EXHIBIT 10.14
This LOAN AND SECURITY AGREEMENT dated as of the Effective Date,
between SILICON VALLEY BANK ("Bank"), whose address is 5775 Wayzata Boulevard,
Suite 700, Minneapolis, Minnesota 55416 and VASCULAR SOLUTIONS, INC., a
Minnesota corporation ("Borrower"), whose address is 6464 Sycamore Court,
Minneapolis, Minnesota 55369, provides the terms on which Bank will lend to
Borrower and Borrower will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not determined 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, if any. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 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.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Revolving Advances not exceeding the lesser of (A)
the Committed Revolving Line and (B) the Borrowing Base. Amounts borrowed under
this Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain a Revolving Advance, Borrower must notify Bank by
facsimile or telephone by 12:00 p.m. Pacific time on the Business Day the
Revolving Advance is proposed to be made. Borrower must promptly confirm the
notification by delivering to Bank the Payment/Advance Form, in the form
attached hereto as Exhibit B. Bank will credit Revolving Advances to Borrower's
deposit account. Bank may make Revolving Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if any such Revolving Advances are necessary to meet Obligations
which have become due. Bank may rely on any telephonic notice given by a person
whom Bank in its good faith business judgment believes is a Responsible Officer
or such Person's designee (with the status of a designee derived from written
instructions from Borrower to Bank or specific verbal instructions from a
Responsible Officer), and Borrower hereby indemnifies Bank for any loss Bank
suffers due to any such reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Revolving Advances and related Obligations are immediately
payable.
(d) Bank's obligation to lend the undisbursed portion of the
Obligations will terminate if, in Bank's sole discretion, 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.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 exceed any of the
applicable lending limitations set forth therein, Borrower must immediately pay
Bank the excess. Bank, under its ordinary practices, will be in contact with the
Borrower concerning any such excess, provided that Borrower understands and
agrees that Borrower's obligation to repay any such excess is not conditioned on
the giving of any notice or communication of any type by Bank to Borrower .
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Revolving Advances accrue interest on the
outstanding principal balance at a PER ANNUM rate equal to the greater of (i)
4.50% or (ii) one-half of one percentage point (0.50%) above the Prime Rate.
After an Event of Default has occurred and is continuing, Obligations accrue
interest at five (5) percentage points above the rate effective immediately
before such Event of Default occurred. 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.
(b) Payments. Interest due on the Committed Revolving Line is payable
on the 25th day of each month for the period ending at the end of the day
preceding such 25th day. Bank may debit any of Borrower's deposit accounts at
Bank for principal and interest payments owing or any amounts Borrower owes
Bank. Bank will promptly notify Borrower when it debits Borrower's accounts.
These debits are not a set-off. 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.
2.4 FEES.
(a) Facility Fee. Borrower shall pay to Bank a fee of $15,000
concurrently with the making of the first Revolving Advance hereunder, which
shall be in addition to interest and to all other amounts payable hereunder and
which shall not be refundable.
(b) Bank Expenses. Borrower shall pay to the Bank all Bank Expenses
(including reasonable attorneys' fees and expenses) incurred through and after
the Closing Date when due.
(c) Unused Line Fee. Borrower shall pay to the Bank $1,250 per each
quarter (or partial quarter) during the term hereof as long as no Advances have
been made during such quarter, with such fee due and payable, if applicable, on
the fir st day of each quarter with respect to the then immediately preceding
quarter or partial quarter period, with the first of such payments due on April
1, 2004. However, on and after such time that the facility fee as described in
2.4(a) is payable by the Borrower, any and all unused line fees paid hereunder
prior to such date shall be applied and credited to the such facility fee and
Borrower shall thereupon only be responsible for the payment of such facility
fee less the aggregate amount of such unused line fees so credited.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires in its good faith business judgment, and shall include, without
limitation, the satisfaction of the audit condition set forth in Section 6.2(d)
hereof.
