EXHIBIT 10(W)
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") dated as of May
25th, 2007 (the "EFFECTIVE DATE") between (i) SILICON VALLEY BANK, a California
corporation with a loan production office located at One Newton Executive Park,
Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 ("BANK"), and
(ii) SPIRE CORPORATION ("Spire"), a Massachusetts corporation, and BANDWIDTH
SEMICONDUCTOR, LLC ("Bandwidth"), a Delaware limited liability company (jointly
and severally, individually and collectively, the "BORROWER"), provides the
terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The
parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
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Accounting terms not defined in this Agreement shall be construed
following GAAP. Calculations and determinations must be made following GAAP.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings set forth in Section 13. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meaning provided by the Code to the
extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
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2.1 PROMISE TO PAY. Borrower hereby unconditionally promises to pay
Bank the outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1 EQUIPMENT ADVANCES.
(a) Availability. Subject to the terms and conditions of this
Agreement, during the Draw Period, Bank shall make advances (each, an "EQUIPMENT
ADVANCE" and, collectively, "EQUIPMENT ADVANCES") not exceeding the Equipment
Line. Equipment Advances may only be used to finance Eligible Equipment
purchased within ninety (90) days (determined based upon the applicable invoice
date of such Eligible Equipment) before the date of each Equipment Advance, and
no Equipment Advance may exceed 100% of the total invoice for Eligible
Equipment, excluding taxes, shipping, warranty charges, freight discounts and
installation expenses relating to such Eligible Equipment. Notwithstanding the
foregoing, the initial Equipment Advance (the "INITIAL EQUIPMENT ADVANCE")
hereunder may be used to reimburse Borrower for Eligible Equipment purchased on
or after September 29, 2006. Unless otherwise agreed to by Bank, not more than
25% of the proceeds of the Equipment Line shall be used to finance Other
Equipment. After repayment, no Equipment Advance may be reborrowed.
(b) Repayment. In addition to the monthly payments of interest, as
set forth in Section 2.2(a) below, the principal amount of each Equipment
Advance is payable in thirty-six (36) consecutive equal monthly payments of
principal beginning on the first Payment Date following the Funding Date of such
Equipment Advance and continuing on each Payment Date thereafter. The final
payment due on the applicable Equipment Line Maturity Date shall include all
outstanding principal and all accrued unpaid interest.
(c) Prepayment Upon an Event of Loss. Borrower shall bear the risk
of any loss, theft, destruction, or damage of or to the Financed Equipment. If,
during the term of this Agreement, any item of Financed Equipment becomes
obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered
permanently unfit for use, or seized by a governmental authority for any reason
for a period equal to at least the remainder of the term of this Agreement (an
"EVENT OF LOSS"), then, if no Event of Default has occurred or is continuing,
within ten (10) days following such Event of Loss, at Borrower's option,
Borrower shall (i) pay to Bank on account of the Obligations all accrued
interest to the date of the prepayment, plus all outstanding principal owing
with respect to the Financed Equipment subject to the Event of Loss; or (ii)
repair or replace any Financed Equipment subject to an Event of Loss provided
the repaired or replaced Financed Equipment is of equal or like value to the
Financed Equipment subject to an Event of Loss and provided further that Bank
has a first priority perfected security interest in such repaired or replaced
Financed Equipment.
(d) Mandatory Prepayment Upon an Acceleration. If the Equipment
Advances are accelerated following the occurrence of an Event of Default,
Borrower shall immediately pay to Bank an amount equal to the sum of (i) all
outstanding principal plus accrued and unpaid interest and (ii) all other sums,
if any, that shall have become due and payable, including interest at the
Default Rate with respect to any past due amounts.
(e) Permitted Prepayment of Equipment Advances. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
to prepay all, but not less than all, of the Equipment Advances advanced by Bank
under this Agreement, provided Borrower (i) delivers written notice to Bank of
its election to prepay the Equipment Advances at least thirty (30) days prior to
such prepayment, and (ii) pays, on the date of such prepayment (A) all
outstanding principal plus accrued and unpaid interest and (B) all other sums,
if any, that shall have become due and payable, including interest at the
Default Rate with respect to any past due amounts.
2.2 PAYMENT OF INTEREST ON THE CREDIT EXTENSIONS.
(a) Interest Rate. Subject to Section 2.2(b), the principal amount
outstanding for each Equipment Advance shall accrue interest at a floating per
annum rate equal to one half of one percentage point (0.5%) above the Prime
Rate, which interest shall be payable monthly.
(b) Default Rate. Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is three percentage points (3.0%) above the rate effective
immediately before the Event of Default (the "DEFAULT RATE"). Payment or
acceptance of the increased interest rate provided in this Section 2.2(b) is not
a permitted alternative to timely payment and shall not constitute a waiver of
any Event of Default or otherwise prejudice or limit any rights or remedies of
Bank.
(c) Adjustment to Interest Rate. Changes to the interest rate of
any Credit Extension based on changes to the Prime Rate shall be effective on
the effective date of any change to the Prime Rate and to the extent of any such
change.
(d) 360-Day Year. Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.
(e) Debit of Accounts. Bank may debit any of Borrower's deposit
accounts, including the Designated Deposit Account, for principal and interest
payments or any other amounts Borrower owes Bank when due. These debits shall
not constitute a set-off.
(f) Payments. Unless otherwise provided, interest is payable
monthly on the Payment Date of each month. Payments of principal and/or interest
received after 12:00 noon Eastern 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, as applicable, shall continue to accrue.
