EXHIBIT 10.31
LOAN AND SECURITY AGREEMENT
BORROWERS: QUALMARK CORPORATION, A COLORADO CORPORATION
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
QUALMARK ACG CORPORATION, A COLORADO CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
DATE: NOVEMBER 11, 2004
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
PARTNERS FOR GROWTH, L.P. ("PFG"), whose address is ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and the borrowers named above (jointly and
severally, "Borrower"), whose chief executive office is located at the above
address ("Borrower's Address"). The Schedule to this Agreement (the "Schedule")
being signed by the parties concurrently, is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 7
below.)
1. LOANS.
1.1 LOANS. PFG will make a loan to Borrower (the "Loan") in the amount
shown on the Schedule, provided no Default or Event of Default has occurred and
is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month.
1.3 FEES. Borrower shall pay PFG the fees shown on the Schedule, which are
in addition to all interest and other sums payable to PFG and are not
refundable.
1.4 LOAN REQUESTS. To obtain a Loan, Borrower shall make a request to PFG
by facsimile or telephone. Loan requests may also be made by Borrower by email,
but the same shall not be deemed made until PFG acknowledges receipt of the same
by email or otherwise in writing. Loan requests received after 12:00 Noon
Pacific time will not be considered by PFG until the next Business Day. PFG may
rely on any telephone request for a Loan given by a person whom PFG believes in
good faith is an authorized representative of Borrower, and Borrower will
indemnify PFG for any loss PFG suffers as a result of that reliance.
1.5 LATE FEE. If any payment of accrued interest for any month is not made
within three business days after the date a ▇▇▇▇ therefor is sent by PFG to
Borrower, or if any payment of principal or any other payment is not made within
three Business Days after the date due, Borrower shall pay PFG a late payment
fee equal to 5% of the amount of such late payment. The provisions of this
paragraph shall not be construed as PFG's consent to Borrower's failure to pay
any amounts when due, and PFG's acceptance of any such late payments shall not
restrict PFG's exercise of any remedies arising out of any such failure.
2. SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of
all of the Obligations when due, each Borrower hereby grants to PFG a security
interest in all of the following (collectively, the "Collateral"): all right,
title and interest of Borrower in and to all of the following, whether now owned
or hereafter arising or acquired and wherever located: all Accounts; all
Inventory; all Equipment; all Deposit Accounts; all General Intangibles
(including without limitation all Intellectual Property); all Investment
Property; all Other Property; and any and all claims, rights and interests in
any of the above, and all guaranties and security for any of the above, and all
substitutions and replacements for, additions, accessions, attachments,
accessories, and improvements to, and proceeds (including proceeds of any
insurance policies, proceeds of
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
proceeds and claims against third parties) of, any and all of the above, and all
Borrower's books relating to any and all of the above.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce PFG to enter into this Agreement and to make Loans, each
Borrower represents and warrants to PFG as follows, and each Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants, throughout the
term of this Agreement and until all Obligations have been paid and performed in
full:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would result in a Material Adverse Change. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally), and (iii) do not
violate Borrower's articles or certificate of incorporation, or Borrower's
by-laws, or any law or any material agreement or instrument which is binding
upon Borrower or its property, and (iv) do not constitute grounds for
acceleration of any material indebtedness or obligation under any agreement or
instrument which is binding upon Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. As of the date hereof, the name of
Borrower set forth in the heading to this Agreement is its correct name, as set
forth in its Articles or Certificate of Incorporation. Listed in the
Representations are all prior names of Borrower and all of Borrower's present
and prior trade names as of the date hereof. Borrower shall give PFG 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied, and will in the future comply, in all material
respects, with all laws relating to the conduct of business under a fictitious
business name, if applicable to Borrower.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. As of the date hereof, the
address set forth in the heading to this Agreement is Borrower's chief executive
office. In addition, as of the date hereof, Borrower has places of business and
Collateral is located only at the locations set forth in the Representations.
Borrower will give PFG at least 30 days prior written notice before opening any
additional place of business, changing its chief executive office, or moving any
of the Collateral to a location other than Borrower's Address or one of the
locations set forth in the Representations, except that Borrower may move
Collateral on a temporary basis as reasonably required and as is customary and
consistent with Borrower's ordinary course of business, and may maintain sales
offices in the ordinary course of business at which not more than a total of
$10,000 fair market value of Equipment is located.
3.4 TITLE TO COLLATERAL; PERFECTION; PERMITTED LIENS.
(a) Borrower is now, and will at all times in the future be, the sole
owner of all the Collateral, except for items of Equipment which are leased to
Borrower. The Collateral now is and will remain free and clear of any and all
liens, charges, security interests, encumbrances and adverse claims, except for
Permitted Liens. PFG now has, and will continue to have, a first-priority
perfected and enforceable security interest in all of the Collateral, subject
only to the Permitted Liens, and Borrower will at all times defend PFG and the
Collateral against all claims of others.
(b) Borrower has set forth in the Representations all of Borrower's
Deposit Accounts, and Borrower will give PFG five Business Days advance written
notice before establishing any new Deposit Accounts and will cause the
institution where any such new Deposit Account is maintained to execute and
deliver to PFG a control agreement in form sufficient to perfect PFG's security
interest in the Deposit Account and otherwise satisfactory to PFG in its good
faith business judgment.
(c) In the event that Borrower shall at any time after the date hereof
have any commercial tort claims against others, which it is asserting, and in
which the potential recovery exceeds $100,000, Borrower shall promptly notify
PFG thereof in writing and provide PFG with such information regarding the same
as PFG shall request (unless providing such information would waive the
Borrower's attorney-client privilege). Such notification to PFG shall constitute
a grant of a security interest in the commercial tort claim and all proceeds
thereof to PFG, and Borrower shall execute and deliver all such documents and
take all such actions as PFG shall request in connection therewith.
(d) None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture. Borrower
is not and will not become a lessee under any real property lease pursuant to
which the lessor
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
may obtain any rights in any of the Collateral (except such rights which may be
obtained after the date hereof, are reasonably acceptable to PFG and are
specifically subordinated to the security interest of PPFG) and no such lease
now prohibits, restrains, impairs or will prohibit, restrain or impair
Borrower's right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest,
Borrower shall, whenever requested by PFG, use commercially reasonable efforts
to cause such third party to execute and deliver to PFG, in form acceptable to
PFG, such waivers and subordinations as PFG shall specify in its good faith
business judgment. Borrower will keep in full force and effect, and will comply
with all material terms of, any lease of real property where any of the
Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition (ordinary wear and tear excepted), and Borrower will not
use the Collateral for any unlawful purpose. Borrower will immediately advise
PFG in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to PFG have been, and will be, prepared in
conformity with GAAP and now and in the future will fairly present the results
of operations and financial condition of Borrower in all material respects, in
accordance with GAAP, at the times and for the periods therein stated. Between
the last date covered by any such statement provided to PFG and the date hereof,
there has been no Material Adverse Change.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all required tax returns and reports, and Borrower
has timely paid, and will timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions now or in the future owed by
Borrower. Borrower may, however, defer payment of any of the foregoing which are
contested by Borrower in good faith, provided that Borrower (i) contests the
same by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies PFG in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the same from becoming a lien upon any of the Collateral.
