which such Person is contesting pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance (in all material respects) with their terms.
6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers’ industry and location and as Bank may reasonably request. Insurance policies shall be in a form and with companies that are satisfactory to Bank. On and after the date of the initial Credit Extension, all property policies shall have a lender’s loss payable endorsement showing Bank as the lender loss payee and waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured. On and after the date of the initial Credit Extension, all policies (or the loss payable and additional insured endorsements) shall provide that the insurer must give Bank at least twenty (20) days notice before canceling, decreasing the policy limits under, or declining to renew its policy. Borrowers shall provide Bank with written notice of any material amendment to any insurance policy (including, without limitation, any material decrease in policy limits, exclusion or increase in deductible) at the later of twenty (20) days before such amendment is to take effect or when any Borrower first learns of such amendment. At Bank’s request, Borrowers shall deliver certified copies of policies and evidence of all premium payments. Except as otherwise provided in Section 2.1.5(c), proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a)(x) so long as no Event of Default has occurred and is continuing, Borrowers shall have the option of applying the proceeds of any casualty policy up to $3,000,000 with respect to any loss, but not exceeding an aggregate of $3,000,000 for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b)(y) after the occurrence and during the continuance of an Event of Default, all proceeds payable under all casualty policies shall, at the option of Bank, be payable to Bank on account of the Obligations. If any Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.
6.6 Operating Accounts.
(a) Commencing on the date of the initial Credit Extension and continuing thereafter (i) Maintain an operating account with Bank and (ii) cause to be maintained in accounts of Parent, Borrower or Secured Guarantors held with Bank and Bank’s affiliates the lesser of $15,000,000 or an amount equal to 50% of the aggregate cash and Cash Equivalents of Borrowers, Parent and Subsidiaries of Parent.
(b) Provide Bank five (5) days prior written notice before Parent, any Borrower or any Domestic Subsidiary of Parent establishes any Collateral Account at or with any bank or financial institution other than Bank or its Affiliates. In addition, for each Collateral Account that Parent, any Borrower or any Domestic Subsidiary of Parent at any time maintains, Borrowers shall cause the applicable bank or financial institution (other than Bank) at or with which any such Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the employees of Parent, Borrowers or such Subsidiary and identified to Bank by Borrowers as such. Notwithstanding the foregoing, Borrowers shall have until the expiration of sixty (60) days following the Effective Date to provide such Control Agreements with respect to Collateral Accounts in existence on the Effective Date.
6.7 Financial Covenants.
Parent shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Parent and its Subsidiaries:
(a) Quick Ratio. A ratio of Quick Assets to Current Liabilities of at least 1.3 to 1.0.
(b) Tangible Net Worth. A Tangible Net Worth of at least (i) $90,000,000 during the period beginning with the Effective Date through November 30, 2006, (ii) $95,000,000 during the period beginning with December 1, 2006 through May 31, 2007, (iii) $105,000,000 during the period beginning with June 1, 2007 through
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August 31, 2007, (iv) $108,000,000 during the period beginning with September 1, 2007 through November 30, 2007 and (v) $115,000,000 beginning with December 1, 2007 and continuing thereafter; in each of the foregoing cases (y) the minimum Tangible Net Worth requirements will be increased by 50% of Net Income and 50% of issuances of equity (except that, for such purpose, increases in equity due to equity issued upon exercise of options granted under a stock option plan of Parent, a Borrower or any predecessor thereof shall not be included for purposes of computing such increase unless the amount of such increase in equity in a Fiscal Quarter exceeds $500,000, in which case the entire amount of such increase (i.e., not just the excess over $500,000) in the Fiscal Quarter shall be included) after the Effective Date, in accordance with this Section 6.7(b), and (z) if after the Effective Date Parent or a Subsidiary of Parent makes a payment for a purchase or other acquisition of an asset or company (provided that such purchase or acquisition occurred prior to the Effective Date or is allowed under the terms of this Agreement) and because of goodwill, intangibles or in-process research and development that were acquired in such purchase or acquisition the Tangible Net Worth decreases, the minimum Tangible Net Worth requirements will be decreased by the same amount. Increases in the minimum Tangible Net Worth requirements based on consideration received for equity securities shall be effective as of the end of the month in which such consideration is received, and shall continue in effect thereafter; provided that (aa) increases due to equity issued upon the exercise of options granted under a stock option plan as described above, shall be effective as of the end of the month during which the aggregate amount of such increases for the Fiscal Quarter containing such month first exceeds $500,000, and (bb) all such increases which occur in any subsequent month during such Fiscal Quarter shall be effective as of the end of such month. Increases in the minimum Tangible Net Worth requirements based on Net Income shall be effective on the last day of the month in which said Net Income is realized, and shall continue in effect thereafter. Decreases in the minimum Tangible Net Worth requirements based on goodwill, etc. associated with payments for purchases or acquisitions shall be effective on the last day of the month in which such payments are accrued in accordance with GAAP, and shall continue in effect thereafter. Except as described in this subsection with respect to purchases and acquisitions, in no event shall the minimum Tangible Net Worth requirements be decreased.