2.3 FEES. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee
of Seventeen Thousand Five Hundred Dollars ($17,500.00), on the Effective Date,
which fee the parties acknowledge and agree has been paid by the Borrower to the
Bank; and
(b) Bank Expenses. All Bank Expenses (including reasonable
attorneys' fees and expenses, plus expenses, for documentation and negotiation
of this Agreement) incurred through and after the Effective Date, when due.
3 CONDITIONS OF LOANS
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3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. Bank's
obligation to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, such documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:
(a) Duly executed original signatures to the Loan Documents to
which it is a party;
(b) Duly executed original signatures to the Control Agreement[s];
(c) Spire shall have delivered its Operating Documents and a good
standing certificate of Borrower certified by the Secretary of State of the
Commonwealth of Massachusetts as of a date no earlier than thirty (30) days
prior to the Effective Date;
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(d) Bandwidth shall have delivered its Operating Documents and a
good standing certificate of Borrower certified by the Secretary of State of the
State of Delaware as of a date no earlier than thirty (30) days prior to the
Effective Date;
(e) Duly executed original signatures to the completed Borrowing
Resolutions for each Borrower;
(f) Bank shall have received certified copies, dated as of a
recent date, of financing statement searches, as Bank shall request, accompanied
by written evidence (including any UCC termination statements) that the Liens
indicated in any such financing statements either constitute Permitted Liens or
have been or, in connection with the initial Credit Extension, will be
terminated or released;
(g) Borrower shall have delivered a landlord's consent executed in
favor of Bank;
(h) Borrower shall have delivered a legal opinion of Borrower's
counsel dated as of the Effective Date together with the duly executed original
signatures thereto;
(i) Borrower shall have delivered evidence satisfactory to Bank
that the insurance policies required by Section 6.5 hereof are in full force and
effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of Bank; and
(j) Borrower shall have paid the fees and Bank Expenses then due
as specified in Section 2.3 hereof.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's obligations
to make each Credit Extension, including the initial Credit Extension, is
subject to the following:
(a) except as otherwise provided in Section 3.4, timely receipt of
an executed Payment/Advance Form;
(b) the representations and warranties in Section 5 shall be true
in all material respects on the date of the Payment/Advance Form and on the
Funding Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and
(c) in Bank's sole discretion, there has not been any material
impairment in the general affairs, management, results of operation, financial
condition or the prospect of repayment of the Obligations, nor has there been
any material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank.
3.3 COVENANT TO DELIVER. Borrower agrees to deliver to Bank each item
required to be delivered to Bank under this Agreement as a condition to any
Credit Extension. Borrower expressly agrees that the extension of a Credit
Extension prior to the receipt by Bank of any such item shall not constitute a
waiver by Bank of Borrower's obligation to deliver such item, and any such
extension in the absence of a required item shall be in Bank's sole discretion.
3.4 PROCEDURES FOR BORROWING. Subject to the prior satisfaction of all
other applicable conditions to the making of an Equipment Advance set forth in
this Agreement, to obtain an Equipment Advance, Borrower must notify Bank (which
notice shall be irrevocable) by electronic mail or facsimile no later than 12:00
noon Eastern time one (1) Business Day before the proposed Funding Date. The
notice shall be a Payment/Advance Form, must be signed by a Responsible Officer
or designee, and shall include a summary listing of the Equipment being
financed.
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4 CREATION OF SECURITY INTEREST
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4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants Bank, to secure
the payment and performance in full of all of the Obligations, a continuing
security interest in, and pledges to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a first
priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank's Lien under this
Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Bank.
If this Agreement is terminated, Bank's Lien in the Collateral shall
continue until the Obligations (other than inchoate indemnity obligations) are
repaid in full in cash. Upon payment in full in cash of the Obligations and at
such time as Bank's obligation to make Credit Extensions has terminated, Bank
shall, at Borrower's sole cost and expense, release its Liens in the Collateral
and all rights therein shall revert to Borrower.
4.2 AUTHORIZATION TO FILE FINANCING STATEMENTS. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank's interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
5 REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each of its
Subsidiaries, if any, are duly existing and in good standing, as Registered
Organizations in their respective jurisdictions of formation and are qualified
and licensed to do business and are in good standing in any jurisdiction in
which the conduct of their business or their ownership of property requires that
they be qualified except where the failure to do so could not reasonably be
expected to have a material adverse effect on Borrower's business. In connection
with this Agreement, Borrower has delivered to Bank a completed perfection
certificate signed by Borrower (the "PERFECTION CERTIFICATE"). Borrower
represents and warrants to Bank that (a) Borrower's exact legal name is that
indicated on the Perfection Certificate and on the signature page hereof; (b)
Borrower is an organization of the type and is organized in the jurisdiction set
forth in the Perfection Certificate; (c) the Perfection Certificate accurately
sets forth Borrower's organizational identification number or accurately states
that Borrower has none; (d) the Perfection Certificate accurately sets forth
Borrower's place of business, or, if more than one, its chief executive office
as well as Borrower's mailing address (if different than its chief executive
office); (e) the Perfection Certificate accurately sets forth any changes to the
Borrower's (and each of its predecessors) jurisdiction of formation,
organizational structure or type, or any organizational number assigned by its
jurisdiction in the past five (5) years; and (f) all other information set forth
on the Perfection Certificate pertaining to Borrower and each of its
Subsidiaries is accurate and complete. If Borrower is not now a Registered
Organization but later becomes one, Borrower shall promptly notify Bank of such
occurrence and provide Bank with Borrower's organizational identification
number.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational 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 it is
a party or by which it is bound in which the default could reasonably be
expected to have a material adverse effect on Borrower's business.