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, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit 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.
3.9 COMPLIANCE WITH LAW. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. There is no claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower's knowledge) threatened against or
affecting Borrower in any court or before any governmental agency (or any basis
therefor known to Borrower) which could reasonably be expected to result, either
separately or in the aggregate, in any Material Adverse Change. Borrower will
promptly inform PFG in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
any single claim of $50,000 or more, or involving $100,000 or more in the
aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
3.12 NO DEFAULT. At the date hereof, no Default or Event of Default has
occurred, and no Default or Event of Default will have occurred after giving
effect to any Loans being made concurrently herewith.
4. ADDITIONAL DUTIES OF BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
4.2. REMITTANCE OF PROCEEDS. Subject to the rights of the Senior Lender,
all proceeds arising from the disposition of any Collateral shall be delivered,
in kind, by Borrower to PFG 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 in such order as PFG shall determine; provided that,
if no Default or Event of Default has occurred and is continuing, Borrower shall
not be obligated to remit to PFG (i) the proceeds of Accounts arising in the
ordinary course of business, or (ii) 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), or (iii) the proceeds of the sale of other
assets not exceeding $50,000 in the aggregate 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 PFG, except as set
forth above, and subject to the rights of the Senior Lender. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.3 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to PFG, in such form and amounts as PFG may
reasonably require and as are customary and in accordance with standard
practices for Borrower's industry and locations, and Borrower shall provide
evidence of such insurance to PFG. All such insurance policies shall name PFG as
an additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to PFG. Upon receipt of the proceeds of any such
insurance, subject to the rights of the Senior Lender, PFG shall apply such
proceeds in reduction of the Obligations as PFG shall determine in its good
faith business judgment, except that, provided no Default or Event of Default
has occurred and is continuing, PFG shall release to Borrower insurance proceeds
with respect to Equipment totaling less than $250,000, which shall be utilized
by Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. PFG may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, PFG may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to PFG copies of all
material reports made to insurance companies.
4.4 REPORTS. Borrower, at its expense, shall provide PFG with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, projections, operating plans and other financial
documentation), as PFG shall from time to time specify in its good faith
business judgment.
4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
two Business Days' notice, PFG, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
The foregoing inspections and audits shall be at Borrower's expense and the
charge therefor shall be $750 per person per day (or such higher amount as shall
represent PFG's then current standard charge for the same), plus reasonable
out-of-pocket expenses. Notwithstanding the foregoing, if no Default or Event of
Default has occurred and is continuing, Borrower shall not be required to
disclose to PFG any document or information (i) where disclosure is prohibited
by applicable law or any agreement binding on Borrower, or (ii) is subject to
attorney-client or similar privilege or constitutes attorney work product. If
Borrower is withholding any information under the preceding sentence, it shall
so advise PFG in writing, giving PFG a general description of the nature of the
information withheld.
4.6 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without PFG's prior written consent (which shall be a matter
of its good faith business judgment), do any of the following:
(i) merge or consolidate with another corporation or entity (except
that QACG may merge into QualMark);
(ii) acquire any assets, except in the ordinary course of business, or
make any Investments other than Permitted Investments;
(iii) enter into any other transaction outside the ordinary course of
business;
(iv) sell or transfer any Collateral (including without limitation and
sale or transfer of Collateral which is then leased back by Borrower), except
for (A) the sale of finished Inventory in the ordinary course of Borrower's
business, and except for the sale of obsolete or unneeded Equipment in the
ordinary course of business, (B) the sale of other assets not exceeding $50,000
in the aggregate in any fiscal year, (C) the making or Permitted Investments,
(D) the granting of Permitted Liens, and (E) the non-exclusive licensing of
Intellectual Property in the ordinary course of business;
(v) store any Inventory or other Collateral with any warehouseman or
other third party, unless there is in place a bailee agreement in such form as
PFG shall specify in its good faith business judgment;
(vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(vii) make any loans of any money or other assets, other than Permitted
Investments;
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
(viii) incur any Indebtedness, other than Permitted Indebtedness;
(ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower and dividends paid by QACG to
QualMark);
(xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock;
(xii) engage, directly or indirectly, in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto;
(xiii) with respect to QualMark, cease to own 100% of QACG;
(xiv) with respect to QualMark, permit a change in control of QACG; or
(xv) dissolve or elect to dissolve (except that QACG may dissolve into
QualMark).
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
4.7 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against PFG with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to PFG, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that PFG may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
4.8 CHANGES. Borrower agrees to notify PFG in writing of any changes in the
information set forth in the Representations.
4.9 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by PFG,
to execute all documents and take all actions, as PFG, may, in its good faith
business judgment, deem necessary or useful in order to perfect and maintain
PFG's perfected first-priority security interest in the Collateral (subject to
Permitted Liens), and in order to fully consummate the transactions contemplated
by this Agreement.
5. TERM.
5.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"), subject to
Sections 5.2 and 5.3 below.
5.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) if specifically permitted in the Schedule, by
Borrower, effective three Business Days after written notice of termination is
given to PFG; or (ii) by PFG at any time after the occurrence and during the
continuance of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower (if permitted in the Schedule) or by
PFG under this Section 5.2, Borrower shall pay to PFG a prepayment fee in the
amount set forth in the Schedule. Any prepayment fee shall be due and payable on
the effective date of termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations.
5.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of PFG's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that PFG may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of PFG, nor shall any such termination
relieve Borrower of any Obligation to PFG, until all of the Obligations have
been paid and performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, PFG shall promptly terminate its
financing statements with respect to the Borrower and deliver to Borrower such
other documents as may be required to fully terminate PFG's security interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
PFG immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to PFG by Borrower or any of Borrower's officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect when made or deemed to be made; or
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
(b) Borrower shall fail to pay any Loan or any interest thereon or any
other monetary Obligation within three Business Days after the date due; or
(c) Borrower shall fail to comply with any of the financial covenants
set forth in the Schedule, or shall breach any of the provisions of Section 4.6
hereof, or shall fail to perform any other non-monetary Obligation which by its
nature cannot be cured, or shall fail to permit PFG to conduct an inspection or
audit as provided in Section 4.5 hereof or shall fail to provide PFG with
reports required under Section 6 of the Schedule within one Business Day after
the date due; or
(d) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within five Business Days after the date due; or
(e) any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within 10 days after the occurrence of the same; or
(f) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(g) Borrower breaches any material contract or obligation, which has
resulted or reasonably may be expected to result in a Material Adverse Change;
or
(h) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
or Borrower shall generally not pay its debts as they become due, or Borrower
shall conceal, remove or transfer any part of its property, with intent to
hinder, delay or defraud its creditors, or make or suffer any transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or
(i) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 45 days after the date commenced; or
(j) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing,
or commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or
(k) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(l) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations (other than as
permitted in the applicable subordination agreement), or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or
(m) there shall be a change in the record or beneficial ownership of
an aggregate of more than 20% of the outstanding shares of stock of Borrower, in
one or more transactions, compared to the ownership of outstanding shares of
stock of Borrower in effect on the date hereof, without the prior written
consent of PFG; or
(n) a Material Adverse Change shall occur.