6.8 Protection of Intellectual Property Rights. Borrowers shall and shall cause Parent and the Subsidiaries of Parent to: (a) protect, defend and maintain the validity and enforceability of the intellectual property that is material to Borrower’s and/or Parent’s business; (b) promptly advise Bank in writing of material infringements of the intellectual property that is material to Borrower’s and/or Parent’s business; and (c) not allow any intellectual property that, to any Borrower’s knowledge, is material to any Borrower’s and/or Parent’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.
6.9 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrowers and their officers, employees and agents and each Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to any Borrower.
6.10 Landlord Consents. At Bank’s request Borrowers shall obtain for Bank landlord consents with respect to locations at which Collateral is located in form acceptable to Bank in its good faith discretion.
6.11 Further Assurances. Borrowers shall execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
No Borrower shall do any of the following without Bank’s prior written consent:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”), or permit Parent or any of the Subsidiaries of Parent to Transfer, all or any part of such Person’s business or property, except for:
(a) Transfers in the ordinary course of business (excluding Transfers of Accounts, but including Transfers of used Financed Equipment subject to the limit set forth below in this Section 7.1) for reasonably equivalent consideration;
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(b) Transfers (i) from any Borrower to Parent or to any other Borrower, (ii) from any Subsidiary of Parent (other than a Borrower) to Parent, any Borrower or any Secured Guarantor, or (iii) from any foreign Subsidiary of Parent to Parent, any Borrower or any other Subsidiary of Parent;
(c) Transfers of property (excluding Transfers of Inventory outside the ordinary course of business and Transfers of Accounts, but including Transfers of used Financed Equipment subject to the limit set forth below in this Section 7.1 and including licenses of intellectual property) for fair market value;
(d) Transfers of property (other than Accounts, Inventory outside the ordinary course of business, Financed Equipment, or intellectual property) in connection with sale-leaseback transactions;
(e) Transfers of property (other than Accounts, Inventory outside the ordinary course of business, Financed Equipment, or intellectual property) to the extent such property is exchanged for credit against, or proceeds are promptly applied to, the purchase price of other property used or useful in the business of a Borrower or the transferor;
(f) Transfers constituting non-exclusive licenses and similar arrangements for the use of the property of the transferor in the ordinary course of business and other non-perpetual licenses that may be exclusive in some respects other than territory (and/or that may be exclusive as to territory only in discreet geographical areas outside of the United States), but that could not result in a legal transfer of transferor’s title in the licensed property;
(g) Transfers otherwise expressly permitted by the Loan Documents;
(h) sales or discounting of delinquent accounts in the ordinary course of business;
(i) Transfers associated with the making or disposition of a Permitted Investment; and
(j) Provided no Event of Default exists or will occur as a result thereof, any exclusive or non-exclusive license (other than to Accounts, Inventory or Financed Equipment) granted in consideration of or to settle any claim or dispute.
Notwithstanding the foregoing, Transfers of used Financed Equipment shall not be permitted under “a” or “c” of this Section 7.1 in a Fiscal Quarter of Borrower to the extent that the aggregate fair market value of all used Financed Equipment transferred in such Fiscal Quarter for all Borrowers exceeds $150,000.