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3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension (each a "Bring Down Date") (except to the extent they related
specifically to an earlier date, in which case such representations and
warranties shall remain materially true and accurate as of such specific date on
the Bring Down Date) and no Default or 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 5 remain true (except to the extent they related
specifically to an earlier date, in which case such representations and
warranties shall remain materially true and accurate as of such specific date on
the Bring Down Date).
4. CREATION OF SECURITY INTEREST
4.1 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. If this Agreement is terminated, Bank's lien and
security interest in the Collateral will continue until Borrower fully satisfies
its Obligations, other than for Inchoate Indemnities.
4.2 AUTHORIZATION TO FILE.
Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank's interest in the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Each of 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.
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.
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5.2 COLLATERAL.
Borrower has good title to the Collateral and the Intellectual
Property, free of Liens except Permitted Liens and 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), except to the extent that purchased
components of inventory are located, in the ordinary course of business, at the
sites of contract manufacturers and with the further understanding that no
inventory that is located at such a third party site shall be considered
Eligible Inventory hereunder. 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, or a licensee of, the Intellectual Property, except for non-exclusive
licenses granted to its customers in the ordinary course of business. Each
Patent is valid and enforceable (subject to the ability of the Borrower to
abandon rights to certain Intellectual Property as set forth in Section 6.8
hereof) 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.
5.3 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. With respect to the
litigation identified on the Schedule, Borrower shall supply to Bank all current
pleadings and other applicable information for Bank's review and evaluation;
Borrower shall assist Bank in its evaluation thereof, with the specific
understanding that no loans are to be made hereunder until such time as the Bank
determines, in its good faith business judgment, that the litigation and the
matters pertaining thereto are acceptable to Bank.
5.4 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, subject to normal year end audit adjustments for interim financial
statements. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets as a going concern
(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.
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5.6 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.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 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
writ ten certificates and written statements to Bank) contains any untrue
statement of a material fact or, when taken as a whole, omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading in light of the circumstances in which they were made,
with 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.
5.9 LIEN STATUS OF CERTAIN PURCHASED ASSETS.
All assets purchased pursuant to that certain Asset Purchase Agreement
dated as of April 29, 2002 by and between Borrower and the secured creditors
parties thereto with respect to certain assets of Angiosonics, Inc., which were
subject to UCC lien filings in favor of such secured creditors as of the date of
Borrower's purchase of such assets, were listed on the UCC amendments evidencing
the full release of such assets from such UCC lien filings and which amendments
were filed with the Delaware Secretary of State on May 31, 2002, and bearing UCC
amendment filing numbers 2134515 and 2134520.
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an
obligation to lend or there are outstanding Obligations (other than for Inchoate
Indemnities):
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and its Subsidiaries' (if any) legal
existence and good standing in the jurisdiction of formation of each and will
maintain qualification of all such entities in each
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applicable 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 will cause each Subsidiary to comply, with
all laws, ordinances and regulations to which such party is subject to the
extent that noncompliance therewith could have a material adverse effect on
Borrower's business or operations or could reasonably be expected to cause a
Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 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 and, Borrower shall concurrently therewith provide to Bank a
description regarding any material variances that have occurred with respect to
Borrower's financial projections during such period (with the understanding that
Borrower may from time to time modify such projections and agrees to provide
Bank with copies of any such modifications); (ii) as soon as available, but no
later than 90 days after the last day of Borrower's fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the 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; and (iv) budgets, sales projections,
operating plans or other financial information Bank reasonably requests,
including, without limitation, financial projections (covering such matters and
in such form as Bank shall reasonably request) for each fiscal year, and which
are to be delivered to Bank prior the start of such fiscal year.
(b) Within 30 days after the last day of each month while any
Revolving Advances are outstanding (and in any event delivered in conjunction
with a request for a Revolving Advance when no such Revolving Advances are then
outstanding), Borrower will deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in the form of Exhibit C hereto, with aged listings of
accounts receivable and accounts payable, in each case by invoice date, and
together with an inventory report in form and substance acceptable to Bank.