PFG may cease making any Loans hereunder during any of the cure periods provided
above, and thereafter if an Event of Default has occurred and is continuing.
6.2 REMEDIES. Upon the occurrence and during the continuance of any Event
of Default, and at any time thereafter, PFG, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower),
may do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other Loan Document;
(b) Accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation; (c)
Take possession of any or all of the Collateral wherever it may be found, and
for that purpose Borrower hereby authorizes PFG without judicial process to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
the premises in exclusive control thereof, without charge for so long as PFG
deems it necessary, in its good faith business judgment, in order to complete
the enforcement of its rights under this Agreement or any other agreement;
provided, however, that should PFG seek to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives: (i) any bond
and any surety or security relating thereto required by any statute, court rule
or otherwise as an incident to such possession; (ii) any demand for possession
prior to the commencement of any suit or action to recover possession thereof;
and (iii) any requirement that PFG retain possession of, and not dispose of, any
such Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to PFG at places
designated by PFG which are reasonably convenient to PFG and Borrower, and to
remove the Collateral to such locations as PFG may deem advisable; (e) Complete
the processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, PFG shall have the
right to use Borrower's premises, vehicles, hoists, lifts, cranes, and other
Equipment and all other property without charge; (f) Sell, lease or otherwise
dispose of any of the Collateral, in its condition at the time PFG obtains
possession of it or after further manufacturing, processing or repair, at one or
more public and/or private sales, in lots or in bulk, for cash, exchange or
other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale. PFG
shall have the right to conduct such disposition on Borrower's premises without
charge, for such time or times as PFG deems reasonable, or on PFG's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
PFG may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve Borrower of any liability Borrower may have if any Collateral
is defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Accounts and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes PFG to endorse or sign Borrower's name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to Borrower and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in PFG's good faith business judgment, to
grant extensions of time to pay, compromise claims and settle Accounts and the
like for less than face value; (h) Exercise any and all rights under any present
or future control agreements relating to Deposit Accounts or Investment
Property; and (i) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by PFG with respect to the foregoing shall
be added to and become part of the Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. Without limiting any of PFG's rights and remedies, from
and after the occurrence and during the continuance of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
four percent per annum (the "Default Rate").
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and PFG
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
ten days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least five days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by PFG, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, PFG may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. PFG shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
6.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of
any Event of Default, without limiting PFG's other rights and remedies, Borrower
grants to PFG an irrevocable power of attorney coupled with an interest,
authorizing and permitting PFG (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but PFG agrees that if it exercises
any right hereunder, it will do so in good faith and in a commercially
reasonable manner: (a) Execute on behalf of Borrower any documents that PFG may,
in its good faith business judgment, deem advisable in order to perfect and
maintain PFG's security interest in the Collateral, or in order to exercise a
right of Borrower or PFG, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other Loan Documents; (b) Execute on
behalf of Borrower, any invoices relating to any Account, any draft against any
Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(c) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into PFG's
possession; (d) Endorse all checks and other forms of remittances received by
PFG; (e) Pay, contest or settle any lien, charge, encumbrance, security interest
and adverse claim in
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
or to any of the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; (f) Grant extensions of time to
pay, compromise claims and settle Accounts and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(g) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both; (h) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (i) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give PFG the same rights of
access and other rights with respect thereto as PFG has under this Agreement;
and (j) Take any action or pay any sum required of Borrower pursuant to this
Agreement and any other Loan Documents. Any and all reasonable sums paid and any
and all reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by PFG with respect to the foregoing shall be added to and become part
of the Obligations, shall be payable on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations. In
no event shall PFG's rights under the foregoing power of attorney or any of
PFG's other rights under this Agreement be deemed to indicate that PFG is in
control of the business, management or properties of Borrower.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by PFG first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by PFG in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as PFG shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to PFG for any deficiency. If, PFG, 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, PFG shall have the
option, exercisable at any time, in its good faith business judgment, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by PFG of the cash
therefor.
6.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, PFG shall have all the other rights and remedies accorded a
secured party under the Code and under all other applicable laws, and under any
other instrument or agreement now or in the future entered into between PFG and
Borrower, and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by PFG of one or more of its rights or
remedies shall not be deemed an election, nor bar PFG from subsequent exercise
or partial exercise of any other rights or remedies. The failure or delay of PFG
to exercise any rights or remedies shall not operate as a waiver thereof, but
all rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed.
7. DEFINITIONS. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:
"Account Debtor" means the obligor on an Account.
"Accounts" means all present and future "accounts" as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all accounts receivable and other sums owing to Borrower.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which PFG is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2 above.
"continuing" and "during the continuance of" when used with reference to a
Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by PFG or cured within any
applicable cure period.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 6.2 above.
"Deposit Accounts" means all present and future "deposit accounts" as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
"Equipment" means all present and future "equipment" as defined in the
California Uniform Commercial Code in effect on the date hereof 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.
"Event of Default" means any of the events set forth in Section 6.1 of this
Agreement.
"GAAP" means generally accepted accounting principles consistently applied.
"General Intangibles" means all present and future "general intangibles" as
defined in the California Uniform Commercial 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, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income tax refunds, security and
other deposits, options to purchase or sell real or personal property, rights in
all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.
"good faith business judgment" means honesty in fact and good faith (as
defined in Section 1201 of the Code) in the exercise of PFG's business judgment.
"including" means including (but not limited to).
"Indebtedness" means (a) indebtedness for borrowed money or the deferred
purchase price of property or services (other than trade payables arising in the
ordinary course of business), (b) obligations evidenced by bonds, notes,
debentures or other similar instruments, (c) reimbursement obligations in
connection with letters of credit, and (d) capital lease obligations.
"Intellectual Property" means all present and future: (a) copyrights,
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, (b) trade secret rights, including all rights to
unpatented inventions and know-how, and confidential information; (c) mask work
or similar rights available for the protection of semiconductor chips; (d)
patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
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
any such trademarks; (f) computer software and computer software products; (g)
designs and design rights; (h) technology; (i) all claims for damages by way of
past, present and future infringement of any of the rights included above; and
(j) all licenses or other rights to use any property or rights of a type
described above.
"Inventory" means all present and future "inventory" as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products, including without limitation such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returned goods and any documents of title representing
any of the above.
"Investment" means any beneficial ownership interest in any Person
(including any stock, partnership interest or other equity or debt securities
issued by any Person), and any loan, advance or capital contribution to any
Person.
"Investment Property" means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.
"Loan Documents" means, collectively, this Agreement, the Representations,
and all other present and future documents, instruments and agreements between
PFG and Borrower, including, but not limited to those relating to this
Agreement, and all amendments and modifications thereto and replacements
therefor.