5.2 COLLATERAL. Borrower has good title to, has rights in, and the
power to transfer each item of the Collateral upon which it purports to grant a
Lien hereunder, free and clear of any and all Liens except Permitted Liens.
Borrower has no deposit accounts other than the deposit accounts with Bank, the
deposit accounts, if any, described in the Perfection Certificate delivered to
Bank in connection herewith, or of which Borrower has given Bank notice and
taken such actions as are necessary to give Bank a perfected security interest
therein. The Accounts are bona fide, existing obligations of the Account
Debtors.
The Collateral is not in the possession of any third party bailee (such
as a warehouse) except as otherwise provided in the Perfection Certificate. None
of the components of the Collateral shall be maintained at locations other than
as provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a
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bailee, then Borrower will first receive the written consent of Bank and such
bailee must execute and deliver a bailee agreement in form and substance
satisfactory to Bank in its sole discretion.
All Financed Equipment is new, except for such Financed Equipment that
has been disclosed in writing to Bank by Borrower as "used" and that Bank, in
its sole discretion, has agreed to finance. All Inventory is in all material
respects of good and marketable quality, free from material defects.
Except as noted on the Perfection Certificate, Borrower is not a party
to, nor is bound by, any material license or other agreement with respect to
which Borrower is the licensee that prohibits or otherwise restricts Borrower
from granting a security interest in Borrower's interest in such license or
agreement or any other property. Borrower shall provide written notice to Bank
within ten (10) days of entering or becoming bound by any such license or
agreement which is reasonably likely to have a material impact on Borrower's
business or financial condition (other than over-the-counter software that is
commercially available to the public). Borrower shall take such steps as Bank
requests to obtain the consent of, or waiver by, any person whose consent or
waiver is necessary for all such licenses or contract rights to be deemed
"Collateral" and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such license or
agreement (such consent or authorization may include a licensor's agreement to a
contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.
5.3 LITIGATION. Except as set forth on SCHEDULE 5.3 attached hereto,
there are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its
Subsidiaries involving more than One Hundred Thousand Dollars ($100,000.00).
5.4 NO MATERIAL DETERIORATION IN FINANCIAL STATEMENTS. All
consolidated financial statements for Borrower and any of its Subsidiaries
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY. The fair salable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
Borrower is not left with unreasonably small capital after the transactions in
this Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.
5.6 REGULATORY COMPLIANCE. Borrower is not an "investment company" or
a company "controlled" by an "investment company" under the Investment Company
Act of 1940. 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 have
a material adverse effect on its business. None of Borrower's or any of its
Subsidiaries' properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower's knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each of its Subsidiaries have obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 SUBSIDIARIES; INVESTMENTS. Borrower does not own any stock,
partnership interest or other equity securities except for Permitted
Investments.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed all required tax returns and reports, and Borrower and its
Subsidiaries have timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer
payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Bank in writing of the
commencement of, and any material development in, the proceedings, (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a "Permitted Lien". Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to
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result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.
5.9 USE OF PROCEEDS. Borrower shall use the proceeds of the Credit
Extensions solely to purchase Eligible Equipment and to fund its general
business requirements and not for personal, family, household or agricultural
purposes.
5.10 FULL DISCLOSURE. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representations, warranties, or other statements were made,
taken together with all such written certificates and written statements given
to Bank, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).
6 AFFIRMATIVE COVENANTS
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Borrower shall do all of the following:
6.1 GOVERNMENT COMPLIANCE. Maintain its and all its Subsidiaries'
legal existence and good standing in their respective jurisdictions of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, the noncompliance with which could have a material adverse effect on
Borrower's business.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Deliver to Bank: (i) as soon as available, but no later than
thirty (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; (ii) as soon as available, but no later than one hundred
fifty (150) 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 acceptable to Bank in its
reasonable discretion; (iii) within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower's security holders or
to any holders of Subordinated Debt; (iv) in the event that Borrower becomes
subject to the reporting requirements under the Securities Exchange Act of 1934,
as amended, within five (5) days of filing, all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission or a link thereto on
Borrower's or another website on the Internet; (v) a prompt report of any legal
actions pending or threatened against Borrower or any of its Subsidiaries that
could result in damages or costs to Borrower or any of its Subsidiaries of One
Hundred Thousand Dollars ($100,000) or more; (vi) annually, but no later than
forty-five (45) days of Board approval, annual budget and financial projections
with any material changes; and (vii) other financial information reasonably
requested by Bank.
(b) Within thirty (30) days after the last day of each month,
deliver to Bank with the monthly financial statements, a duly completed
Compliance Certificate signed by a Responsible Officer setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement.
6.3 INVENTORY; RETURNS. Keep all Inventory in good and marketable
condition, free from material defects. Returns and allowances between Borrower
and its Account Debtors shall follow Borrower's customary practices as they
exist at the Effective Date. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than Two Hundred Fifty
Thousand Dollars ($250,000).
6.4 TAXES; PENSIONS. Make, and cause each of its Subsidiaries to make,
timely payment of all foreign, federal, state, and local taxes or assessments
(other than taxes and assessments which Borrower is contesting pursuant to the
terms of Section 5.8 hereof) and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.