Further, when no Revolving Advances are outstanding Borrower shall deliver to
Bank the foregoing Borrowing Base Certificate, and together with aged listings
of accounts receivable and accounts payable, together with an inventory report
in form and substance acceptable to Bank all within 30 days after the end of
each quarter.
(c) Within 30 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.
(d) Allow Bank to audit Borrower's Collateral at Borrower's expense.
Such audits will be conducted no more often than every 12 months unless a
Default or Event of Default has occurred and is continuing. Further, as a
condition to the making of any Advances hereunder, Bank shall conduct a
Collateral audit and general field examination which shall produce results that
are acceptable to Bank in its good faith business judgment.
6.3 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
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promptly notify Bank of all returns, recoveries, disputes and claims, that
involve more than $50,000.
6.4 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.
6.5 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.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain (A) its operating bank accounts with Bank and
(B) 80% of all excess cash and investments balances at or through Bank. Further,
as to any amounts that are on deposit at institutions other than at the Bank,
Borrower shall cause such other institutions to enter into account control
agreements in favor of Bank in order to allow the Bank perfect its lien therein
and with such agreements and provisions as are reasonably acceptable to Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain at all times:
(i) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$8,000,000.
(ii) LIQUIDITY COVERAGE. A ratio of (A) unrestricted domestic
cash (and equivalents) plus the product of the aggregate amount of Eligible
Accounts multiplied by the applicable advance rate for the making of Revolving
Advances hereunder with respect to Eligible Accounts, divided by (B) the
aggregate amount of Obligations outstanding hereunder, of not less than 1.25 to
1.00.
6.8 INTELLECTUAL PROPERTY.
Borrower will (i) protect, defend and maintain the validity and
enforceability of all material 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.
6.9 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.
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7. NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend or there are any outstanding Obligations other than for
Inchoate Indemnities:
7.1 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 any Subsidiary in the ordinary course of
business; (iii) of worn-out or obsolete Equipment; or (iv) that arise from the
making of Permitted Investments. Further, Bank agrees to facilitate the
dispositions in clause (iii) above with respect to a release of the Bank's lien
therein on terms acceptable to Bank, subject, in all cases, to the first
priority lien right in any and all proceeds arising therefrom.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any Subsidiary to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto or
have a material change in its management or its ownership 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 or add
any new offices or business locations in which Borrower maintains or stores over
$15,000 in Borrower's assets or property.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any Subsidiary to merge or consolidate,
with any other Person, or acquire, or permit any Subsidiary to acquire, all or
substantially all of the capital stock or property of another Person, except
where: (i) no Default or Event of Default has occurred and is continuing or
would result from such action during the term of this Agreement; (ii) such
transaction would not result in a decrease of more than 25% of Tangible Net
Worth; and (iii) upon the acquisition of any other Person as otherwise permitted
pursuant to the terms of this Section, such Person become an appropriate obligor
relating to the Obligations hereunder, as the Bank may determine, and shall
execute such agreements, documents and instruments as are reasonably necessary
or appropriate, as the Bank may determine, in order to evidence such debt
obligations and to establish a first priority security interest in the personal
property assets of such Person in favor of Bank, subject to Permitted Liens. A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower as
long as no Default or Event of Default has occurred and is continuing prior to
the proposed transaction or would otherwise arise thereafter as a direct or
indirect result thereof.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, 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 Subsidiary to do so, except for
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Permitted Liens, or permit the Bank's first priority lien in the Collateral to
change, subject only to Permitted Liens as may be applicable and subject to the
provisions of Section 7.1 hereof regarding the Transfer of wornout or obsolete
equipment as more specifically set forth in Section 7.1, provided, further, with
respect to Inventory, it is understood that under Section 9320(a) of the Code, a
buyer thereof in the ordinary course of business shall take such Inventory free
of the Lien of Bank hereunder, subject to the Lien of the Bank in any and all
proceeds thereof.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any
Subsidiary to do so. Pay any dividends or make any distribution or other
payment, redemption, retirement or re-purchase of any of its capital stock,
provided that Borrower may redeem or repurchase for cash, at fair value, the
capital stock of Borrower (or options to purchase capital stock) from any
employee of Borrower upon the death, disability, retirement or other termination
of such employee, if (i) no Default or Event of Default shall have occurred and
be continuing or shall result from the same, and (ii) the total amount paid in
all of the foregoing transactions shall not exceed $50,000 in any fiscal year of
Borrower.