"Material Adverse Change" means any of the following: (i) a material
adverse change in the business, operations, or financial or other condition of
the Borrower, or (ii) a material impairment of the prospect of repayment of any
portion of the Obligations; or (iii) a material impairment of the value or
priority of PFG's security interests in the Collateral.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to PFG, whether evidenced by this Agreement or any note
or other instrument or document or other written representation, undertaking,
consent or agreement of Borrower, whether arising from an
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
extension of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by PFG in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, collateral monitoring fees, closing fees,
facility fees, termination fees, minimum interest charges and any other sums
chargeable to Borrower under this Agreement or under any other Loan Documents.
"Other Property" means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term as
may hereafter be made, and all rights relating thereto: all present and future
"commercial tort claims" (including without limitation any commercial tort
claims identified in the Representations), "documents", "instruments",
"promissory notes", "chattel paper", "letters of credit", "letter-of-credit
rights", "fixtures", "farm products" and "money"; and all other goods and
personal property of every kind, tangible and intangible, whether or not
governed by the California Uniform Commercial Code.
"Payment" means all checks, wire transfers and other items of payment
received by for credit to Borrower's outstanding Obligations.
"Permitted Indebtedness" means, collectively for QualMark and QACG:
(i) the Loans and other Obligations; and
(ii) Indebtedness existing on the date hereof and shown on Exhibit A
hereto;
(iii) Subordinated Debt;
(iv) Indebtedness owing to Senior Lender not to exceed the Senior Debt
Limit specified in the Schedule;
(v) other Indebtedness secured by Permitted Liens;
(vi) reimbursement obligations in respect of letters of credit in an
aggregate face amount outstanding not to exceed $300,000 at any time
outstanding, which has been reported to PFG in writing, and, in the case of
reimbursement obligations to the Senior Lender in respect of letters of credit
which do not exceed the Senior Debt Limit (taking into account all other
Indebtedness to Senior Lender).
"Permitted Investments" are:
(i) Investments (if any) shown on the Exhibit A and existing on the
date hereof;
(ii) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition;
(iii) commercial paper maturing no more than 1 year after its creation
and having the highest rating from either Standard & Poor's Corporation or
▇▇▇▇▇'▇ Investors Service, Inc; and
(iv) bank certificates of deposit issued maturing no more than 1 year
after issue.
"Permitted Liens" means the following:
(i) purchase money security interests in specific items of Equipment;
(ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable;
(iv) additional security interests and liens consented to in writing
by PFG, which consent may be withheld in its good faith business judgment. PFG
will have the right to require, as a condition to its consent under this
subparagraph (iv), that the holder of the additional security interest or lien
sign an intercreditor agreement on PFG's then standard form, acknowledge that
the security interest is subordinate to the security interest in favor of PFG,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement;
(v) security interests being terminated substantially concurrently
with this Agreement;
(vi) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
(vii) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (i) or (ii) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase;
(viii) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods;
(ix) statutory, common law or contractual liens of depository
institutions or institutions holding securities account (including rights of
set-off) securing only customary charges and fees in connection with such
accounts; and
(x) liens in favor of Senior Lender securing an amount not in excess
of the Senior Debt Limit.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"QualMark" means Qualmark Corporation.
"QACG" means Qualmark ACG Corporation, the wholly-owned Subsidiary of
QualMark.
"Representations" means the written Representations and Warranties provided
by Borrower to PFG referred to in the Schedule.
"Senior Lender" has the meaning set forth in Section 8 of the Schedule.
"Subordinated Debt" means debt incurred by Borrower subordinated to
Borrower's debt to PFG (pursuant to a subordination agreement entered into
between PFG, Borrower and the subordinated creditor), on terms acceptable to PFG
in its absolute discretion.
"Subsidiary" means (a) any corporation of which more than 50% of the issued
and outstanding equity securities having ordinary voting power to elect a
majority of the Board of Directors of such corporation is at the time directly
or indirectly owned or controlled by Borrower, (b) any partnership, joint
venture, or other association of which more than 50% of the equity interest
having the power to vote, direct or control the management of such partnership,
joint venture or other association is at the time directly or indirectly owned
and controlled by Borrower, (c) any other entity included in the financial
statements of Borrower on a consolidated basis.
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP,
consistently applied. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the extent
such terms are defined therein.
8. GENERAL PROVISIONS.
8.1 CONFIDENTIALITY. PFG agrees to use the same degree of care that it
exercises with respect to its own proprietary information, to maintain the
confidentiality of any and all proprietary, trade secret or confidential
information provided to or received by PFG from the Borrower, which indicates
that it is confidential, including business plans and forecasts, non-public
financial information, confidential or secret processes, formulae, devices and
contractual information, customer lists, and employee relation matters, provided
that PFG may disclose such information (i) to its officers, directors,
employees, attorneys, accountants, affiliates, participants, prospective
participants, assignees and prospective assignees, and such other Persons to
whom PFG shall at any time be required to make such disclosure in accordance
with applicable law or legal process, and (ii) in its good faith business
judgment in connection with the enforcement of its rights or remedies after an
Event of Default, or in connection with any dispute with Borrower or any other
Person relating to Borrower. The confidentiality agreement in this Section
supersedes any prior confidentiality agreement of PFG relating to Borrower.
8.2 INTEREST COMPUTATION. In computing interest on the Obligations, all
Payments received after 12:00 Noon, Pacific Time, on any day shall be deemed
received on the next Business Day.
8.3 PAYMENTS. All Payments may be applied, and in PFG's good faith business
judgment reversed and re-applied, to the Obligations, in such order and manner
as PFG shall determine in its good faith business judgment.
8.4 MONTHLY ACCOUNTINGS. PFG shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by PFG), unless Borrower notifies PFG in
writing to the contrary within 60 days after such account is rendered,
describing the nature of any alleged errors or omissions.
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
8.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally, or by reputable private delivery
service, or by regular first-class mail, or certified mail return receipt
requested, or by fax to the most recent fax number a party has for the other
party (and if by fax, sent concurrently by one of the other methods provided
herein), addressed to PFG or Borrower at the addresses shown in the heading to
this Agreement, or at any other address designated in writing by one party to
the other party. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one Business
Day following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid,
or on the first business day of receipt during business hours, U.S. Pacific
Time, in the case of notices sent by fax, as provided herein.