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6.5 INSURANCE. Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower's industry and location and as
Bank may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
shall have a lender's loss payable endorsement showing Bank as lender loss payee
and waive subrogation against Bank, and all liability policies shall show, or
have endorsements showing, Bank as an additional insured. All policies (or the
loss payable and additional insured endorsements) shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy. At Bank's request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy shall, at Bank's option, be payable to Bank on account
of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to $250,000 with respect to any
loss, but not exceeding $500,000, in the aggregate 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)after the occurrence and during the continuance of an
Event of Default, all proceeds payable under such casualty policy shall, at the
option of Bank, be payable to Bank on account of the Obligations. If 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) Borrower and its Subsidiaries shall maintain their domestic
depository accounts (with the exception of petty cash deposit accounts, as set
forth on SCHEDULE 6.6, provided that the maximum aggregate balance of such
accounts do not exceed Fifty Thousand Dollars ($50,000.00), in the aggregate, at
any time, and a Citizens Bank Savings Account No. 1165-123685 up to Three
Hundred Thousand Dollars ($300,000.00) to secure reimbursement obligations under
letters of credit, collectively, the "PERMITTED ACCOUNTS") and securities
accounts (with the exception of Borrower's Citibank Securities Account) with
Bank and Bank's affiliates. In addition to the foregoing, within ninety (90)
days after the Effective Date, Borrower shall maintain its and its Subsidiaries'
operating accounts with Bank and Bank's affiliates.
(b) Provide Bank five (5) days prior written notice before
establishing any Collateral Account at or with any bank or financial institution
other than Bank or its Affiliates. In addition, for each Collateral Account that
Borrower at any time maintains (with the exception of the Permitted Accounts),
Borrower shall cause the applicable bank or financial institution (other than
Bank) at or with which any Collateral Account is maintained to execute and
deliver a Control Agreement or other appropriate instrument with respect to such
Collateral Account to perfect Bank's Lien in such Collateral Account in
accordance with the terms hereunder. The provisions of the previous sentence
shall not apply to deposit accounts exclusively used for payroll, payroll taxes
and other employee wage and benefit payments to or for the benefit of Borrower's
employees and identified to Bank by Borrower as such.
6.7 FINANCIAL COVENANTS.
Borrower shall maintain, at all times, to be tested as of the last
day of each month, unless otherwise noted, on a consolidated basis:
(a) Adjusted Quick Ratio. An Adjusted Quick Ratio of at least: (i)
1.0 to 1.0 as of the last day of each of the months ending May 31, 2007, and
June 30, 2007; and (ii) 1.5 to 1.0 as of the last day of the month ending July
31, 2007, and as of the last day of each month thereafter. Notwithstanding the
foregoing, the failure of Borrower to comply with this financial covenant during
any such month shall not constitute an Event of Default provided that: (a)
during any quarter in which Borrower maintains Net Income (tested as of the last
day of each quarter) of less then One Dollar ($1.00), Borrower's Unrestricted
Cash is greater than or equal to one and one-quarter times (1.25x) the
outstanding principal amount of the Equipment Line at all times during such
month, or (b) during any quarter in which Borrower maintains Net Income (tested
as of the last day of each quarter) of at least One Dollar ($1.00), Borrower's
Unrestricted Cash is greater than or equal to one times (1.0x) the principal
amount of the outstanding Equipment Line at all times during such month.
(b) Minimum Quarterly Net Income. Borrower shall maintain Net
Income of at least: (i) ($1,500,000.00) as of the last day of the quarter
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ending June 30, 2007, (ii) $1.00 as of the last day of the quarter ending
September 30, 2007, and (iii) $250,000.00 as of the last day of the quarter
ending December 31, 2007, and as of the last day of each quarter thereafter.
6.8 INTENTIONALLY DELETED.
6.9 LITIGATION COOPERATION. From the date hereof and continuing
through the termination of this Agreement, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower's
books and records, to the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted by or against
Bank with respect to any Collateral or relating to Borrower.
6.10 FURTHER ASSURANCES. Execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Bank's Lien in
the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower shall not do any of the following without Bank's prior written
consent:
7.1 DISPOSITIONS. Convey, sell, lease, transfer, assign, or otherwise
dispose of (collectively, "TRANSFER"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers (a)
of Inventory in the ordinary course of business; (b) of worn-out or obsolete
Equipment that does not constitute Financed Equipment; and (c) in connection
with Permitted Liens and Permitted Investments.
7.2 CHANGES IN BUSINESS, MANAGEMENT, OWNERSHIP, OR BUSINESS LOCATIONS.
(a) Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) if
a Key Person ceases to hold such office with Borrower and a replacement
satisfactory to Bank is not made within ninety (90) days thereafter. Borrower
shall not, without at least thirty (30) days prior written notice to Bank: (1)
add any new offices or business locations, including warehouses (unless such new
offices or business locations contain less than Ten Thousand Dollars ($10,000)
in Borrower's assets or property), (2) change its jurisdiction of organization,
(3) change its organizational structure or type, (4) change its legal name, or
(5) change any organizational number (if any) assigned by its jurisdiction of
organization.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.
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 of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any 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 Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower's or any Subsidiary's
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of "Permitted Liens" 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 make any
Investment other than Permitted Investments, or permit any of its Subsidiaries
to do so; or (b) pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.8 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 7.8,
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower, except for transactions that are in the
-8-
ordinary course of Borrower's business, upon fair and reasonable terms that are
no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.
7.9 SUBORDINATED DEBT. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b)
amend any provision in any document relating to the Subordinated Debt which
would increase the amount thereof or adversely affect the subordination thereof
to Obligations owed to Bank.