7.2 Changes in Business; Change in Control; Jurisdiction of Formation. Engage in any material line of business other than those lines of business conducted by Borrowers and their Subsidiaries on the date hereof and any businesses reasonably related, complementary or incidental thereto or reasonable extensions thereof; permit or suffer any Change in Control. No Borrower will, without prior written notice, change its jurisdiction of formation.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit Parent or any Subsidiary of Parent to merge or consolidate, with any Person other than a merger of (a) any Subsidiary into any Borrower with such Borrower being the surviving Person, (b) any Subsidiary of Parent (other than a Borrower) into a Secured Guarantor, with such Secured Guarantor being the surviving Person, (c) any foreign Subsidiary of Parent into another foreign Subsidiary of Parent, (d) ev3 Santa Rosa, Inc. into ev3 International, Inc., with ev3 International, Inc. being the surviving Person, and (e) any of EndiCOR Medical, Incorporated, ev3 Sunnyvale, Inc. or ev3 Technologies, Inc into ev3 Peripherals, Inc., with ev3 Peripherals being the survivor; provided in each case that no Event of Default then exists or shall result therefrom.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit Parent or any Subsidiary of Parent to do so, other than Permitted Indebtedness.
7.5 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 Parent or any of its Subsidiaries to do so, except for Permitted Liens; permit any Collateral not to be subject to the first priority security interest granted herein, permit any collateral provided by any Guarantor not to be subject to the first priority security interest granted in the Loan Documents by such Guarantor; or enter or allow Parent or any Subsidiary of Parent to enter into any
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agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting any Borrower, Parent or any Subsidiary of Parent from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s, Parent’s or any of such Subsidiarys’ intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6.(b) hereof.
7.7 Distributions; Investments. (a) Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit Parent or any of Parent’s Subsidiaries to do so; or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock other than Permitted Distributions, or permit Parent or any of Parent’s Subsidiaries to do so.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of any Borrower except for (a) transactions that are in the ordinary course of business, upon fair and reasonable terms (when viewed in the context of any series of transactions of which it may be a part, if applicable) that are no less favorable to Borrowers than would be obtained in an arm’s length transaction with a non-affiliated Person; or (b) transactions with Parent or any of Parent’s Subsidiaries so long as no Event of Default exists or could result therefrom.
7.9 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 (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on any Borrower’s or Parent’s business, or permit Parent or any of Parent’s Subsidiaries to do so; withdraw or permit Parent or any Subsidiary of Parent to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of such Person, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:
8.1 Payment Default. Any Borrower fails within three (3) Business Days of when due to make any payment of principal or interest on any Credit Extension or other Obligation. During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);
8.2 Covenant Default.
(a) Any Borrower fails or neglects to perform any obligation in Sections 6.2, 6.6, or 6.7 or violates any covenant in Section 7; or
(b) Any Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by such Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then such Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;
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8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment. (a) Any material portion of the assets of any Borrower, Parent or any Subsidiary of Parent is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Bank seeking to attach, by trustee or similar process, any funds of any Borrower, Parent or any Subsidiary of Parent on deposit with Bank; (c) any Borrower, Parent or any Subsidiary of Parent is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of $100,000 becomes a Lien on any of the assets of any Borrower, Parent or any Subsidiary of Parent; or (e) a notice of lien, levy, or assessment is filed against any of the assets of any Borrower, Parent or any Subsidiary of Parent by any government agency and not paid within ten (10) days after any Borrower, Parent or any Subsidiary of Parent receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by such Borrower, Parent or such Subsidiary of Parent (as applicable). No Credit Extensions shall be made during any cure period, notwithstanding any stay or bond;
8.5 Insolvency. (a) Any Borrower, Parent or any Subsidiary of Parent is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) any Borrower, Parent or any Subsidiary of Parent begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against any Borrower, Parent or any Subsidiary of Parent and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If any Borrower, Parent or any Subsidiary of Parent fails to (a) make any payment that is due and payable with respect to any Material Indebtedness and such failure continues after the applicable grace or notice period, if any, specified in the agreement or instrument relating thereto, or (b) perform or observe any other condition or covenant, or any other event shall occur or condition exist under any agreement or instrument relating to any Material Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the agreement or instrument relating thereto and the effect of such failure, event or condition is to cause the holder or holders of such Material Indebtedness to accelerate the maturity of such Material Indebtedness or cause the mandatory repurchase of any Material Indebtedness;
8.7 Judgments. A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance) shall be rendered against any Borrower, Parent or any Subsidiary of Parent and shall remain unsatisfied and unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);
8.8 Misrepresentations. Any Borrower, Parent or any Subsidiary of Parent or any Person acting therefor makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated Debt. A default or breach occurs under any agreement between any Borrower, Parent or any Subsidiary of Parent and any creditor of Borrower, Parent or any Subsidiary of Parent that signed a subordination, intercreditor, or other similar agreement with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such agreement; or
8.10 Cross-Default. A default or breach occurs under any agreement between or by a Guarantor, with or in favor of Bank, which default or breach shall not have been cured or waived within any applicable grace period.