8.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
8.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and PFG and supersede all
prior and contemporaneous negotiations and oral representations and agreements,
all of which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
8.8 WAIVERS; INDEMNITY. The failure of PFG at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Document shall not waive or diminish any right of PFG later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of PFG or its agents
or employees, but only by a specific written waiver signed by an authorized
officer of PFG and delivered to Borrower. Borrower waives the benefit of all
statutes of limitations relating to any of the Obligations or this Agreement or
any other Loan Document, and Borrower waives demand, protest, notice of protest
and notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by PFG on which Borrower is or may in any way be liable, and notice of any
action taken by PFG, unless expressly required by this Agreement. Borrower
hereby agrees to indemnify PFG and its affiliates, subsidiaries, parent,
directors, officers, employees, agents, and attorneys, and to hold them harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including reasonable
attorneys' fees), of every kind, which they may sustain or incur based upon or
arising out of any of the Obligations, or any relationship or agreement between
PFG and Borrower, or any other matter, relating to Borrower or the Obligations;
provided that this indemnity shall not extend to damages resulting from the
indemnitee's own gross negligence or willful misconduct. Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all purposes continue in full force and effect.
8.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither PFG, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing PFG shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of PFG, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing PFG, but nothing herein shall relieve PFG from liability
for its own gross negligence or willful misconduct.
8.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of PFG.
8.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
8.12 ATTORNEYS' FEES AND COSTS. Borrower shall reimburse PFG for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by PFG, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
PFG incurs in order to do the following: prepare and negotiate this Agreement
and all present and future documents relating to this Agreement; obtain legal
advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce PFG's security interest in, the Collateral; and otherwise
represent PFG in any litigation relating to Borrower. If either PFG or Borrower
files any lawsuit
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which PFG may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
8.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and PFG; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of PFG, and any prohibited assignment shall be
void. No consent by PFG to any assignment shall release Borrower from its
liability for the Obligations.
8.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
8.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against PFG, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other Loan Document, or any other transaction contemplated hereby or thereby or
relating hereto or thereto, or any other matter, cause or thing whatsoever,
occurred, done, omitted or suffered to be done by PFG, its directors, officers,
employees, agents, accountants or attorneys, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint on an officer of
PFG, or on any other person authorized to accept service on behalf of PFG,
within thirty (30) days thereafter. Borrower agrees that such one-year period is
a reasonable and sufficient time for Borrower to investigate and act upon any
such claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by the written consent of PFG in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other Loan Document.
8.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and PFG acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. This Agreement has been fully
reviewed and negotiated between the parties and no uncertainty or ambiguity in
any term or provision of this Agreement shall be construed strictly against PFG
or Borrower under any rule of construction or otherwise. The defined term
"Borrower" shall mean, as the context requires, each of QualMark and QACG
severally, and QualMark and QACG jointly.
8.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of PFG and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to PFG to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at PFG's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be San Francisco County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
PARTNERS FOR GROWTH LOAN AND SECURITY AGREEMENT
8.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND PFG EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN PFG AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF PFG OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH PFG OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER: PFG:
QUALMARK CORPORATION PARTNERS FOR GROWTH, L.P.
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ BY /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------- -------------------------------------
PRESIDENT OR VICE PRESIDENT NAME: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
TITLE: MANAGER, PARTNERS FOR GROWTH, LLC
ITS GENERAL PARTNER
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER:
QUALMARK ACG CORPORATION
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
SECRETARY OR ASS'T SECRETARY
PARTNERS FOR GROWTH
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: QUALMARK CORPORATION, A COLORADO CORPORATION
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
QUALMARK ACG CORPORATION, A COLORADO CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
DATE: NOVEMBER 12, 2004
This Schedule forms an integral part of the Loan and Security Agreement between
PARTNERS FOR GROWTH, L.P. and the above-Borrowers of even date. Defined terms
used in this Schedule have the meanings set forth herein and in the Loan and
Security Agreement.
1. LOAN (Section 1.1):
(a) LOAN: The Loan shall consist of (i) a term loan in
the amount of $1,000,000, which shall be
disbursed in its entirety, less the amount
required to discharge the ▇▇▇▇▇ ▇▇▇▇ (as
defined in Schedule Section 8(f)), on the
Date hereof (the "Initial Advance"); and (ii)
at QualMark's option, subject to the terms
and conditions of the Agreement and this
Schedule, up to an additional $1,000,000
principal borrowing upon the same terms and
with the same Maturity Date as the Initial
Advance (the "Additional Advance").
QualMark's right to request the Additional
Advance is expressly subject, inter alia, to
there being no Event of Default by Borrowers
outstanding and uncured. Principal and any
accrued but unpaid interest is due and
payable on the Maturity Date.
(b) CONDITION TO ADDITIONAL In addition to PFG's reasonable determination
ADVANCE: that at the time of such request there is no
Event of Default outstanding and uncured,
QualMark's right to request the Additional
Advance is expressly conditioned upon PFG's
determination that Borrowers (on a
consolidated basis) have achieved at least
$500,000 in EBITDA (as defined below) in each
of 3 consecutive calendar quarters during the
term of the Loan, or such other dollar
thresholds as PFG may in its discretion then
agree.
(c) PRINCIPAL REPAYMENT / The principal amount of the Loan shall be
PREPAYMENT: repaid on the Maturity Date, on which date
the entire unpaid principal balance of the
Loan plus any and all accrued and unpaid
interest shall be paid. Borrower may not
prepay the Loan.
(d) CONVERSION: (i) At any time prior to the Maturity Date,
PFG may at its option convert the Initial
Advance (or any part thereof) into the
(registered or unregistered, as the case may
be) Common Stock of QualMark ("PFG
Conversion") at $1.66 (the "Conversion
Price"). The Conversion Price is subject to
adjustment for stock splits, combinations,
reclassifications and similar transactions.
(ii) At any time prior to the Maturity Date,
PFG may at its option convert any outstanding
Additional Advance (or any part thereof) into
the Common Stock of QualMark at a per share
price equal to the lesser of (i) the
Conversion Price, or (ii) 110% of the closing
price quoted on the OTC Bulletin Board (or
such other
PARTNERS FOR GROWTH SCHEDULE TO LOAN AND SECURITY AGREEMENT
exchange as QualMark's Common Stock may be
listed from time to time) for QualMark's
Common Stock over the 10-trading-day period
before PFG gives written notice of its
conversion (the "Additional Advance
Conversion Price"). The Additional Advance
Conversion Price is subject to adjustment for
stock splits, combinations, reclassifications
and similar transactions.
(iii) The effective date of PFG Conversion
(whether under (i) or (ii), above, or both)
shall be the date the notice of conversion is
given by PFG and QualMark shall deliver the
Common Stock issuable upon conversion upon
exercise of PFG Conversion within 3 business
days of such effective date.
(e) QUALMARK -INITIATED QualMark may upon 30 days' written notice
CONVERSION: effect the conversion of the principal amount
of the Initial Advance and any Additional
Advance then outstanding ("Borrower
Conversion Option"). The QualMark Conversion
is subject to the following conditions and
limitations: (i) At the time QualMark notices
a Borrower Conversion Option, there shall not
have occurred and be continuing any Event of
Default under the Loan which has not, for the
purposes of the Borrower Conversion Option,
been waived by PFG; and (ii) The Borrower
Conversion Option may only be exercised after
the expiry of 3 years from the date hereof;
and (iii) The Borrower Conversion Option may
only be exercised if and when the OTC
Bulletin Board-quoted closing price of
QualMark's Common Stock for each day in a
period of 20 consecutive trading days prior
to QualMark's notice of exercise has exceeded
300% of the Conversion Price (as defined in
Schedule Section 1(d)(i) above) with respect
to the conversion of the Initial Advance, and
300% of the Additional Advance Conversion
Price (as defined in Schedule Section
1(d)(ii) above) with respect to the
conversion of the Additional Advance.
