EXHIBIT 10.30
LOAN AND SECURITY AGREEMENT
QUALMARK CORPORATION
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TABLE OF CONTENTS
Page
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1 ACCOUNTING AND OTHER TERMS.............................................................................. 4
2 LOAN AND TERMS OF PAYMENT............................................................................... 4
2.1 Promise to Pay................................................................................. 4
2.2 Overadvances................................................................................... 5
2.3 Interest Rate, Payments........................................................................ 5
2.4 Fees........................................................................................... 6
3 CONDITIONS OF LOANS..................................................................................... 6
3.1 Conditions Precedent to Initial Credit Extension............................................... 6
3.2 Conditions Precedent to all Credit Extensions.................................................. 6
4 CREATION OF SECURITY INTEREST........................................................................... 7
4.1 Grant of Security Interest..................................................................... 7
4.2 Authorization to File.......................................................................... 7
5 REPRESENTATIONS AND WARRANTIES.......................................................................... 7
5.1 Due Organization and Authorization............................................................. 7
5.2 Collateral..................................................................................... 7
5.3 Litigation..................................................................................... 8
5.4 No Material Adverse Change in Financial Statements............................................. 8
5.5 Solvency....................................................................................... 8
5.6 Regulatory Compliance.......................................................................... 8
5.7 Subsidiaries................................................................................... 8
5.8 Full Disclosure................................................................................ 8
6 AFFIRMATIVE COVENANTS................................................................................... 9
6.1 Government Compliance.......................................................................... 9
6.2 Financial Statements, Reports, Certificates.................................................... 9
6.3 Inventory; Returns............................................................................. 9
6.4 Taxes.......................................................................................... 10
6.5 Insurance...................................................................................... 10
6.6 Primary Accounts............................................................................... 10
6.7 Financial Covenants............................................................................ 10
6.8 Registration of Intellectual Property Rights................................................... 10
6.9 Further Assurances............................................................................. 11
7 NEGATIVE COVENANTS...................................................................................... 11
7.1 Dispositions................................................................................... 11
7.2 Changes in Business, Ownership, Management or Business Locations............................... 11
7.3 Mergers or Acquisitions........................................................................ 11
7.4 Indebtedness................................................................................... 11
7.5 Encumbrance.................................................................................... 11
7.6 Distributions; Investments..................................................................... 11
7.7 Transactions with Affiliates................................................................... 12
7.8 Subordinated Debt.............................................................................. 12
7.9 Compliance..................................................................................... 12
8 EVENTS OF DEFAULT....................................................................................... 12
8.1 Payment Default................................................................................ 12
8.2 Covenant Default............................................................................... 12
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8.3 Material Adverse Change........................................................................ 12
8.4 Attachment..................................................................................... 13
8.5 Insolvency..................................................................................... 13
8.6 Other Agreements............................................................................... 13
8.7 Judgments...................................................................................... 13
8.8 Misrepresentations............................................................................. 13
8.9 Guaranty....................................................................................... 13
9 BANK'S RIGHTS AND REMEDIES.............................................................................. 13
9.1 Rights and Remedies............................................................................ 13
9.2 Power of Attorney.............................................................................. 14
9.3 Accounts Collection............................................................................ 14
9.4 Bank Expenses.................................................................................. 14
9.5 Bank's Liability for Collateral................................................................ 14
9.6 Remedies Cumulative............................................................................ 15
9.7 Demand Waiver.................................................................................. 15
10 NOTICES................................................................................................. 15
11 CHOICE OF LAW , VENUE................................................................................... 15
12 GENERAL PROVISIONS...................................................................................... 15
12.1 Successors and Assigns......................................................................... 15
12.2 Indemnification................................................................................ 15
12.3 Time of Essence................................................................................ 15
12.4 Severability of Provision...................................................................... 15
12.5 Amendments in Writing, Integration............................................................. 16
12.6 Counterparts................................................................................... 16
12.7 Survival....................................................................................... 16
12.8 Confidentiality................................................................................ 16
12.9 Attorneys' Fees, Costs and Expenses............................................................ 16
13 DEFINITIONS............................................................................................. 16
13.1 Definitions.................................................................................... 16
14 JURY TRIAL WAIVER. ..................................................................................... 22
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This LOAN AND SECURITY AGREEMENT dated November 9, 2004 but effective as
of the Effective Date, between SILICON VALLEY BANK ("Bank"), whose address is
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ with a loan production office
located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and QUALMARK
CORPORATION ("Borrower"), whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ provides the terms on which Bank will lend to Borrower and
Borrower will repay Bank. The parties agree as follows:
ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document.