9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
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(b) stop advancing money or extending credit for Borrowers’ benefit under this Agreement or under any other agreement between any Borrower and Bank, including, without limitation, by terminating the Revolving Line effective immediately;
(c) demand that Borrowers (i) deposits cash with Bank in an amount equal to the aggregate amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;
(d) terminate any FX Forward Contracts;
(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing any Borrower money of Bank’s security interest in such funds, and verify the amount of such account;
(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrowers shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Each Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of any Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of any Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, each 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, each Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(i) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of each Borrower’s Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 Power of Attorney. Each Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse such Borrower’s name on any checks or other forms of payment or security; (b) sign such Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under such Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Each Borrower hereby appoints Bank as its lawful attorney-in-fact to sign such Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as such 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.
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9.3 Accounts Verification; Collection. Whether or not an Event of Default has occurred and is continuing, Bank may notify any Person owing any Borrower money of Bank’s security interest in such funds and verify the amount of such account. After the occurrence of an Event of Default, any amounts received by any Borrower shall be held in trust by such Borrower for Bank, and, if requested by Bank, such Borrower shall immediately deliver such receipts to Bank in the form received from the Account Debtor, with proper endorsements for deposit.
9.4 Protective Payments. If any Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which such Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest applicable rate, and secured by the Collateral. Bank will make reasonable efforts to provide such Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.
9.5 Application of Payments and Proceeds. Unless an Event of Default has occurred and is continuing, Bank shall apply any funds in its possession, whether from Borrower account balances, payments, or proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, first, to Bank Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Bank 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 and any applicable fees and other charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrowers or other Persons legally entitled thereto; Borrowers shall remain liable to Bank for any deficiency. If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrowers or other Persons legally entitled thereto; Borrowers shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
9.6 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrowers bear all risk of loss, damage or destruction of the Collateral.
9.7 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict performance by any Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.
9.8 Demand Waiver. Each 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 any Borrower is liable.
10 NOTICES
All notices, consents, requests, approvals, demands, or other communication (collectively, “Communication”) by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business
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Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrowers may change their address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10. A single Communication made by Bank pursuant to one of the foregoing methods to the address for Borrowers below shall be deemed a Communication to any and all Borrowers.
| If to any Borrower or all Borrowers: | |
| | |
| c/o ev3 Inc. | |
| 9600 54th Avenue North | |
| Plymouth, MN 55442 | |
| Attn: Chief Financial Officer | |
| Fax: 763.398.7647 | |
| Email: pspangler@ev3.net | |
| | |
| If to Bank: | Silicon Valley Bank | |
| 301 Carlson Parkway, Suite 255 | |
| Minnetonka, MN 55305 | |
| Attn: Mr. Jay McNeil | |
| Fax: 952.475.8471 | |
| Email: jmcneil@svbank.com | |
11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE
California law governs the Loan Documents without regard to principles of conflicts of law. Each Borrower and Bank submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Each Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Each Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service on Borrower of such summons, complaints, and other process may be made by registered or certified mail addressed as set forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND BANK WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in
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accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Borrower may assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to any 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 and the other Loan Documents.
12.2 Indemnification. Borrowers agree to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) 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 arising from transactions between Bank and any Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by Bank’s gross negligence or willful misconduct.
12.3 Limitation of Actions. Any claim or cause of action by any Borrower against Bank, its directors, officers, employees, agents, accountants, attorneys, or any other Person affiliated with or representing Bank 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 Bank, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by such Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year from the earlier of (i) the date any of such Borrower’s officers or directors had knowledge of the first act, the occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on an officer of Bank, or on any other person authorized to accept service on behalf of Bank, within thirty (30) days thereafter. Each Borrower agrees that such one-year period is a reasonable and sufficient time for such 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 Bank in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other Loan Document.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.
12.5 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
12.6 Amendments in Writing; Integration. All amendments to this Agreement must be in writing signed by both Bank and the Borrowers. This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings,
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representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.
12.7 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.