2. INTEREST.
INTEREST RATE The Loan shall bear interest at a rate equal
(Section 1.2): to eight percent (8%) per annum (the "Initial
Rate"). Interest shall be calculated on the
date hereof and thereafter on a calendar
quarterly basis assuming a 360-day year and a
year of twelve months of 30 days each for the
actual number of days elapsed. Accrued
interest for each month shall be payable
monthly, on the last day of each calendar
month.
INTEREST RATE RESET: So long as Borrower is in full compliance
with the terms of the Loan, upon the first
day of the month following each anniversary
that the Loan (or any part thereof) is
outstanding, the Initial Rate shall be
reduced 2.083 basis points for each ▇▇▇▇▇
that the average closing price of QualMark's
Common Stock over the 20-trading-day period
preceding each such anniversary exceeds the
Conversion Price. In no event shall the
interest rate payable in respect of the Loan
be less than 1.75%. For example, if the Loan
is executed on November 15, 2004, the
Conversion Price is $1.66, and the average
price of the Common Stock during the
20-trading-day period before December 1, 2005
is $1.75, then the interest rate applicable
to the Loan from December 1, 2005 until
December 1, 2006 would be 7.72921% (8% -
(0.02083 x (1.75-1.66))). Subsequent interest
rate resets may be made on an annual basis
thereafter. Notwithstanding any Interest Rate
Resets effected hereunder, however, if there
shall occur an Event of Default which remains
uncured after any applicable cure periods,
the interest rate payable hereunder shall be
the Default Rate set forth in the Loan
Agreement plus the Initial Rate.
3. FEES (Section 1.3):
PARTNERS FOR GROWTH SCHEDULE TO LOAN AND SECURITY AGREEMENT
Loan Fee: 2% of the Initial Advance ($20,000) and 2% of
any Additional Advance, as and when drawn.
4. MATURITY DATE November 11, 2009
(Section 5.1):
5. FINANCIAL COVENANTS / Borrower shall at all times equal or exceed
AMORTIZATION TRIGGER 100% of the EBITDA forecast set forth below,
(Section 4.1): as measured on a calendar quarterly basis
commencing with the first calendar quarter of
2005, or such modified EBITDA plan as PFG and
Borrower may otherwise mutually agree in
writing (the "EBITDA Plan"). If Borrower
should at any time fail to achieve 100% of
EBITDA Plan (the "Amortization Trigger"), PFG
may, at its sole option, elect to amortize
all or (at PFG's sole option) part of the
Loan over a 30-month period in even principal
payments and Borrower shall thereafter
commence to make monthly payments of
principal and interest on the Loan in
conformity with the amortization schedule
notified by ▇▇▇.
▇▇▇▇ ▇▇▇▇▇▇ Plan
Q1 - 2005 $135,000
Q2 - 2005 $102,000
Q3 - 2005 $195,000
Q4 - 2005 $165,000
For 2006 and beyond, quarterly EBITDA target
will be negotiated between Borrower and PFG
on a good faith basis and determined in PFG's
reasonable discretion based on the financial
plan approved by QualMark's Board of
Directors for such subsequent periods.
CERTAIN DEFINITIONS: "EBITDA" means Borrower's earnings before
interest, taxes, depreciation, amortization
and any non-cash charges to earnings directly
related to required accounting treatment of
options and similar employee incentives.
6. REPORTING. Borrower shall provide PFG with the
(Section 4.4): following:
(a) Monthly unaudited consolidated financial
statements, as soon as available, and in
any event within 20 days after the end
of each month.
(b) Compliance Certificates, in such form
and at such times as PFG shall
reasonably specify, signed by the Chief
Financial Officer of Borrower,
certifying that as of the end of each
calendar quarter, Borrower was in full
compliance with all of the terms and
conditions of this Agreement, and
setting forth calculations showing its
EBITDA performance for such period.
(c) Annual financial statements, as soon as
available, and in any event within 120
days following the end of Borrower's
fiscal year, certified by, and together
with an unqualified opinion of,
independent certified public accountants
acceptable to PFG. If Borrower files a
form 10-K with the Securities and
Exchange Commission or otherwise
publishes its current financial
information in the public domain and the
same is readily available
PARTNERS FOR GROWTH SCHEDULE TO LOAN AND SECURITY AGREEMENT
within said period, the foregoing
reporting requirement will be deemed
satisfied.
(d) As and when information previously
provided would no longer be true,
complete and accurate, an update to the
Representations (Schedule Section 7,
below).
(e) Copies of all reports and statements
provided by Borrower to the Senior
Lender at the same time the same are
provided to the Senior Lender.
7. BORROWER INFORMATION:
Borrower represents and warrants that the
information set forth in the Representations
and Warranties of the Borrower dated November
11, 2004, previously submitted to PFG (the
"Representations") is true and correct as of
the date hereof.
8. ADDITIONAL PROVISIONS
(a) SENIOR LENDER.
(1) Senior Lender. As used herein,
"Senior Lender" means Silicon
Valley Bank, and "Senior Loan
Documents" means that certain Loan
and Security Agreement dated as of
November 8, 2004, between QualMark
and Silicon Valley Bank.
(2) Senior Debt Limit. Borrower shall
not permit the total Indebtedness
of Borrower to Senior Lender to
exceed $2,450,000 at any time
outstanding (the "Senior Debt
Limit"), including, but not limited
to, monies borrowed by Borrower,
interest on loans due from
Borrower, fees and expenses for
which Borrower is obligated, sums
due from Borrower in connection
with issuance of commercial letters
of credit, overdrafts, issuance of
forward contracts for foreign
exchange reserve, and any other
direct or indirect financial
accommodation Senior Lender may
provide to Borrower).
(3) Senior Loan Documents. Borrower
represents and warrants that it has
provided PFG with true and complete
copies of all existing Senior Loan
Documents, and Borrower covenants
that it will, in the future,
provide PFG with true and complete
copies of any future Senior Loan
Documents, including without
limitation any amendments to any
existing Senior Loan Documents.
(b) DEPOSIT ACCOUNTS. Concurrently, QualMark
and QACG (as defined in Schedule Section
8(e)) shall cause the banks and other
institutions where its Deposit Accounts
are maintained to enter into control
agreements with PFG, in form and
substance satisfactory to PFG in its
good faith business judgment and
sufficient to perfect PFG's security
interest in said Deposit Accounts,
subject to the security interest of the
Senior Lender. Said control agreements
shall permit PFG, in its discretion, to
withdraw from said Deposit Accounts
accrued interest on the Obligations
monthly (subject to the rights of the
Senior Lender).