7.7 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 nonaffiliated Person, provided that the foregoing
restrictions shall not apply to (i) redemptions or repurchases of Borrower's
stock otherwise permitted under Section 7.6, or (ii) employment arrangements
(including arrangements made with respect to bonuses) entered into in the
ordinary course of business consistent with past business practices with members
of the Board of Directors and officers of Borrower, provided that no Default or
Event of Default has occurred and is continuing or that no Default or Event of
Default would arise upon the the making of any such employment arrangement or
upon the effectiveness thereof.
7.8 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.
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, 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.
8. EVENTS OF DEFAULT
Any one of the following is an "Event of Default" hereunder:
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8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after
their due date. During such additional 3 day period the failure to cure such
payment default is not an Event of Default hereunder (but no Credit Extension
will be made during the cure period);
8.2 COVENANT DEFAULT.
(A) If Borrower does not perform any obligation in Sections 6.1, 6.2,
6.5, 6.6, and 6.7 or violates any covenant in Section 7; or
(B) If Borrower does not perform or observe any other material term,
condition or covenant in this Agreement (other than as referenced in the Section
8.1 or 8.2(A)), any Loan Documents, or in any agreement between Borrower and
Bank and as to any default under a term, condition or covenant that can be
cured, has not cured the default within 10 days after it occurs, or if the
default cannot be cured within 10 days or cannot be cured after Borrower's
attempts within 10 day period, and the default may be cured within a reasonable
time, then Borrower has an additional period (of not more than 30 days) to
attempt to cure the default. During the additional time, the failure to cure the
default is not an Event of Default (but no Credit Extensions will be made during
the cure period);
8.3 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 (any of the foregoing is referred to herein
as a "Material Adverse Change").
8.4 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 prior to obtaining a stay or posting a bond);
8.5 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);
8.6 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 reasonably be expected to cause a Material
Adverse Change;
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8.7 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);
8.8 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
8.9 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 8.4, 8.5 or 8.7 occurs to
any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) 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;
(e) 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;
(f) 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,
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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 (to the extent permitted thereby or as
otherwise may be permitted under law); and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney 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 bill 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 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
under this Section 9.2, coupled with an interest, are irrevocable until all
Obligations (other than for Inchoate Indemnities) have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.
9.3 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. While any Obligations are outstanding, Borrower shall
be deemed to collect all payments in trust for Bank and, if requested by Bank in
its good faith business judgment, immediately deliver the payments to Bank in
the form received from the account debtor, with proper endorsements for deposit.
9.4 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 6.5, and take any action under the
policies Bank deems prudent and Bank will apprise Borrower of any such actions
in accordance with its customary procedures. Any amounts paid by Bank 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.
9.5 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. Except as
provided in the preceding sentence, Borrower bears all risk of loss, damage or
destruction of the Collateral.
9.6 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
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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.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10. NOTICES
All notices 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.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California 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 Santa Clara County, California.
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.
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. 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.
12.2 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.
