | |||
D.
|
Aggregate
value of any reserves not already deducted from assets
|
$ | |||
E.
|
Aggregate
value of liabilities of Borrower and its Subsidiaries (including all
Indebtedness)
|
$ | |||
F.
|
Subordinated
Debt
|
$ | |||
G.
|
Tangible
Net Worth (line A minus line B minus line C minus line D minus line E plus
line F)
|
$ |
Is line G
equal to or greater than $5,500,000, plus 50% of all equity or capital
contributed to Borrower or Subordinated Debt incurred after June 30, 2010, and
50% of all positive quarterly Net Income from and after June 30,
2010?
________
No, not in compliance
|
________ Yes,
in compliance
|
II. Liquidity Ratio (Section
6.9(a))
Required: 1.50:1.00
Actual:
A.
|
Aggregate
value of the unrestricted cash and Cash Equivalents of Borrower and its
Subsidiaries maintained with Bank or its Affiliate
|
$ | |||
B.
|
Aggregate
value of the Eligible Accounts
|
$ | |||
C.
|
Liquidity
(the sum of lines A and B)
|
$ | |||
D.
|
Aggregate
value of Obligations to Bank
|
$ | |||
E.
|
Liquidity
Ratio (line C divided by line D)
|
Is line E
equal to or greater than 1.50:1:00?
________
No, not in compliance
|
________ Yes,
in compliance
|
3
EXHIBIT
E
SUBORDINATION
INSERT
All
payments due under this Note are subordinated to all of Borrower’s loans and
other obligations to Silicon Valley Bank (“Bank”) existing now or
later. Lender may receive regularly scheduled payments of
interest and/or principal due under this Note only if the Lender has not
received written notice from the Borrower that an Event of Default (defined in
the Borrower’s loan documents with Bank) has occurred, and is
continuing. Neither this paragraph nor the payment terms of this Note
may be amended or modified without the prior written consent of the Bank, which
consent shall not be unreasonably withheld.
4