7.10 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 Borrower's business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
8 EVENTS OF DEFAULT
-----------------
Any one of the following shall constitute an event of default (an
"EVENT OF DEFAULT") under this Agreement:
8.1 PAYMENT DEFAULT. Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay any
other Obligations within three (3) Business Days after such Obligations are due
and payable (which three (3) Business Day grace period will not apply to
payments due on the Equipment Line Maturity Date). 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) Borrower fails or neglects to perform any obligation in
Sections 6.2, 6.5, 6.6, 6.7, or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any
other term, provision, condition, covenant or agreement contained in this
Agreement, any Loan Documents, and as to any default (other than those specified
in this Section 8) under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure the default within ten (10) days
after the occurrence thereof; provided, however, that if the default cannot by
its nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such default
is likely to be cured within a reasonable time, then Borrower shall have an
additional period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to cure the default shall not be deemed an Event of Default (but no Credit
Extensions shall be made during such cure period). 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;
8.3 MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;
8.4 ATTACHMENT. (a) 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 ten (10) days; (b) the
service of process seeking to attach, by trustee or similar process, any funds
of Borrower, or of any entity under control of Borrower (including a
Subsidiary), on deposit with Bank or Bank's Affiliate; (c) Borrower 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 Five Hundred Thousand
Dollars ($500,000) becomes a Lien on any of Borrower's assets; or (e) a notice
of lien, levy, or assessment is filed against any of Borrower's assets by any
government agency and not paid within ten (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 shall be made during the cure
period);
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8.5 INSOLVENCY (a) Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within forty-five (45) 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. There is a default in any agreement to which
Borrower or any Guarantor is a party with a third party or parties resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of Fifty Thousand
Dollars ($50,000) or that could have a material adverse effect on Borrower's
business;
8.7 JUDGMENTS. A judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) (not covered by independent third-party insurance) shall be rendered
against Borrower 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. Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Bank or to induce
Bank to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;
8.9 SUBORDINATED DEBT. A default or breach occurs under any agreement
between Borrower and any creditor of Borrower 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
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 RIGHTS AND REMEDIES. While an Event of Default occurs and
continues Bank may, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) stop advancing money or extending credit for Borrower's
benefit under this Agreement or under any other agreement between Borrower and
Bank;
(c) demand that Borrower (i) 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 Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all letter of credit fees scheduled to be paid or payable over
the remaining term of any letters of credit;
(d) settle or adjust disputes and claims directly with Account
Debtors for amounts on terms and in any order that Bank considers advisable,
notify any Person owing Borrower money of Bank's security interest in such
funds, and verify the amount of such account;
(e) make any payments and do any acts it considers necessary or
reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrower shall assemble the Collateral if Bank requests and make it
available as Bank designates. Bank may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any
of Bank's rights or remedies;
(f) apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
(g) ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby
granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower's labels, patents, copyrights, mask works, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in
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completing production of, advertising for sale, and selling any Collateral and,
in connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
(h) place a "hold" on any account maintained with Bank and/or
deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;
(i) demand and receive possession of Borrower's Books; and
(j) exercise all rights and remedies available to Bank under the
Loan Documents or at law or equity, including all remedies provided under the
Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 POWER OF ATTORNEY. Borrower hereby irrevocably appoints Bank as
its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower's name on any
checks or other forms of payment or security; (b) sign Borrower's name on any
invoice or 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 Borrower's insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, and adverse claim in or
to the Collateral, or any judgment based thereon, or otherwise take any action
to terminate or discharge the same; and (f) transfer the Collateral into the
name of Bank or a third party as the Code permits. Borrower hereby appoints Bank
as its lawful attorney-in-fact to sign Borrower's name on any documents
necessary to perfect or continue the perfection of Bank's security interest in
the Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank's foregoing appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
9.3 ACCOUNTS VERIFICATION; COLLECTION. Whether or not an Event of
Default has occurred and is continuing, Bank may notify any Person owing
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 Borrower shall be held in trust by Borrower for Bank, and, if
requested by Bank, 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 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 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 charged by Bank, and
secured by the Collateral. Bank will make reasonable efforts to provide Borrower
with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter. No payments by Bank are deemed an agreement
to make similar payments in the future or Bank's waiver of any Event of Default.
9.5 APPLICATION OF PAYMENTS AND PROCEEDS. If an Event of Default has
occurred and is continuing, Bank may apply any funds in its possession, whether
from Borrower account balances, payments, proceeds realized as the result of any
collection of Accounts or other disposition of the Collateral, or otherwise, to
the Obligations in such order as Bank shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other Persons legally entitled thereto;
Borrower shall remain liable to Bank for any deficiency. If Bank, in its good
faith business judgment, directly or indirectly enters into a deferred payment
or other credit transaction with any purchaser at any sale of Collateral, Bank
shall have the option, exercisable at any time, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Bank of cash therefor.
9.6 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. Borrower bears
all risk of loss, damage or destruction of the Collateral.
-11-
9.7 NO WAIVER; REMEDIES CUMULATIVE. Bank's failure, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Bank thereafter to demand strict performance and compliance herewith or
therewith. No waiver hereunder shall be effective unless signed by 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. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.
10 NOTICES
-------
All notices, consents, requests, approvals, demands, or other
communication (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 Days after deposit in the U.S. mail, first class, registered
or certified mail return receipt requested, with proper postage prepaid; (b)
upon transmission, when sent by electronic mail or facsimile transmission; (c)
one (1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or Borrower may change
its address or facsimile number by giving the other party written notice thereof
in accordance with the terms of this Section 10.