A Person seeking to be indemnified under this Section shall notify
Borrower of any event requiring indemnification within a reasonable time
following such Person's receipt of notice of
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commencement of any action or proceeding giving rise to a claim for
indemnification hereunder, provided that (i) there shall be no obligation to so
notify Borrower if an Event of Default has occurred and is continuing, (ii)
neither Bank nor any such Person shall have any liability or obligation for any
inadvertent failure to provide such notice, (iii) no failure to provide such
notice shall affect Borrower's obligation to provide indemnity hereunder and
(iv) in any event, nothing herein shall impose on Bank any duty or obligation to
impair the confidentiality or sanctity of its attorney client relationship. In
such proceeding, such Person shall use commercially reasonable efforts to keep
Borrower reasonably informed of its defense and any settlement of any such
action or proceeding and negotiations to settle or otherwise resolve any claim,
provided that (i) such Person shall have the exclusive right to decide to accept
or reject any settlement offer, (ii) there shall be no obligation to keep
Borrower so informed if an Event of Default has occurred and is continuing,
(iii) neither Bank nor any such Person shall have any liability or obligation
for any inadvertent failure to keep Borrower so informed, (iv) no failure to
keep Borrower so informed shall affect Borrower's obligation to provide
indemnity hereunder and (v) in any event, nothing herein shall impose on Bank
any duty or obligation to impair the confidentiality or sanctity of its attorney
client relationship. Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 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.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representation s and warranties made in this Agreement
continue in full force while any Obligations remain outstanding (other than for
Inchoate Indemnities). The obligations of Borrower in Section 12.2 to indemnify
Bank will survive until all statutes of limitations for actions that may be
brought against Bank have run.
12.8 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
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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 written agreement to 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.
12.9 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.
13. DEFINITIONS
13.1 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.
"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.
"BANK EXPENSES" are all 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" shall mean:
(A) up to 75% of Eligible Accounts as determined and confirmed by Bank
from Borrower's most recent Borrowing Base Certificate; provided, however, that
Bank may lower the percentage of the Borrowing Base after performing an audit of
Borrower's Collateral in Bank's good faith business judgment; and
(B) up to 25% of Eligible Inventory, provided that Advances hereunder
based on Eligible Inventory shall at no time exceed the lesser of (i) $1,000,000
or (ii) 33% of the amount from clause (A) above, as applicable from time to
time.
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"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Uniform Commercial Code, as applicable.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED REVOLVING LINE" shall mean a credit facility for the making
of Revolving Advances in the aggregate principal amount of $3,000,000.
"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 Revolving Advance and each other extension
of credit or credit accommodation by Bank for Borrower's benefit.
"DEFAULT" shall mean any event or occurrence which with the passing of
time or the giving of notice or both would become an Event of Default hereunder.
"EFFECTIVE DATE" is the date Bank executes this Agreement.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may 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;
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(e) Accounts for which the account debtor does not have its
principal place of business in the United States;
(f) Accounts for which the account debtor is a federal, state
or local government entity or any department, agency, or instrumentality, other
than for account debtor consisting of a hospital, as long as the Bank is able to
perfect its Lien therein through the filing of a UCC-1 financing statement in
the appropriate governmental filing office, provided Bank reserves the right to
make an Assignment of Claims filing, or other equivalent filing under any other
applicable filing or registration scheme, which Bank in its discretion may do;
(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,
bill 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 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; and
(k) Accounts for which Bank reasonably determines collection
to be doubtful.
"ELIGIBLE INVENTORY" means Inventory that Bank deems acceptable, in its
discretion, for the purpose of making of Advances hereunder.
"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.
"GAAP" is generally accepted accounting principles, consistently
applied.
"GUARANTOR" is any present or future guarantor of the Obligations.
"INCHOATE INDEMNITIES" shall mean indemnity obligations of the Borrower
hereunder for which no claim or applicable covered occurrence or event under any
applicable indemnity provision hereof has yet arisen, to the knowledge of Bank,
even though the indemnity provisions hereof shall continue to remain enforceable
contractual provisions with respect to any such potential claims or otherwise
regarding any such occurrences or events.
"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.
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"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 sue 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.
"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 or third party suretyship obligations in favor of Bank executed by
Borrower or other Persons, as applicable, 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 8.3.
"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.