LOAN AND TERMS OF PAYMENT
Promise to Pay.
Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
Revolving Advances.
Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line minus all amounts for services utilized under the Cash
Management Services Sublimit or (B) the Borrowing Base, minus (ii) the amount of
all outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), and minus (iii) the FX Reserve. Amounts borrowed under this Section may
be repaid and reborrowed during the term of this Agreement.
To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 12:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank
reasonably believes is a Responsible Officer or designee. Borrower will
indemnify Bank for any loss Bank suffers due to such reliance.
____________________The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances are immediately payable.
Bank's obligation to lend the undisbursed portion of the Obligations will
terminate if, in Bank's good faith business judgment, there has been a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations, or there has been any material adverse deviation by Borrower from
the most recent business plan of Borrower presented to and accepted by Bank
prior to the execution of this Agreement.
Letters of Credit Sublimit.
Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances minus the Cash
Management Sublimit, minus the FX Reserve; however, the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) may not exceed $200,000. Each Letter of Credit will have an expiry date
of no later than 180 days after the Revolving Maturity Date, but Borrower's
reimbursement obligation will be secured by cash on terms acceptable to Bank at
any time after the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request.
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Foreign Exchange Sublimit.
If there is availability under the Committed Revolving Line and the
Borrowing Base, then Borrower may enter in foreign exchange forward contracts
with the Bank under which Borrower commits to purchase from or sell to Bank a
set amount of foreign currency more than one business day after the contract
date (the "FX Forward Contract"). Bank will subtract 10% of each outstanding FX
Forward Contract from the foreign exchange sublimit which is a maximum of
$200,000 (the "FX Reserve"). The total FX Forward Contracts at any one time may
not exceed 10 times the amount of the FX Reserve. Bank may terminate the FX
Forward Contracts if an Event of Default occurs.
Cash Management Services Sublimit.
Borrower may use up to $200,000 (the "Cash Management Services Sublimit")
for Bank's Cash Management Services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in various cash management services agreements related to such services (the
"Cash Management Services"). Such aggregate amounts utilized under the Cash
Management Services Sublimit will at all times reduce the amount otherwise
available to be borrowed under the Committed Revolving Line. Any amounts Bank
pays on behalf of Borrower or any amounts that are not paid by Borrower for any
Cash Management Services will be treated as Advances under the Committed
Revolving Line and will accrue interest at the rate for Advances.
Term Loan Advance.
_____________________________Bank will make an advance (the "Term Loan
Advance") not exceeding the Committed Term Loan. The Term Loan Advance shall be
made on or promptly following the Effective Date and the proceeds shall be used
only to pay all of Borrower's existing Indebtedness owing to U.S. Bank National
Association, to pay transaction fees and for general working capital. The Term
Loan Advance may not exceed the lesser of the Borrower's gross book value of
fixed assets or the Committed Term Loan.
The Term Loan Advance shall immediately amortize and be payable in 36 equal
payments of principal and interest beginning the first day of the month
following such Term Loan Advance and continuing on the first day of each month
thereafter. The final payment due on the Term Loan Maturity Date shall include
all outstanding principal and all accrued unpaid interest. When repaid, the Term
Loan Advance may not be reborrowed.
(c) To obtain the Term Loan Advance, Borrower must notify Bank (the notice
is irrevocable) by facsimile no later than 12:00 p.m., Pacific time, 1 Business
Day before the day on which the Term Loan Advance is to be made. The notice, in
the form of Exhibit B (Payment/Advance Form) must be signed by a Responsible
Officer or designee.