If to Borrower: Spire Corporation
Attn: ________________________________
Fax: ________________________________
Email: _______________________________
with a copy to: Bandwidth Semiconductor, LLC
Attn: ________________________________
Fax: ________________________________
Email: _______________________________
If to Bank: Silicon Valley Bank
One Newton Executive Park, Suite 200
2221 Washington Street
Newton, Massachusetts 02462
Attn: Mr. Michael Fell
Fax: (617) 969-4395
Email: MFell@svb.com
with a copy to: Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
Fax: (617) 880-3456
Email: DEphraim@riemerlaw.com
-12-
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
Massachusetts 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 Massachusetts; provided,
however, that if for any reason Bank cannot avail itself of such courts in the
Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and
venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, BANK
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK'S
RIGHTS AGAINST BORROWER OR ITS PROPERTY.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
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 or obligations under it without Bank's prior
written consent (which may be granted or withheld in Bank's discretion). Bank
has the right, without the consent of or notice to Borrower, to sell, transfer,
assign, negotiate, or grant participation in all or any part of, or any interest
in, Bank's obligations, rights, and benefits under this Agreement and the other
Loan Documents.
12.2 Indemnification. Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank 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 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 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4 Severability of Provisions. 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 signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject matter
and supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents 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, is an original, and all taken together, constitute
one Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement) have been satisfied. The obligation of Borrower
in Section 12.2 to indemnify Bank shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.
12.8 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
-13-
(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.
12.9 Right of Set Off. Borrower hereby grants to Bank, a lien, security
interest and right of set off as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations. ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
12.10 Borrower Liability. Either Borrower may, acting singly, request
Credit Extensions hereunder. Each Borrower hereby appoints the other as agent
for the other for all purposes hereunder, including with respect to requesting
Credit Extensions hereunder. Each Borrower hereunder shall be obligated to repay
all Credit Extensions made hereunder, regardless of which Borrower actually
receives said Credit Extension, as if each Borrower hereunder directly received
all Credit Extensions. Each Borrower waives any suretyship defenses available to
it under the Code or any other applicable law. Each Borrower waives any right to
require Bank to: (i) proceed against any Borrower or any other person; (ii)
proceed against or exhaust any security; or (iii) pursue any other remedy. Bank
may exercise or not exercise any right or remedy it has against any Borrower or
any security it holds (including the right to foreclose by judicial or
non-judicial sale) without affecting any Borrower's liability. Notwithstanding
any other provision of this Agreement or other related document, each Borrower
irrevocably waives all rights that it may have at law or in equity (including,
without limitation, any law subrogating Borrower to the rights of Bank under
this Agreement) to seek contribution, indemnification or any other form of
reimbursement from any other Borrower, or any other Person now or hereafter
primarily or secondarily liable for any of the Obligations, for any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise and all rights that it might have to benefit from, or to participate
in, any security for the Obligations as a result of any payment made by Borrower
with respect to the Obligations in connection with this Agreement or otherwise.
Any agreement providing for indemnification, reimbursement or any other
arrangement prohibited under this Section shall be null and void. If any payment
is made to a Borrower in contravention of this Section, such Borrower shall hold
such payment in trust for Bank and such payment shall be promptly delivered to
Bank for application to the Obligations, whether matured or unmatured.
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 Borrower.
"Account Debtor" is any "account debtor" as defined in the Code with
such additions to such term as may hereafter be made.
"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.
"Adjusted Quick Ratio" means a ratio of Quick Assets to Quick
Liabilities.
"Agreement" is defined in the preamble hereof.
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"Bank" is defined in the preamble hereof.
"Bank Expenses" are all audit fees and expenses, costs, and expenses
(including reasonable attorneys' fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrower.
"Board" means Borrower's Board of Directors.
"Borrower" is defined in the preamble hereof.
"Borrower's Books" are all Borrower's books and records including
ledgers, federal and state tax returns, records regarding Borrower's assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.
"Borrowing 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" are (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc., and (c) Bank's certificates of deposit
issued maturing no more than one (1) year after issue.
"Claims" are defined in Section 12.2.
"Code" is the Uniform Commercial Code, as the same may, from time to
time, be enacted and in effect in the Commonwealth of Massachusetts; 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 Commonwealth of Massachusetts, the term "Code" shall mean the Uniform
Commercial Code as enacted and in effect in such other 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 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 C.
"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
-15-
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but "Contingent Obligation"
does not include endorsements in the ordinary course of business. The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.
"Control Agreement" is any control agreement entered into among the
depository institution at which Borrower maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower maintains a
Securities Account or a Commodity Account, Borrower, and Bank pursuant to which
Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
"Credit Extension" is any Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.
"Current Liabilities" are all obligations and liabilities of Borrower
to Bank (excluding cash-secured obligations and liabilities) plus, without
duplication, the aggregate amount of Borrower's Total Liabilities that mature
within one (1) year.
"Default" is any event which with notice or passage of time or both,
would constitute an Event of Default.
"Default Rate" is defined in Section 2.2(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.
"Draw Period" is the period of time from the Effective Date through the
earliest to occur of (a) _______________, 2008 [ DATE WHICH IS 12 MONTHS FROM
EFFECTIVE DATE ], or (b) an Event of Default.
"Effective Date" is defined in the preamble of this Agreement.