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"PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing 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 Closing Date,
provided that Investments in a Subsidiary shall be allowed in the ordinary
course of business and shall be consistent in manner, scope and magnitude as
made on and prior to the date hereof;
(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 Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue;
(c) extensions of trade credit by Borrower or by any Subsidiary in the
ordinary course of business consistent with past business practices of Borrower
or Subsidiary, as applicable (provided that trade credit that Borrower supplies
to its Subsidiary shall in all cases be consistent with the standards set forth
in clause (a) hereof).
(d) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of and other disputes with, customers and
suppliers arising in the ordinary course of business;
(e) promissory notes acquired in connection with the disposition of
assets permitted under Sect ion 7.1; and
(f) Additional Investments in an aggregate amount not to exceed $50,000
at any time outstanding, provided that any such Investment may not be made while
a Default or an Event of Default has occurred and is continuing or would
otherwise arise upon the making thereof.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing 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;
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(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) Non-exclusive licenses or non-exclusive sublicenses granted in the
ordinary course of Borrower's business and, with respect to any licenses where
Borrower is the licensee, any interest or title of a licensor or under any such
license or sublicense, if the licenses and sublicenses permit granting Bank a
security interest;
(e) Leases or subleases entered into 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;
(g) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
worker's compensation, employment insurance, social security or other similar
Liens relating to statutory obligations arising in the ordinary course of
business which are not delinquent or remain payable without penalty or which are
being contested in good faith and by appropriate proceedings (provided, however,
that such appropriate proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any material item of Collateral or Collateral which
in the aggregate is material to Borrower and that Borrower has adequately bonded
such Lien or reserves sufficient to discharge such Lien have been provided on
the books of Borrower)
(h) Liens arising from judgments, decrees or attachments which do not
constitute an Event of Default;
(i) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
Borrower; and
(j) banker's Liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business, subject, however, in each case
to the provisions of any account control agreement entered into by and between
Bank and the depository institution with respect to any such deposits and
accounts.
"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.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING ADVANCE" or "REVOLVING ADVANCES" is a loan advance (or
advances) under the Committed Revolving Line.
"REVOLVING MATURITY DATE" is December 31, 2004.
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"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 and approved by Bank in
writing.
"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. As used herein, Subsidiary shall mean a Subsidiary of the Borrower.
"TANGIBLE NET WORTH" is, on any date, the book value of Borrower minus
the aggregate amounts attributable to intangible items plus 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
BORROWER:
VASCULAR SOLUTIONS, INC.
By:
--------------------------------
Title:
-----------------------------
BANK:
SILICON VALLEY BANK
By:
--------------------------------
Title:
-----------------------------
Effective Date: __________________________
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following personal property of Borrower:
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 now owned or hereafter
acquired, including the Intellectual Property (as defined below) only, however,
to the extent and subject to the limitations set forth in the Exclusion Clause
(as defined below);
All now existing and hereafter arising accounts, contract rights,
payment intangibles, 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, whether or not
earned by performance, and any and all credit insurance, 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, commercial tort claims, certificates
of deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to 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.
Notwithstanding the foregoing, the Collateral shall not include any
Intellectual Property, provided that if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in such items that are
proceeds of the Intellectual Property consisting of payment intangibles,
accounts, license revenues, or general intangibles relating to rights to payment
arising therefrom or relating thereto, then in such circumstance, the Collateral
shall automatically, and effective as of the Closing Date, include the
Intellectual Property only to the extent necessary to permit perfection of
Bank's security interest in such proceeds, including, without limitation,
payment intangibles, accounts, license revenues, or general intangibles relating
to rights to payment (the foregoing is referred to herein collectively as the
"Exclusion Clause").
Further, Borrower and Bank are parties to that certain Negative Pledge
Agreement, whereby Borrower, in connection with Bank's loans, has agreed, among
other things, not to sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber, any of its Intellectual Property, without the
Bank's prior written consent, other than as may be permitted thereunder or
hereunder.