PARTNERS FOR GROWTH SCHEDULE TO LOAN AND SECURITY AGREEMENT
(c) SUBORDINATION OF INSIDE DEBT AND ALL
OTHER THIRD PARTY DEBT NOT CONSTITUTING
PERMITTED INDEBTEDNESS. All present and
future indebtedness of Borrower to its
officers, directors and shareholders
("Inside Debt") shall, at all times, be
subordinated to the Obligations pursuant
to a subordination agreement on PFG's
standard form. Borrower represents and
warrants that there is no Inside Debt
presently outstanding, except as set
forth in Exhibit A to this Schedule.
Prior to incurring any Inside Debt in
the future, Borrower shall cause the
person to whom such Inside Debt will be
owed to execute and deliver to PFG a
subordination agreement on PFG's
standard form. In addition, all present
and future indebtedness to any third
party, if not Permitted Indebtedness,
shall be at all times subordinated to
the Obligations pursuant to a
subordination agreement on PFG's
standard form.
(d) OTHER DEBT FINANCING--RIGHT OF FIRST
REFUSAL. QualMark hereby grants PFG a
right of first refusal to provide any
future debt financing which would
require the subordination of the
Obligation. Prior to entering into any
agreement with any other Person to
provide QualMark with such debt
financing, QualMark shall advise PFG in
writing of the proposed terms of the
same and provide PFG with copies of all
proposal letters, commitment letters,
proposed loan documents and other
documents relating to the other
financing, and PFG shall have 10 days
after receipt of all of the foregoing to
agree in writing to provide debt
financing to QualMark on the same terms
and conditions. If PFG does not do so,
QualMark may proceed to obtain the debt
financing from the other Person (the
"New Lender") on the terms and
conditions advised to PFG, but in the
event of a change in any of the material
proposed terms, QualMark shall again
give PFG the right of first refusal to
provide the debt financing on such
changed terms as provided above. If PFG
declines to participate in such noticed
debt financing and QualMark proceeds
with such financing with the New Lender,
PFG shall, at its sole option, either
(i) subordinate the Obligations to the
lien of the New Lender in respect of
such debt financing (and to the extent
thereof only), or (ii) request Borrower
to pay and discharge all Obligations. If
PFG elects to have its Obligations paid
by Borrower, QualMark shall,
contemporaneously with such payment,
issue PFG a warrant to purchase that
number of shares of Common Stock into
which the Initial Advance and Additional
Advance (if outstanding) would have
converted if then converted under the
terms of Sections (d)(i) and (d)(ii) of
this Schedule (the "Warrant"). The
Warrant shall expire on the Maturity
Date, shall be exercisable at the
Conversion Price and shall permit "net
exercise", as such term is customarily
used in warrant transactions.
(e) CROSS-GUARANTY. Concurrently, QualMark
shall cause QualMark ACG Corporation,
its wholly-owned Subsidiary ("QACG"), to
execute and deliver to PFG a Continuing
Guaranty with respect to all of the
Obligations applicable to QualMark, and
certified resolutions or other evidence
of authority with respect to the
execution and delivery of such Guaranty,
all pursuant to documentation acceptable
to PFG in its good faith business
judgment. Throughout the term of this
Agreement QualMark shall cause QACG to,
and QACG shall, maintain such Continuing
Guaranty in full force and effect.
Concurrently, QualMark shall execute and
deliver to PFG a Continuing Guaranty
with respect to all of the Obligations
applicable to QACG. Throughout the term
of this Agreement QualMark shall
maintain such Continuing Guaranty in
full force and effect.
PARTNERS FOR GROWTH SCHEDULE TO LOAN AND SECURITY AGREEMENT
(f) USE OF PROCEEDS; ACG ACQUISITION; DIRECT
REMITTANCE BY PFG. The proceeds of the
Loan are to be used for general working
capital purposes. Notwithstanding the
foregoing, Borrower represents that (i)
a portion of the proceeds of the Loan,
are anticipated to be used shortly after
the date hereof to acquire certain
assets and associated operating
liabilities of ACG Dynamics, Inc. (the
"ACG Assets") pursuant to the terms of
that certain draft Asset Purchase
Agreement delivered to PFG on November
9, 2004 (the "Asset Purchase
Agreement"), (ii) Borrower has organized
QACG, to acquire the ACG Assets, (iii)
the ACG Assets are subject to a lien in
favor of ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇ Bank (the
"▇▇▇▇▇ ▇▇▇▇"), and (iv) there are no
other liens on the ACG Assets other than
liens disclosed in Exhibit A to this
Schedule. PFG consents to the purchase
of the ACG Assets, the formation of a
new wholly-owned Subsidiary, QACG to
purchase the ACG Assets and carry on the
business associated therewith, and the
use of Loan proceeds to consummate the
purchase of ACG Assets upon terms
materially consistent with the terms of
the Asset Purchase Agreement. PFG shall
directly remit up to a maximum of
$160,434.08, and Borrower consents to
PFG's direct payment of such amount, to
▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇ Bank to discharge the
▇▇▇▇▇ ▇▇▇▇. If PFG shall receive notice
from Borrower that it will not conclude
the purchase of ACG Assets as
contemplated in the Asset Purchase
Agreement, upon Borrower request, PFG
shall promptly remit the Loan proceeds
withheld for such purpose to Borrower
and Borrower shall use such proceeds for
general working capital purposes.
(g) OTHER AFFILIATES. Borrower represents
and warrants that, except for QACG,
Borrower does not have any other direct
or indirect Subsidiaries. Except for
QACG, Borrower shall not have any other
direct or indirect Subsidiaries, except
Subsidiaries which have executed and
delivered to PFG a Continuing Guaranty
with respect to all of the Obligations,
and a Security Agreement granting PFG a
security interest in all of their
assets, and certified resolutions or
other evidence of authority with respect
to the execution and delivery of such
Guaranty and Security Agreement, all
pursuant to documentation acceptable to
PFG in its good faith business judgment,
all of which continues in full force and
effect.
(h) INTELLECTUAL PROPERTY SECURITY
AGREEMENTS. QualMark and QACG are
concurrently executing and delivering to
PFG Intellectual Property Security
Agreements. Borrower shall provide PFG
with the Exhibits to all such Security
Agreements of Borrower and QACG which
list their respective trademarks and
patents, within 15 days after the date
hereof. None of Borrower or QACG have
any copyrights registered with the
United States Copyright Office.
(i) PIGGYBACK REGISTRATION RIGHTS. QualMark
undertakes to provide PFG with the
piggyback registration rights set forth
in Exhibit B in respect of QualMark
Common Stock issued upon exercise of
PFG's conversion rights under Schedule
Section 1(d) and with respect to Common
Stock issuable pursuant to the exercise
of a Warrant under Schedule Section
8(d), as the case may be.
PARTNERS FOR GROWTH SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower: PFG:
QualMark Corporation PARTNERS FOR GROWTH, L.P.