(d) Borrower shall have the option to prepay all, but not less than all,
of the Term Loan Advance advanced by Bank under this Agreement, provided
Borrower (i) provides written notice to Bank of its election to prepay the Term
Loan Advance at least thirty (30) days prior to such prepayment, and (ii) pays,
on the date of the prepayment (A) all unpaid principal with respect to the Term
Loan Advance; (B) all unpaid accrued interest to the date of the prepayment; and
(C) all other sums, if any, that shall have become due and payable hereunder
with respect to this Agreement.
Overadvances.
If Borrower's Obligations under Section 0, 0 and 0 exceed the lesser of
either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess.
Interest Rate, Payments.
2.3.1 As to Advances.
_________________________Interest Rate. (i) Advances accrue interest on the
outstanding principal balance at a per annum rate of 1 percentage point above
the Prime Rate, but such rate shall not be less than 5.5% per annum. After an
Event of Default, Obligations accrue interest at 3 percent above the rate
effective
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immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
__________________________Payments. Interest due on the Committed Revolving Line
is payable on the same day of each month as the day of the month the Effective
Date occurs. Payments received after 12:00 noon Pacific time are considered
received at the opening of business on the next Business Day. When a payment is
due on a day that is not a Business Day, the payment is due the next Business
Day and additional fees or interest accrue.
2.3.2 As to Term Loan Advances.
(a) Interest Rate. The Term Loan Advance accrues interest on the
outstanding principal balance at a per annum rate equal to the Term Loan Basic
Rate. After an Event of Default, Obligations accrue interest at 3 percent above
the rate effective immediately before the Event of Default. Interest is computed
on a 360 day year for the actual number of days elapsed.
(b) Payments. Payments received after 12:00 noon Pacific time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next
Business Day and additional interest shall accrue.
Additional Costs.
If any new law or regulation increases Bank's costs or reduces its income
for any loan, Borrower will pay the increase in cost or reduction in income or
additional expense; provided, however, that Borrower shall not be liable for any
amount attributable to any period before 180 days prior to the date Bank
notifies Borrower of such increased costs. Bank agrees that it will allocate any
increased costs among its customers similarly affected in good faith an in a
manner consistent with Bank's customary practices.
Request to Debit Accounts.
Bank may debit any of Borrower's deposit accounts including Account Number
_____________________ for principal and interest payments or any amounts
Borrower owes Bank when due. Bank will notify Borrower when it debits Borrower's
accounts.
Fees.
Borrower will pay:
___________________________ Facility Fee. A fully earned, non-refundable
Facility Fee of $11,250 for the Committed Revolving Line due on the Effective
Date; and
Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and reasonable expenses) incurred through and after the date of this Agreement,
are payable when due.
CONDITIONS OF LOANS
Conditions Precedent to Initial Credit Extension.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the fees set forth herein and such further
documentation that it requires in its good faith business judgment.
Conditions Precedent to all Credit Extensions.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
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___________________________timely receipt of any Payment/Advance Form; and
___________________________the representations and warranties in Section 0 must
be materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 0 remain true.
CREATION OF SECURITY INTEREST
Grant of Security Interest.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account at Bank pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
If Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 Authorization to File.
Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank reasonably deems
appropriate, in order to perfect or protect Bank's interest in the Collateral.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change. Borrower has not
changed its state of formation or its organizational structure or type or any
organizational number (if any) assigned by its jurisdiction of formation.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.
Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens or Borrower has Rights to each asset that is Collateral. Borrower has no
other deposit account, other than the deposit accounts described in the
Schedule. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor. The
Collateral is not in the possession of any third party bailee (such as at a
warehouse). In the event that Borrower, after the date hereof, intends to store
or otherwise deliver the Collateral to such a bailee, then Borrower will receive
the prior written consent of Bank and such bailee must acknowledge in writing
that the bailee is holding such Collateral for the benefit of Bank. Borrower has
no notice of any actual or imminent Insolvency Proceeding of any account debtor
whose accounts are an Eligible Account in any Borrowing Base Certificate. All
Inventory is in all material respects of good and marketable quality, free from
material defects. Borrower is the sole owner of the Intellectual Property,
except for non-exclusive licenses granted to its customers in the ordinary
course of business.
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Each Patent is valid and enforceable and no part of the Intellectual Property
has been judged invalid or unenforceable, in whole or in part, and no claim has
been made that any part of the Intellectual Property violates the rights of any
third party, except to the extent such claim could not reasonably be expected to
cause a Material Adverse Change.
Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision could
reasonably be expected to cause a Material Adverse Change.
No Material Adverse Change in Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or (to the best of Borrower's knowledge) by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.
Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
Full Disclosure.
No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading. It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.
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AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an
obligation to lend, or there are outstanding Obligations:
Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower's business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or would reasonably
be expected to cause a Material Adverse Change.
Financial Statements, Reports, Certificates.
___________________________Borrower will deliver to Bank: (i) as soon as
available, but no later than 15 days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period certified by a Responsible Officer and
in a form acceptable to Bank; (ii) as soon as available, but no later than 90
days after the last day of Borrower's fiscal year, audited consolidated and
consolidating financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the consolidated financial statements
from an independent certified public accounting firm reasonably acceptable to
Bank; (iii) a prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; (iv) budgets, sales projections, operating
plans or other financial information Bank reasonably requests; and (v) prompt
notice of any material change in the composition of the Intellectual Property,
including any subsequent ownership right of Borrower in or to any Copyright,
Patent or Trademark not shown in any intellectual property security agreement
between Borrower and Bank or knowledge of an event that materially adversely
affects the value of the Intellectual Property.
___________________________Within 15 days after the last day of each month,
Borrower will deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts
receivable and accounts payable.
___________________________Within 15 days after the last day of each month,
Borrower will deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of Exhibit D.
___________________________Prior to the occurrence of an Event of Default, at
reasonable times and upon reasonable notice, and, after an Event of Default has
occurred and is continuing, at any time, Borrower will allow Bank to audit
Borrower's Collateral at Borrower's expense for Bank's customary costs of such
audits. Such audits will be conducted no more often than annually unless an
Event of Default has occurred and is continuing.
(e) Within 30 days prior to the beginning of each fiscal year of Borrower,
Borrower will deliver to Bank a copy of Borrower's board of director's approved
financial projections for the coming fiscal year, including income statements,
balance sheets and cash flow statements.
Inventory; Returns.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than $50,000.
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Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.
Insurance.
Borrower will keep its business and the Collateral insured for risks and
in amounts standard for Borrower's industry, and as Bank may reasonably request.
Insurance policies will be in a form, with companies, and in amounts that are
satisfactory to Bank in Bank's reasonable discretion. All property policies will
have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
Primary Accounts.
Borrower will maintain its primary banking relationship with Bank, which
relationship shall include, commencing 30 days after the Effective Date,
Borrower maintaining account balances in any accounts at or through Bank
representing at least 85% of all account balances of Borrower held at or with
any financial institution located in the United States of America.
Financial Covenants.
Borrower will maintain as of the last day of each month:
(i) Minimum Quick Ratio. A ratio of Quick Assets to Current
Liabilities of at least 1.10 to 1.00 as of 12/31/2004; 1.00 to 1.00 as of the
end of each of the first two months of each fiscal quarter; and 1.20 to 1.00 as
of the end of the third month of each fiscal quarter; and
(ii) Minimum Debt Service Coverage Ratio. A ratio, measured on a
rolling three-month basis, of (a) EBITDA to (b) the required principal payments
on the Term Loan Advances plus interest expense on all Indebtedness of Borrower
owing to Bank, of at least 2.00 to 1.00.
Registration of Intellectual Property Rights.