"Eligible Equipment" is (a) general purpose computer equipment, office
equipment, test and laboratory equipment, furnishings, subject to the
limitations set forth herein, and (b) Other Equipment that complies with all of
Borrower's representations and warranties to Bank and which is acceptable to
Bank in all respects and in which Bank has a first priority Lien.
"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" or "Equipment Advances" is defined in Section
2.1.1(a).
"Equipment Line" is an Equipment Advance or Equipment Advances in an
aggregate amount of up to Three Million Five Hundred Thousand Dollars
($3,500,000.00).
"Equipment Line Maturity Date" is, for each Equipment Advance, the date
which is thirty-five (35) months after the first Payment Date with respect to
such Equipment Advance.
-16-
"ERISA" is the Employee Retirement Income Security Act of 1974, and its
regulations.
"Event of Default" is defined in Section 8.
"Event of Loss" is defined in Section 2.1.1(c).
"Financed Equipment" is all present and future Eligible Equipment in
which Borrower has any interest, the purchase of which is financed by an
Equipment Advance.
"Funding Date" is any date on which a Credit Extension is made to or on
account of Borrower which shall be a Business Day.
"GAAP" is generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"General Intangibles" is all "general intangibles" as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation, all 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.
"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.
"Initial Equipment Advance" is defined in Section 2.1.1(a).
"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 Borrower's 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.
"Key Person" is either Borrower's Chief Executive Officer or Chief
Financial Officer who are, as of the Effective Date, Roger Little and Christian
Dufresne, respectively.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, the Perfection
Certificate, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower any
Guarantor and/or for the benefit of Bank in connection with this Agreement, all
as amended, restated, or otherwise modified.
-17-
"Material Adverse Change" is (a) a material impairment in the
perfection or priority of Bank's Lien in the Collateral or in the value of such
Collateral; (b) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; (c) a material impairment of the
prospect of repayment of any portion of the Obligations; or (d) Bank determines,
based upon information available to it and in its reasonable judgment, that
there is a reasonable likelihood that Borrower shall fail to comply with one or
more of the financial covenants in Section 6 during the next succeeding
financial reporting period.
"Net Income" is defined in accordance with GAAP.
"Obligations" are Borrower's obligation to pay when due any debts,
principal, interest, Bank Expenses and other amounts Borrower owes Bank now or
later, whether under this Agreement, the Loan Documents, or otherwise,
including, without limitation, all obligations relating to letters of credit
(including reimbursement obligations for drawn and undrawn letters of credit),
cash management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and the performance of 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 its bylaws in current form, each of the foregoing with all current
amendments or modifications thereto.
"Other Equipment" is software licenses and soft costs approved by Bank,
including taxes, shipping, warranty charges, freight discounts and installation
expenses.
"Payment/Advance Form" is that certain form attached hereto as Exhibit
B.
"Payment Date" is the first calendar day of each month.
"Perfection Certificate" is defined in Section 5.1.
"Permitted Accounts" is defined in Section 6.6(a).
"Permitted Indebtedness" is:
(a) Borrower's Indebtedness to Bank under this Agreement and the
other Loan Documents;
(b) Indebtedness or reimbursement obligations existing on the
Effective Date listed on Schedule 7.4 attached hereto;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors and with respect to
surety bonds and similar obligations incurred in the ordinary course of
business;
(e) Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;
(f) Indebtedness secured by Permitted Liens;
(g) Indebtedness of any Borrower to any other Borrower or
Subsidiary of a Borrower; and
(h) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investments" are:
(a) Investments listed on Schedule 7.7 attached hereto and
existing on the Effective Date;
-18-
(b) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of Borrower;
(c) Investments consisting of deposit accounts in which Bank has a
first perfected security interest;
(d) Investments of Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed One Hundred
Thousand Dollars ($100,000) in the aggregate in any fiscal year;
(e) Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower's Board of
Directors;
(f) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph (e)
shall not apply to Investments of Borrower in any Subsidiary;
(g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(h) Investments in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one year from the date of acquisition thereof; (ii) commercial
paper maturing no more than one year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Ratings Group or Moody's Investors Service, Inc.; (iii) certificates of deposit
maturing no more than one year from the date of creation thereof issued by
commercial banks incorporated under the laws of the United States of America,
each having combined capital, surplus and undivided profits of not less than
$100,000,000.00 and having a senior unsecured rating of "A" or better by a
nationally recognized rating agency (an "A Rated Bank"); (iv) time deposits
maturing no more than 30 days from the date of creation thereof with A Rated
Banks; and (v) mutual funds that invest solely in one or more of the investments
described in clauses (i) through (iv) above;
(i) Cash Equivalents;
(j) joint ventures or strategic alliances, provided that any cash
investments by Borrower do not exceed Five Hundred Thousand Dollars
($500,000.00) in the aggregate (inclusive of amounts set forth in subsection (k)
hereof); and
(k) Investments consisting of intercompany loans by Borrower to
any other Borrower or Subsidiary in an amount not to exceed Five Hundred
Thousand Dollars ($500,000.00) in the aggregate (inclusive of amounts set forth
in subsection (j) hereof).
"Permitted Liens" are:
(a) Liens existing on the Effective Date listed on Schedule 7.5
attached hereto or arising under this Agreement and the 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 Borrower's Books, if they have no
priority over any of Bank's Liens;
(c) purchase money Liens (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment securing no
more than Five Hundred Thousand Dollars ($500,000) in the aggregate amount
outstanding, or (ii) existing on Equipment when acquired, if the Lien is
confined to the property and improvements and the proceeds of the Equipment;
(d) statutory Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other Persons imposed without
action of such parties, provided, they have no priority over any of
-19-
Bank's Lien and the aggregate amount of such Liens does not at any time exceed
Two Hundred Fifty Thousand Dollars ($250,000.00);
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (e), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"Quick Assets" is, on any date, Borrower's unrestricted cash, plus net
billed accounts receivable.