12.8 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of each Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.
12.9 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; and (e) as Bank considers appropriate in exercising remedies under this Agreement. Confidential information does not include information that either: (i) 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 (ii) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.
12.10 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between any Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.
12.11 Joint and Several Liability. Borrowers’ liability for the Obligations 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.
13 DEFINITIONS
13.1 Definitions. As used in this Agreement, the following terms have the following meanings:
“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to any Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
“Affiliate” of any 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.
“Agreement” is defined in the preamble hereof.
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the greater of $12,000,000 or the Borrowing Base; minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, minus (c) the amounts used for Cash Management Services, minus (d) the FX Reserve, and minus (e) the outstanding principal balance of any Advances.
“Bank” is defined in the preamble hereof.
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“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to any Borrower.
“Borrowers” is defined in the preamble hereof.
“Borrower’s Books” are all of each Borrower’s books and records including ledgers, federal and state tax returns, records regarding such Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
“Borrowing Base” is (a) 80% of Eligible Accounts plus (b) the lesser of (i) 30% of the value of Borrowers Eligible Inventory (valued at the lower of cost or wholesale fair market value), (ii) 33% of an amount equal to 80% of Eligible Accounts, or (iii) $7,500,000, as determined by Bank from Borrowers’ most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing percentages in its good faith business judgment, effective upon written notice to Borrowers, based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.
“Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit C.
“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s Board of Directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“Cash Equivalents” means marketable securities as defined by GAAP.
“Cash Management Services” is defined in Section 2.1.4.
“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of Parent, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Parent, representing fifty-one percent (51%) or more of the combined voting power of Parent’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Parent (together with any new directors whose election by the Board of Directors of Parent was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or (c) any Borrower is no longer a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of Parent, or a wholly-owned subsidiary of a wholly-owned subsidiary of a wholly-owned subsidiary of Parent.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other
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jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
“Collateral” is any and all properties, rights and assets of each Borrower described on Exhibit A.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.
“Communication” is defined in Section 10.
“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit D.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at which a Person maintains a Deposit Account or the securities intermediary or commodity intermediary at which a Person maintains a Securities Account or a Commodity Account, such Person, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
“Credit Extension” is any Advance, Equipment Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Bank for any Borrower’s benefit.
“Current Liabilities” are (a) all obligations and liabilities of Parent and its Subsidiaries, on a consolidated basis, to Bank that mature within one (1) year, plus, (b) without duplication, all uses of the Revolving Line (including, without limitation, (i) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, (ii) the amounts used for Cash Management Services, (iii) the FX Reserve, and (iv) the outstanding principal balance of any Advances under the Revolving Line (including any amounts used for Cash Management Services)), plus, (c) without duplication, the aggregate amount of Parent’s and its Subsidiaries’ Total Liabilities, on a consolidated basis, that mature within one (1) year and the current portion of any Subordinated Debt permitted by Bank to be paid by any Borrower.
“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.
“Default Rate” is defined in Section 2.3(b).
“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.
“Designated Deposit Account” is Borrower’s deposit account, account number , maintained with Bank.
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
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“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.
“Draw Period” is the period of time from the Effective Date through the earliest to occur of (a) June 26, 2007, (b) any Event of Default, or (c) any Default.
“Effective Date” is the date Bank executes this Agreement and as indicated on the signature page hereof.
“Eligible Accounts” are, collectively, Eligible Domestic Accounts and Eligible Foreign Accounts.
“Eligible Domestic Accounts” are Accounts which arise in the ordinary course of the applicable Borrower’s business that meet all Borrowers’ representations and warranties in Section 5.3. Bank reserves the right at any time and from time to time after the Effective Date upon written notice to Borrowers, to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment. Unless Bank agrees otherwise in writing, Eligible Domestic Accounts shall not include:
(a) Accounts for which the Account Debtor has not been invoiced;
(b) Accounts that the Account Debtor has not paid within 120 days of invoice date;
(c) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within 120 days of invoice date;
(d) Credit balances over 120 days from invoice date;
(e) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrowers exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;
(f) Accounts owing from an Account Debtor which does not have its principal place of business in the United States;
(g) Accounts owing from an Account Debtor which is a federal, state or local government entity or any department, agency, or instrumentality thereof, that Bank determines in its good faith business judgment are ineligible for loan purposes hereunder (without limiting the generality of the foregoing, Bank may in its good faith business judgment require that Borrowers assign to Bank their right to payment of Accounts owing from an Account Debtor which is a federal entity, pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.));
(h) Accounts owing from an Account Debtor to the extent that any Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by such Borrower in the ordinary course of its business;
(i) Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and hold”, or other terms if Account Debtor’s payment may be conditional;
(j) Accounts for which the Account Debtor is any Borrower’s Affiliate, officer, employee, or agent;
(k) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(l) Accounts owing from an Account Debtor with respect to which any Borrower has received deferred revenue (but only to the extent of such deferred revenue);
(m) Accounts for which Bank in its good faith business judgment determines collection to be doubtful;
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(n) Accounts which arise from the licensing or sale of registered copyrights or are otherwise proceeds of registered copyrights; and
(o) other Accounts Bank deems ineligible in the exercise of its good faith business judgment.