Borrower shall not register any Copyrights or Mask Works with the United
States Copyright Office unless it: (i) has given at least fifteen (15) days'
prior notice to Bank of its intent to register such Copyrights or Mask Works and
has provided Bank with a copy of the application it intends to file with the
United States Copyright Office (excluding exhibits thereto); (ii) executes a
security agreement or such other documents as Bank may reasonably request in
order to maintain the perfection and priority of Bank's security interest in the
Copyrights proposed to be registered with the United States Copyright Office;
and (iii) records such security documents with the United States Copyright
Office contemporaneously with filing the Copyright application(s) with the
United States Copyright Office. Borrower shall promptly provide to Bank a copy
of the Copyright application(s) filed with the United States Copyright Office,
together with evidence of the recording of the security documents necessary for
Bank to maintain the perfection and priority of its security interest in such
Copyrights or Mask Works. Borrower shall provide written notice to Bank of any
application filed by Borrower in the United States Patent Trademark Office for a
patent or to register a trademark or service ▇▇▇▇ within 30 days of any such
filing.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property material
to Borrower's business to be abandoned, forfeited or dedicated to the public
without Bank's written consent.
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Further Assurances.
Borrower will execute any further instruments and take further action as
Bank reasonably requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
NEGATIVE COVENANTS
For so long as Bank has an obligation to lend or there are any outstanding
Obligations, Borrower shall not, without Bank's prior written consent (which
shall be a matter of its good faith business judgment, unless otherwise stated),
do any of the following:
Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; (iii) of worn-out or obsolete Equipment; or (iv) of other assets
not exceeding $50,000 in any one instance.
Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto and to be engaged in following the acquisition of assets of ACG
Dynamics, Inc., or have a material change in its ownership or management of
greater than 25% (other than by the sale of Borrower's equity securities in a
public offering or to venture capital investors so long as Borrower identifies
the venture capital investors prior to the closing of the investment). Borrower
will not, without at least 30 days prior written notice, relocate its chief
executive office, change its state of formation (including reincorporation),
change its organizational number or name, or add any new offices or business
locations (such as warehouses) in which Borrower maintains or stores over $5,000
in Collateral, except such new offices and business locations acquired in the
acquisition of assets of ACG Dynamics, Inc.
Mergers or Acquisitions.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except, as long as no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement, (i) where such transaction would not result in a decrease of more
than 25% of Tangible Net Worth; (ii) Borrower may acquire all or the capital
stock or property of ACG Dynamics, Inc.; or (iii) a Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.
Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
Encumbrance.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.
Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than those related to the acquisition of assets of ACG
Dynamics, Inc. and other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
11
Transactions with Affiliates.
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.
Subordinated Debt.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
Compliance.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonably be expected to have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
EVENTS OF DEFAULT
Any one of the following is an Event of Default:
Payment Default.
If Borrower fails to pay any of the Obligations within 3 days after their
due date. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extension will be made during the cure period);
Covenant Default.
___________________________ If Borrower fails to perform any obligation under
Sections 6.2 or violates any of the covenants contained in Section 7 of this
Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Credit Extensions will be made
during such cure period);
Material Adverse Change.
If there (i) occurs a material adverse change in the business, operations,
or condition (financial or otherwise) of the Borrower, or (ii) is a material
impairment of the prospect of repayment of any portion of the Obligations, or
(iii) is a material impairment of the value or priority of Bank's security
interests in the Collateral (the foregoing being defined as a "Material Adverse
Change");
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Attachment.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
Other Agreements.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
Judgments.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied);
Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or
Guaranty.
Any guaranty of any Obligations ceases for any reason to be in full force
or any Guarantor does not perform any obligation under any guaranty of the
Obligations, or any material misrepresentation or material misstatement exists
now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 0, 0 or 0 occurs to any
Guarantor.