The term "Intellectual Property" as used herein shall mean the
following: Borrower's right, title or interest, whether now owned or hereafter
acquired, in and to any intellectual property rights of Borrower of any nature
or character, including without limitation, and whether domestic or foreign, the
following: (i) any copyrights and copyright applications, whether registered or
unregistered, copyright registration and like protection in each work of
authorship and derivative work thereof, whether published or unpublished, and
whether said copyrights are statutory or arise under common law, and all rights,
claims and demands in any way related to any such copyrights or works, including
any rights to sue for past, present or future infringement, and any rights of
renewal and extension of copyrights; (ii) any patents, patent applications,
patent rights and like protections and any licenses relating to any of the
foregoing, and any improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part thereof and any rights to sue for past
present or future infringement thereof and any rights arising therefrom and
pertaining thereto; (iii) any state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, and any licenses relating to any
of the foregoing, whether registered or unregistered and wherever registered,
any rights to sue for past, present or future infringement of unconsented use
thereof, all rights arising therefrom and pertaining and any reissues,
extensions and renewals thereof and the goodwill of the business of Borrower
connected with and symbolized by any of the foregoing; (iv) any trade secrets,
trade dress, trade styles, logos, other source of business identifiers,
mask-works, mask-work registrations or mask-work applications, integrated
circuit masks, software, circuit designs and documentation relating thereto, and
the goodwill of the business of Borrower connected with and symbolized by any of
the foregoing, including, without limitation, any rights to unpatented
inventions, know-how, and operating manuals, including any rights to sue for
past, present or future infringement or unconsented use thereof, all rights
arising therefrom and pertaining thereto, provided that with respect to any and
all of the foregoing, the term "Intellectual Property" shall not include any
proceeds thereof (other than proceeds in the direct form of Intellectual
Property) and specifically, without limitation, and regardless of any of the
foregoing, the term "Intellectual Property" shall NOT include any payment
intangibles, accounts, license revenues, or general intangibles relating to
rights to payment arising therefrom or relating thereto
2
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.S.T.
FAX TO: 952-593-9248 DATE: _____________________________
* LOAN PAYMENT:
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 such 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 such 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).
Authorized Signature: ____________________________ 2nd Signature (If Required): _______________________________________
Print Name/Title: ________________________________ Print Name/Title:___________________________________________________
Telephone # ______________________________________ Telephone # ________________________________________________________
EXHIBIT C
BORROWING BASE CERTIFICATE
- ------------------------------------------------------------------------------------------------------------------------------------
Borrower: Vascular Solutions, Inc. Bank: Silicon Valley Bank
------------------------ 3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $3,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of____ $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_______________
5. Balance of 50% over 90 day accounts $_______________
6. Credit balances over 90 days $_______________
7. Concentration Limits $_______________
8. Foreign Accounts $_______________
9. Governmental Accounts $_______________
10. Contra Accounts $
11. Promotion or Demo Accounts $_______________
12. Intercompany/Employee Accounts $_______________
13. Other (please explain on reverse) $_______________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
15. Eligible Accounts (#3 minus #14) $_______________
16. LOAN VALUE OF ACCOUNTS (75% of #15) $_______________
INVENTORY
16a TOTAL INVENTORY $_______________
16b Inventory Deductions $_______________
16c Eligible Inventory (16a minus 16b) $_______________
16d LOAN VALUE OF INVENTORY $_______________
(25% of #16c, not to exceed the lesser of 33% of #16 or $1MM)
BALANCES
17. Maximum Loan Amount $_______________
18. Total Funds Available [Lesser of #17 or (#16 plus #16d)] $_______________
19. Present balance owing on Line of Credit $_______________
20. Outstanding under Sublimits, if any Sublimits are in effect $_______________
21. RESERVE POSITION (#18 minus #19 and #20) $_______________
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 |
| ------------- |
Vascular Solutions, Inc. | Rec'd By: ____________ |
| Auth. Signer |
| Date: ________________ |
By: _________________________ | Verified: ____________ |
Title: | Auth. Signer |
| Date: ________________ |
| |
------------------------
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: VASCULAR SOLUTIONS, INC.