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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PRESIDENT OR VICE PRESIDENT Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Manager, Partners for Growth, LLC
Its General Partner
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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SECRETARY OR ASS'T SECRETARY
Borrower:
QualMark ACG Corporation
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
SECRETARY OR ASS'T SECRETARY
EXHIBIT A TO LOAN AND SECURITY AGREEMENT
Section 7--"Permitted Indebtedness"--Other Existing Permitted Indebtedness:
1. "Indebtedness" disclosed on QualMark's Form 10QSB dated September 30, 2004
and provided to PFG.
2. Equipment Leases:
QUALMARK CORPORATION
Lease dated July 8, 2004, Dell Computers, for computer servers and related
software, with approximately $26,000 remaining
Lease dated December 12, 2001, Hewlett Packard, for computer server and
related software, with approximately $3,000 remaining
Lease dated May 3, 2003, Inter-tel, for internal telephone equipment and
related software, with approximately $28,000 remaining.
Continuing operating lease, Pitney ▇▇▇▇▇, for postage machine, with
approximately $150 per quarter payments.
QUALMARK ACG CORPORATION
Lease dated December 3, 2002, Konica, for a copy machine, with
approximately $2,000 remaining.
Lease dated August 27, 2003, Fleet, for internal telephone system and
related software, with approximately $6,000 remaining.
Continuing operating lease, Pitney ▇▇▇▇▇, for postage machine, with
approximately $50 per quarter payments.
Section 8 - "Inside Debt":
NONE
Section 7--"Permitted Investments"--Other Existing Permitted Investments:
1. The acquisition of the ACG Assets generally upon the terms set forth in
that certain draft Asset Purchase Agreement dated November 12, 2004.
1. PIGGYBACK REGISTRATION RIGHTS.
1.1 Piggyback Rights. If (but without any obligation to do so) QualMark (the
"Company") proposes to register any of its equity securities under the United
States Securities Act of 1933 (the "Act") in connection with the public offering
of such shares (other than (i) a registration relating solely to the sale of
securities to participants in a Company equity option or share rights or share
purchase plan, (ii) a registration relating to a corporate reorganization or
other transaction under Rule 145 of the Act, or (iii) a registration relating to
the offer and sale of debt securities, (iv) a registration on any registration
form that does not permit secondary sales, or (v) a registration on any form
that does not include substantially the same information as would be required to
be included in a registration statement covering the sale of the Common Stock
issuable upon conversion of the PFG Loan or exercise of the Warrant (under
Schedule Section 8(d), as applicable (the "Conversion Stock"), the Company
shall, at such time, promptly give PFG written notice of such registration. Upon
the written request of PFG given within ten (10) business days after mailing of
such notice by the Company, the Company shall, subject to the provisions of
Section 1.4 of this Exhibit C, use all commercially reasonable efforts to cause
a registration statement to become effective, which includes all of the
Conversion Stock that PFG requests to be registered by such notice and for which
PFG (or its individual members) is then the shareholder of record (or would be
the shareholder of record upon conversion of the PFG Loan or exercise of the
Warrant, as applicable).
1.2 Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 1
prior to the effectiveness of such registration whether or not PFG has elected
to include securities in such registration.
1.3 Expenses of Registration. PFG shall bear its pro rata portion of
registration expenses.
1.4 Underwriting Requirements. In connection with any offering involving an
underwriting of Common Stock of the Company, the Company shall not be required
under this Section to include any of the Conversion Stock in such underwriting
unless PFG accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters) and enters into an underwriting agreement in customary
form with an underwriter or underwriters selected by the Company. If the total
amount of securities, including Conversion Stock, requested by shareholders or
other securities holders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Conversion Stock, that the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling shareholders, including
PFG, according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as may be
mutually agreed to by such selling shareholders).
1.5 Information from PFG. It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to the
Conversion Stock that PFG shall furnish to the Company such information
regarding itself and its individual members, the Conversion Stock held by PFG or
its members, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Conversion Stock.
1.6 No Delay of Registration. PFG shall not have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
2. INDEMNIFICATION
In the event any shares of Conversion Stock are included in a registration
statement under Section 1 of this Exhibit C:
2.1 The Company Indemnity. To the extent permitted by law, the Company will
indemnify, defend and hold harmless PFG, its partners or officers, directors,
shareholders, legal counsel and accountants for PFG, any underwriter (as defined
in the Act) for PFG and each person, if any, who controls PFG or underwriter,
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (each an "Indemnified Person"), against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or any state
securities laws, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities laws or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities laws in
connection with such registration; and the Company will
reimburse each Indemnified Person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided
however that the indemnity agreement contained in this Section 2.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any Indemnified Person; provided
further, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Person
from whom the person asserting any such losses, claims, damages or liabilities
purchased Conversion Stock in the offering, if a copy of the prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Indemnified
Person to such person, if required by law so to have been delivered, at or prior
to the written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
2.2 PFG Indemnity. To the extent permitted by law, PFG and each of them will
jointly and severally indemnify, defend and hold harmless the Company, each of
its directors, each of its officers, each of its partners, each person, if any,
who controls the Company within the meaning of the Securities Act, legal counsel
and accountants for the Company, any underwriter, any other shareholder selling
securities in such registration statement and any controlling person of any such
underwriter or other shareholder, against any losses, claims, damages or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Securities Act, the Exchange Act or any state securities
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation (but excluding
clause (iii) of the definition thereof), in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by PFG expressly for use in connection with such
registration; and PFG will reimburse any person intended to be indemnified
pursuant to this Section 2.2 for any legal or other expenses reasonably incurred
by such person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however that the indemnity
agreement contained in this Section 2.2 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of PFG (which consent shall not be
unreasonably withheld).
2.3 Prompt Notice Required. Promptly after receipt by an indemnified party under
this Section 2 of actual knowledge of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided however that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2 to the extent of such prejudice, but the omission to so deliver written notice
to the indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Section 2.3.
2.4 Alternative Relief. If the indemnification provided for in this Section 2 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of and the
relative benefits received by the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage or expense, as well as any
other relevant equitable considerations, provided that no person guilty of fraud
shall be entitled to contribution. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. The relative benefits received by the
indemnifying party and the indemnified party shall be determined by reference to
the net proceeds and underwriting discounts and commissions from the offering
received by each such party.
2.5 Underwriting Agreement. Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions of this Section 2, the provisions in
the underwriting agreement shall control.
2.6 Survival. The obligations of the Company and PFG under this Section 2 shall
survive the completion of any offering of the Conversion Stock in a registration
statement under Section 1 of this Exhibit C.
3. ASSIGNMENT
The rights to cause the Company to register Conversion Stock pursuant to Section
1 of this Exhibit C may be assigned (but only with all related obligations) by
PFG to a transferee or assignee of such securities provided; (a) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of the Agreement.
4. TERMINATION OF REGISTRATION RIGHTS
PFG shall not be entitled to exercise any right provided for in Section 1 of
this Exhibit C after such time at which all Conversion Stock of the relevant
holder can be sold in any three (3) month period without registration in
compliance with Rule 144 of the Act.