BANK'S RIGHTS AND REMEDIES
Rights and Remedies.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
___________________________Declare all Obligations immediately due and payable
(but if an Event of Default described in Section 0 occurs all Obligations are
immediately due and payable without any action by Bank);
___________________________Stop advancing money or extending credit for
Borrower's benefit under this Agreement or under any other agreement between
Borrower and Bank;
___________________________Settle or adjust disputes and claims directly with
account debtors for amounts, on terms and in any order that Bank considers
advisable in its good faith business judgment;
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___________________________Make any payments and do any acts it considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower will assemble the Collateral if Bank requires and make it available as
Bank designates. Bank may enter premises where the Collateral is located, take
and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Bank a license
to enter and occupy any of its premises, without charge, to exercise any of
Bank's rights or remedies;
___________________________Apply to the Obligations any (i) balances and
deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for
the credit or the account of Borrower;
___________________________Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is
granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any
name, trade secrets, trade names, Trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
___________________________Dispose of the Collateral according to the Code.
Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney with respect to the Collateral
to: (i) endorse Borrower's name on any checks or other forms of payment or
security; (ii) sign Borrower's name on any invoice or ▇▇▇▇ of lading for any
Account or drafts against account debtors, (iii) make, settle, and adjust all
claims under Borrower's insurance policies; (iv) settle and adjust disputes and
claims about the Accounts directly with account debtors, for amounts and on
terms Bank determines reasonable; and (v) transfer the Collateral into the name
of Bank or a third party as the Code permits. Bank may exercise the power of
attorney to sign Borrower's name on any documents necessary to perfect or
continue the perfection of any security interest created hereunder regardless of
whether an Event of Default has occurred. Bank's appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
Accounts Collection.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 0, and take any action under the policies
Bank deems prudent in its good faith business judgment. Any amounts paid by Bank
in its good faith business judgment are Bank Expenses and immediately due and
payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank's waiver of any Event of Default.
Bank's Liability for Collateral.
If Bank complies with reasonable banking practices and the Code, it is not
liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
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Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
CHOICE OF LAW , VENUE
Colorado law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Boulder County, Colorado.
GENERAL PROVISIONS
Successors and Assigns.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
Indemnification.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
Severability of Provision.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
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Amendments in Writing, Integration.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 0 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
Attorneys' Fees, Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.
DEFINITIONS
Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
16
"Bank Expenses" are all reasonable audit fees and expenses and reasonable
costs and expenses (including reasonable attorneys' fees and expenses) for
preparing, negotiating, administering, defending and enforcing the Loan
Documents (including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Borrowing Base" is 80% of Eligible Accounts plus Eligible Foreign
Accounts as determined by Bank from Borrower's most recent Borrowing Base
Certificate; provided, however, that Bank may, in its good faith business
judgment, lower the percentage of the Borrowing Base after performing an audit
of Borrower's Collateral.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Capitalized Product Development Costs" are all costs associated with the
development of Borrower's product, including, but not limited to software, that
are not recorded as an expense and have been classified as an asset account.
"Cash Management Services" are defined in Section 0.
"Code" is the Uniform Commercial Code, as applicable.
"Collateral" is the property described on Exhibit A.
"Committed Revolving Line" is an Advance of up to $1,500,000.
"Committed Term Loan" is a Credit Extension of up to $750,000 in the
aggregate.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Copyrights" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"Credit Extension" is each Advance, Term Loan Advance, Letter of Credit,
FX Forward Contract, or any other extension of credit by Bank for Borrower's
benefit.
"Current Assets" are amounts that under GAAP should be included on that
date as current assets on Borrower's consolidated balance sheet.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year, minus the amount of the reserve
for warranty obligations that is shown as a liability on Borrower's books.
"EBITDA" is Borrower's consolidated earnings before interest expense,
income taxes, depreciation, amortization of intangible assets and other non-cash
charges made to Borrower's income.
"Effective Date" is the date Bank executes this Agreement.