The undersigned authorized officer of VASCULAR SOLUTIONS, INC. ("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 reporting and financial covenants as set forth in Section 6.2 and 6.7 of the
Agreement, respectively, except as noted below and (ii) all representations and warranties as set forth in the Agreement are true
and correct in all material respects on this date. 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 e xcept as explained in an accompanying letter or footnotes and subject to normal year end audit adjustments for
interim financial statements. 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 regarding the making of loans as more fully set forth in
Sections 3.1 and 3.2 thereof, as applicable, and that compliance is determined on an ongoing basis and 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 30 days Yes No
Annual (Audited) FYE within 90 days Yes No
A/R & A/P Agings (by invoice date) Monthly * within 30 days Yes No
Inventory Report Monthly * within 30 days Yes No
A/R Audit Initial and Annually Yes No
Borrowing Base Certificate Monthly * within 30 days Yes No
Annual Projections Prior to start of new fiscal year Yes No
* Quarterly when not borrowing
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
As of month end:
ss. 6.7(i): Minimum Tangible Net Worth $8,000,000 $_________ Yes No
ss. 6.7(ii): Minimum Liquidity Coverage 1.25:1.00 _____:1.00 Yes No
------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached. | BANK USE ONLY |
Sincerely, | Receivedd By: ____________________ |
| AUTHORIZED SIGNER |
Vascular Solutions, Inc. | Date: ________________ |
| Verified: ____________ |
By: _________________________ | AUTHORIZED SIGNER |
Title: | Date: ________________ |
Date: | Compliance Status: Yes No |
| |
| |
| |
------------------------------------
Schedule to Loan and Security Agreement
---------------------------------------
The exact correct corporate name of Borrower is (attach a copy of the formation
documents, E.G., articles, partnership agreement): Vascular Solutions, Inc.
Borrower's State of formation: Minnesota
Borrower has operated under only the following other names (if none, so state):
None
All other address at which the Borrower does business are as follows (attach
additional sheets if necessary and include all warehouse addresses): See
Representations and Warranties dated December 10, 2003.
Borrower has deposit accounts and/or investment accounts located only at the
following institutions: See Representations and Warranties dated December 10,
2003.
List Acct. Numbers: See Representations and Warranties dated December 10, 2003.
Liens existing on the Closing Date and disclosed to and accepted by Bank in
writing:
None.
Investments existing on the Closing Date and disclosed to and accepted by Bank
in writing:
Vascular Solutions, GmbH - Balances as of Novemer 30, 2003 - Investment in
Subsidiary $21,347, Intercompany receivable $1,429,955, Intercompany Note
Receivable $154,350
Subordinated Debt:
Indebtedness on the Closing Date and disclosed to and consented to by Bank in
writing:
None.
The following is a list of the Borrower's copyrights (including copyrights of
software) which are registered with the United States Copyright Office. (Please
include name of the copyright and registration number and attach a copy of the
registration): No list. We copyright all marketing materials in the normal
course of business.
The following is a list of all software which the Borrower sells, distributes or
licenses to others, which is not registered with the United States Copyright
Office. (Please include versions which are not registered:
None.
The following is a list of all of the Borrower's patents which are registered
with the United States Patent Office. (Please include name of the patent and
registration number and attach a copy of the registration.): _See patent and
trademark sheet.
The following is a list of all of the Borrower's patents which are pending with
the United States Patent Office. (Please include name of the patent and a copy
of the application.): See patent and trademark sheet.
The following is a list of all of the Borrower's registered trademarks. (Please
include name of the trademark and a copy of the registration.): See patent and
trademark sheet.
Borrower is not subject to litigation which would have a material adverse effect
on the Borrower's financial condition, except the following (attach additional
comments, if needed): See Diomed suit.
Tax ID Number: 41-1859679
Organizational Number, if any: 9L-421