“Eligible Equipment” is the following to the extent that it complies with all of Borrowers’ representations and warranties to Bank, is acceptable to Bank in all respects and is subject to a first priority Lien in favor of Bank: (a) all of Borrowers’ general purpose new or used equipment used in the manufacture, storage and distribution, of the products of Parent, Borrowers or Subsidiaries of Parent, including lasers, computer equipment, office equipment, test and laboratory equipment and furnishings, subject to the limitations set forth herein, and (b) Other Equipment.
“Eligible Equipment Purchase Period” is defined in Section 2.1.5(a).
“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not have its principal place of business in the United States but are otherwise Eligible Accounts that Bank has not disapproved in its good faith business judgment.
“Eligible Inventory” means, at any time, the aggregate of Borrowers’ Inventory that (a) consists of raw materials or finished goods, in good, new, and salable condition, which is not perishable, returned, obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom inventory, works in progress, packaging or shipping materials, or supplies; (b) meets all applicable governmental standards; (c) has been manufactured in compliance with the Fair Labor Standards Act; (d) is not subject to any Liens, except the first priority Liens granted or in favor of Bank under this Agreement or any of the other Loan Documents; (e) is Trunk Inventory or is located at (i) the locations of Borrowers designated in Borrowers’ Perfection Certificates, (ii) new locations of Borrowers within the United States for which Borrowers have given Bank 30 days’ prior written notice, or (ii) the premises of consignees of such Inventory; and (f) is otherwise acceptable to Bank in its good faith business judgment.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
“Equipment Advance” is defined in Section 2.1.5.
“Equipment Line” is an Equipment Advance or Equipment Advances in an aggregate amount of up to $7,500,000.
“ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Event of Loss” is defined in Section 2.1.5(c).
“Excess Initial Equipment Advance” is defined in Section 2.1.5(a)(i).
“Financed Equipment” is all present and future Eligible Equipment in which any Borrower has any interest, the purchase of which is financed by an Equipment Advance.
“Fiscal Quarter” means one of the four 13-week periods during each fiscal year of Parent, each consisting of one five-week and two four-week periods.
“Foreign Currency” means lawful money of a country other than the United States.
“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.
“Funding Date” is any date on which a Credit Extension is made to or on account of any Borrower which shall be a Business Day.
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“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by any Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency.
“FX Forward Contract” is defined in Section 2.1.3.
“FX Reserve” is defined in Section 2.1.3.
“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other 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.
“Guarantor” is any present or future guarantor of the Obligations.
“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” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrowers’ custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.
“Letter of Credit” means a letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.
“Letter of Credit Application” is defined in Section 2.1.2(a).
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).
“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“Loan Amount” in respect of each Equipment Advance is the original principal amount of such Equipment Advance.
“Loan Documents” are, collectively, this Agreement, the Perfection Certificates, any note, or notes, or guaranties, or security agreements, or pledge agreements executed by any Borrower or any Guarantor, and any other
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present or future agreement between any Borrower any Guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; or (b) a material adverse change in the business, operations, financial or other conditions of any Borrower, Parent or any Subsidiary of Parent that could reasonably be expected to impact the ability of the Borrowers to repay the Obligations or otherwise perform any of their Obligations under the Loan Documents.
“Material Indebtedness” is any Indebtedness the principal amount of which is equal to or greater than $1,000,000.
“Net Income” means, as calculated on a consolidated basis for Borrowers and their Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and their Subsidiaries for such period taken as a single accounting period.