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"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 0;
but Bank may, in its good faith business judgment, change eligibility standards
by giving Borrower notice. Unless Bank agrees otherwise in writing, Eligible
Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States except for Eligible Foreign
Accounts;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval, ▇▇▇▇
and hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes, in its good faith business judgment, there may be
a basis for dispute (but only up to the disputed or claimed amount), or if
the Account Debtor is subject to an Insolvency Proceeding, or becomes
insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"Eligible Foreign Accounts" are Accounts which are otherwise Eligible
Accounts and at Borrower's option, exercisable once on the Effective Date, are
either (a) Accounts for which the account debtor is one of Samsung, Chroma ATE
or Emitech up to an aggregate of $375,000; or (b) Accounts which are insured by
an export credit insurance policy issued by the Export-Import Bank of the United
States or other insurance company acceptable to Bank and the proceeds of such
policy have been duly assigned to Bank and subject to reserves for any
applicable deductibles.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"FX Forward Contract" is defined in Section 0.
"FX Reserve " is defined in Section 0.
"GAAP" is generally accepted accounting principles.
"Guarantor" is any present or future guarantor of the Obligations.
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"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to ▇▇▇ and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Letter of Credit" is defined in Section 0.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"Material Adverse Change" is described in Section 0.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"Patents" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
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"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Effective Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Effective Date;
and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) 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 (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.
"Permitted Liens" are:
(a) Liens existing on the Effective Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Licenses or sublicenses granted in the ordinary course of Borrower's
business and any interest or title of a licensor or under any license or
sublicense, as long as the licenses and sublicenses do not prohibit granting
Bank a security interest;
(e) Leases or subleases granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or leased
property;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash and cash equivalents held at Bank plus Borrower's Accounts.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
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"Revolving Maturity Date" is the date 12 months from the Effective Date,
less one day.
"Rights", as applied to the Collateral, means the Borrower's rights and
interests in, and powers with respect to, that Collateral, whatever the nature
of those rights, interests and powers and, in any event, including Borrower's
power to transfer rights in such Collateral to Bank.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank, in its good faith business
judgment, and approved by Bank in writing, including, without limitation, debt
to be incurred by Borrower to Partners for Growth, L.P. up to a maximum
aggregate amount of $2,000,000.
"Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
"Term Loan Advance" is defined in Section 0.
"Term Loan Basic Rate" is, as of the date of the Term Loan Advance, the
per annum rate of interest equal to the sum of (a) the U.S. Treasury note yield
to maturity for a term equal of 36 months as quoted in The Wall Street Journal
on the day of the Term Loan Advance, plus (b) 375 basis points, but not less
than 6.5% per annum.
"Term Loan Maturity Date" is a date 36 months after the Term Loan Advance.
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"Trademarks" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
14. BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
BORROWER:
QUALMARK CORPORATION
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------
Title: CFO
21
BANK:
SILICON VALLEY BANK
By: /s/▇▇▇▇▇ ▇▇▇▇▇ Effective Date: 11/9/04
----------------
Title: Associate
22
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following whether owned now or hereafter arising:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles (as such definitions may be
amended from time to time according to the Code), now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower (as such definitions may be amended from time
to time according to the Code) whether or not earned by performance, and any and
all credit insurance, insurance (including refund) claims and proceeds,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, letter of credit rights, certificates of deposit, instruments
and chattel paper and electronic chattel paper now owned or hereafter acquired
and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.S.T.
FAX TO: DATE:_______________
[ ] Loan Payment:
QualMark Corporation
From Account #___________________ To Account #_________________
(Deposit Account #) (Loan Account #)
Principal $__________________and/or Interest $______________________
All Borrower's representation and warranties in the Loan and Security
Agreement are true, correct and complete in all material respects to on the
date of the telephone transfer request for and advance, but those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of the date:
AUTHORIZED SIGNATURE:_________________________Phone Number:________________
[ ]LOAN ADVANCE:
COMPLETE OUTGOING WIRE REQUEST SECTION BELOW IF ALL OR A PORTION OF THE
FUNDS FROM THIS LOAN ADVANCE ARE FOR AN OUTGOING WIRE.