“Non-cash Stock Compensation Expense” shall mean what is reported therefor by Parent in its financial statements.
“Obligations” are the aggregate of each Borrower’s obligation to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrowers and each of them owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit, cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of any Borrower assigned to Bank, and the performance of each Borrower’s duties under the Loan Documents.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
“Other Equipment” is leasehold improvements, intangible property such as transferable computer software and transferable software licenses, equipment specifically designed or manufactured for any Borrower, other intangible property, limited use property and other similar property and soft costs approved by Bank, including taxes, shipping, warranty charges, freight discounts and installation expenses.
“Overall Ancillary Sublimit” is defined in Section 2.1.6.
“Parent” shall mean ev3 Inc., a Delaware corporation.
“Payment/Advance Form” is that certain form attached hereto as Exhibit B.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Distributions” means:
(a) purchases of Parent’s capital stock from former employees, consultants and directors pursuant to repurchase agreements or other similar agreements in an aggregate amount not to exceed $500,000 for all such purchases by Parent and Parent’s Subsidiaries in any fiscal year, provided that at the time of such purchase no Default or Event of Default has occurred and is continuing;
(b) distributions or dividends consisting solely of Parent’s capital stock;
(c) purchases for value of any rights distributed in connection with any stockholder rights plan;
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(d) purchases of capital stock or options to acquire such capital stock with the proceeds received from a substantially concurrent issuance of capital stock or convertible securities;
(e) purchases of capital stock pledged as collateral for loans to employees;
(f) purchases of capital stock in connection with the exercise of stock options or stock appreciation rights by way of cashless exercise or in connection with the satisfaction of withholding tax obligations;
(g) purchases of fractional shares of capital stock arising out of stock dividends, splits or combinations or business combinations; and
(h) the settlement or performance of such Person’s obligations under any equity derivative transaction, option contract or similar transaction or combination of transactions.
“Permitted Indebtedness” is:
(a) Borrowers’ Indebtedness to Bank under this Agreement or any other Loan Document;
(b) any Indebtedness set forth in Parents last 10Q report;
(c) unsecured Indebtedness of a Person to that Person’s trade creditors incurred in the ordinary course of business;
(d) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(e) Indebtedness of a Person consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect such Person or any Borrower against fluctuations in interest rates, currency exchange rates, or commodity prices;
(f) capitalized leases and purchase money Indebtedness not creating any Lien on Accounts, Inventory or Financed Equipment;
(g) Indebtedness of entities acquired in any permitted merger or acquisition transaction; and
(h) refinanced Permitted Indebtedness, provided that the amount of such Indebtedness is not increased except by an amount equal to a reasonable premium or other reasonable amount paid in connection with such refinancing and by an amount equal to any existing, but unutilized, commitment thereunder.
“Permitted Investments” are:
(a) Investments existing on the Effective Date;
(b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agencies or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 2 years after its creation and having a rating of “A-2” or higher from Standard & Poor’s Rating Group or a rating of “Prime-2” or higher from Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit maturing no more than 2 years after issue;
(c) Investments of a Person approved by such Person’s Board of Directors or the Board of Directors of Parent, or otherwise pursuant to an investment policy approved by such Person’s Board of Directors or the Board of Directors of Parent;
(d) (i) Investments by a Borrower or Parent consisting of Collateral Accounts in the name of such Borrower or Parent (as applicable) so long as Bank has a first priority, perfected security interest in such Collateral Accounts, and (ii) Investments by any Subsidiary of Parent consisting of Collateral Accounts in the name of such Subsidiary so long as (y) if it is a Domestic Subsidiary, Bank has a first priority, perfected security interest in such
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Collateral Accounts or (z) if it is a foreign Subsidiary, the aggregate value of all Collateral Accounts of all foreign Subsidiaries of Parent shall not at any time exceed a value of $12,000,000;
(e) Investments by a Person consisting of extensions of credit to such Person’s customers in the nature of accounts receivable, prepaid royalties or notes receivable arising from the sale or lease of goods, provision of services or licensing activities of such Person;
(f) Investments received in satisfaction or partial satisfaction of obligations owed by financially troubled obligors;
(g) Investments acquired in exchange for any other Investments in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization;
(h) Investments acquired as a result of a foreclosure with respect to any secured Investment;
(i) Investments by a Person consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect such Person or a Borrower against fluctuations in interest rates, currency exchange rates, or commodity prices; Investments acquired as a result of a foreclosure with respect to any secured Investment;
(j) Investments by a Person consisting of loans and advances to such Person’s employees, provided that the aggregate amount of all such loans and advances of each Borrower, Parent, and Parent’s Subsidiaries, does not at any time exceed $500,000; and
(k) Investments consisting of intercompany loans and advances made in the ordinary course of business between or among Parent and its Subsidiaries.
“Permitted Liens” are:
(a) Liens in favor of Bank arising under this Agreement or other Loan Documents;
(b) Liens with respect to the assets of a Person for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which such Person maintains adequate reserves on its Books, if they have no priority over any of Bank’s Liens;
(c) Liens (including with respect to capital leases) (i) on property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) acquired or held by a Person incurred for financing such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof), or (ii) existing on property (and accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) when acquired, if the Lien is confined to such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof);
(d) 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 it secures may not increase;
(e) leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or intellectual property) granted in the ordinary course of business, if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;
(f) non-exclusive license of a Person’s intellectual property granted to third parties in such Person’s ordinary course of business;
(g) leases or subleases with respect to assets of a Person granted in such Person’s ordinary course of business, including in connection with leased premises or leased property;
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(h) Liens in favor of custom and revenue authorities arising as a matter of law to secure the payment of custom duties in connection with the importation of goods;
(i) Liens on insurance proceeds securing the payment of financed insurance premiums;
(j) Liens on assets acquired in mergers and acquisitions not prohibited by Section 7 of this Agreement;
(k) Liens consisting of pledges of cash, cash equivalents or government securities to secure swap or foreign exchange contracts or letters of credit;
(l) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 or 8.7;
(m) Liens with respect to the assets of a Person in favor of other financial institutions arising in connection with such Person’s deposit or securities accounts held at such institutions;
(n) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceeding if adequate reserves with respect thereto are maintained on the books of the applicable Person;
(o) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and compliance with other social security requirements applicable to the applicable Person; and
(p) Liens listed on any schedule approved in writing by Bank in its discretion prior to the initial Credit Extension.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.
“Qualifying Initial Equipment Advance” is defined in Section 2.1.5(a).
“Quick Assets” is, on any date, Parent’s and its Subsidiaries’ consolidated, unrestricted cash, unrestricted Cash Equivalents, and net billed trade accounts receivable determined according to GAAP.
“Responsible Officer” with respect to a Person is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of such Person.
“Revolving Line” is an Advance or Advances in an aggregate amount of up to $30,000,000 outstanding at any time.
“Revolving Line Maturity Date” is June 26, 2008.
“Secured Guarantor” shall mean a Guarantor who has provided a first-priority perfected security interest in all of its assets to secure its guaranty, satisfactory to Bank.
“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.
“Settlement Date” is defined in Section 2.1.3.
“Subordinated Debt” is (a) Indebtedness incurred by any Borrower subordinated to Borrowers’ Indebtedness owed to Bank and which is reflected in a written agreement in a manner and form reasonably
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acceptable to Bank and approved by Bank in writing, and (b) to the extent the terms of subordination do not change adversely to Bank, refinancings, refundings, renewals, amendments or extensions of any of the foregoing.
“Subsequent Equipment Advance” is defined in Section 2.1.5(a).
“Subsidiary” means, with respect to any Person, any Person of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by such Person or one or more Affiliates of such Person. By way of example and not limitation, each Borrower shall be considered a Subsidiary of Parent.
“Tangible Net Worth” is, on any date, the consolidated total assets of Parent and its Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to a Person from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities of Parent and its Subsidiaries, plus (c) the aggregate amount of Non-cash Stock Compensation Expense for non-cash stock compensation provided by Parent and its Subsidiaries to their employees during the period from June 30, 2006 to December 31, 2007.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on the consolidated balance sheet of Parent and its Subsidiaries, including all Indebtedness, and current portion of Subordinated Debt permitted by Bank to be paid by Borrowers, but excluding all other Subordinated Debt.
“Transfer” is defined in Section 7.1.
“Trunk Inventory” shall mean Inventory in the possession of salesmen of Borrowers for purposes of marketing or supplying products to Borrowers’ customers.
“Unused Revolving Line Fee” is defined in Section 2.4(c).
[Signature page follows.]
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