From Account #___________________________ To Account #____________________
(Loan Account #) (Deposit Account #)
Amount of Advance $_____________________
All Borrower's representation and warranties in the Loan and Security
Agreement are true, correct and complete in all material respects to on
the date of the telephone transfer request for and advance, but those
representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of the date:
AUTHORIZED SIGNATURE:_____________________ Phone Number:____________________
OUTGOING WIRE REQUEST
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE ARE TO
BE WIRED.
Deadline for same day processing is 12:00pm, P.S.T.
Beneficiary Name:____________________ Amount of Wire:$____________________
Beneficiary Bank:____________________ Account Number: ____________________
City and Sate:_______________________
Beneficiary Bank Transit (ABA) #:___ Beneficiary Bank Code (Swift, Sort,
Chip, etc.):_______________________
(FOR INTERNATIONAL WIRE ONLY)
Intermediary Bank:___________________ Transit (ABA) #:_____________________
For Further Credit to:_______________________________________________________
Special Instruction:_________________________________________________________
By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: QualMark Corporation Bank: Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Commitment Amount: $1,500,000
ACCOUNTS RECEIVABLE
..............ACCOUNTS RECEIVABLE BOOK VALUE AS OF____ $__________
..............ADDITIONS (PLEASE EXPLAIN ON REVERSE) $________
..............TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
..............AMOUNTS OVER 90 DAYS DUE $_______
..............BALANCE OF 50% OVER 90 DAY ACCOUNTS $_______
..............CREDIT BALANCES OVER 90 DAYS $_______
..............CONCENTRATION LIMITS $________
..............FOREIGN ACCOUNTS EXCEPT ELIGIBLE FOREIGN ACCOUNTS $__________
..............GOVERNMENTAL ACCOUNTS $________
..............CONTRA ACCOUNTS $
..............PROMOTION OR DEMO ACCOUNTS $________
..............INTERCOMPANY/EMPLOYEE ACCOUNTS $________
..............OTHER (PLEASE EXPLAIN ON REVERSE) $________
..............TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
..............ELIGIBLE ACCOUNTS (#0 MINUS #0) $_________
15A Eligible Foreign Accounts $_________
..............LOAN VALUE OF ACCOUNTS (80% OF #0 AND #15A) $_________
BALANCES
..............MAXIMUM LOAN AMOUNT $_________
..............TOTAL FUNDS AVAILABLE [LESSER OF #0 OR #0] $_________
..............PRESENT BALANCE OWING ON LINE OF CREDIT $_________
..............OUTSTANDING UNDER SUBLIMITS (LC OR FX) $_________
..............RESERVE POSITION (#0 MINUS #0 AND #0) $_________
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
BANK USE ONLY
QualMark Corporation
Rec'd By: ______________
By: ______________________________ Auth. Signer
Authorized Signer Date: __________________
Verified:_______________
Auth. Signer
Date:___________________
________________________
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FROM: QUALMARK CORPORATION
The undersigned authorized officer of QualMark Corporation ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. . In
addition, the undersigned certifies that (1) Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP and (ii) no liens has been levied or claims made
against Borrower or any of its Subsidiaries relating to unpaid employee payroll
or benefits which Borrower has not previously notified in writing to Bank.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements + CC Monthly within 15 days Yes No
Annual (Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 15 days Yes No
A/R Audit Initial and Annual Yes No
Borrowing Base Certificate Monthly within 15 days Yes No
Annual Projections 30 days prior to FYE Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.10:1.00 (12/31/04) _____:1.00 Yes No
1.00:1.00 (1st 2 mo ea FQ)
1.20:1.00 (3d mo ea FQ)
Minimum Debt Service Coverage Ratio 2.00:1.00 _____:1.00 Yes No
Have there been updates to Borrower's intellectual property, if appropriate?
Yes / No
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:________________________
AUTHORIZED SIGNER
Date:_______________________________
Verified:___________________________
AUTHORIZED SIGNER
Date:_______________________________
Compliance Status: Yes No
Sincerely,
QualMark Corporation
____________________________
SIGNATURE
____________________________
TITLE
____________________________
DATE