"Quick Liabilities" are Current Liabilities less the portion of Current
Liabilities that constitute Deferred Revenue.
"Registered Organization" is any "registered organization" as defined
in the Code with such additions to such term as may hereafter be made
"Responsible Officer" is any of the Chief Executive Officer, President,
Chief Financial Officer and Controller of Borrower.
"Securities Account" is any "securities account" as defined in the Code
with such additions to such term as may hereafter be made.
"Subordinated Debt" is indebtedness incurred by Borrower subordinated
to all of Borrower's now or hereafter indebtedness to Bank (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Bank entered into between Bank and the other creditor), on terms
acceptable to Bank.
"Subsidiary" is, with respect to any Person, any Person of which more
than 50% of the voting stock or other equity interests (in the case of Persons
other than corporations) is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Total Liabilities" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.
"Transfer" is defined in Section 7.1.
"Unrestricted Cash" shall mean all cash and Cash Equivalents maintained
at Bank, in Borrower's name, that is unrestricted and not pledged to any other
person.
-20-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the Effective Date.
BORROWER:
SPIRE CORPORATION
By: /s/ Christian Dufresne
--------------------------------------------
Name: Christian Dufresne
--------------------------------------------
Title: CFO
--------------------------------------------
BORROWER:
BANDWIDTH SEMICONDUCTOR, LLC
By: /s/ Roger G. Little
--------------------------------------------
Name: Roger G. Little
--------------------------------------------
Title: Chairman and Manager
--------------------------------------------
BANK:
SILICON VALLEY BANK
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
[Signature page to Loan and Security Agreement]
SCHEDULE 5.3
LITIGATION
----------
Spire was named a defendant in 58 cases filed from August 2001 to July 2003
in various state courts in Texas by persons claiming damages from the use of
allegedly defective mechanical heart valves coated by a process licensed by
Spire to St. Jude Medical, Inc., the heart valve manufacturer, which has also
been named as a defendant in these cases. In June 2003, a motion for summary
judgment was granted to Spire and most of these cases were dismissed, based on
the principle of federal preemption. The Texas Court of Appeals upheld the lower
court's decision, and, because these cases were not submitted for review to the
Texas Supreme Court, the judgments rendered are now final.
As of January 2007, four cases remain pending in various district courts in
Harris County, Texas. One of these cases appears to remain pending despite its
inclusion in the original summary judgment which was subsequently upheld by the
first court of appeals. This may be the result of an administrative omission;
counsel for Spire intends to confirm with the court that this case should in
fact no longer be pending. Two of the remaining cases where filed after the
motion for summary judgment, but since the appeals court has subsequently ruled
in Spire's favor, counsel for Spire is asking the plaintiffs in these cases to
consider voluntary dismissal, or alternatively, because the cases are not
actively prosecuted, to ask the court to dismiss them. The remaining case was
not subject to the preemption argument advanced by Spire's counsel and either
may be settled or may go to trial.
During the second quarter of 2005 a suit was filed by Arrow International,
Inc. against Spire Biomedical, Inc., a wholly owned subsidiary of Spire,
alleging patent infringement by Spire. The complaint claims one of Spire's
catheter products induces and contributes to infringement when medical
professionals insert it. Spire has responded to the complaint denying all
allegations and has filed certain counterclaims. The discovery process in this
case has continued and is nearly complete. Spire filed a motion for summary
judgment, asserting patent invalidity resulting from plaintiff's failure to
follow the administrative procedures of the U.S. Patent and Trademark Office
("USPTO") which failure has remained uncorrected. On August 4, 2006, the Court
granted Spire's motion and dismissed this lawsuit without prejudice. Plaintiffs
applied to revive the applicable patent, which application was granted by the
USPTO in August 2006. Plaintiffs refiled their lawsuit against Spire in
September 2006. Spire has filed its answer and resumed its defense. The parties
have been working to conclude discovery. At this time, however, in response to a
joint request, the court has temporarily stayed the proceedings to allow the
parties to discuss possible alternative methods toward resolution of the subject
matter of the litigation. Based on information presently available to Spire,
Spire believes that it does not infringe any valid claim of the plaintiff's
patent and that, consequently, it has meritorious legal defenses with respect to
this action in the event it were to be reinstated.
In an amended complaint filed on December 28, 2006, in the Eastern Division
of the U.S. District Court for the Southern District of Ohio, the wife and
executor of the estate of Darrell Adams, deceased, alleges that the failure of a
hemodialysis catheter manufactured by Spire was a cause of his death. Counsel
retained by its insurance underwriters, on behalf of Spire, have filed an answer
denying all such allegations and asserting various defenses. Based on the
knowledge available to it at this time, Spire determined the likelihood of an
unfavorable outcome to be remote and accordingly has not recorded an accrued
expense.
1
SCHEDULE 7.4
INDEBTEDNESS
------------
[INSERT DESCRIPTION OF SURETY BONDS, STANDBY LETTERS OF CREDIT]
2
SCHEDULE 7.7
DISTRIBUTIONS; INVESTMENTS
[insert description of investments in Subsidiaries
and deferred compensation account]
3
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in and to
the following personal property:
All goods, Accounts (including health-care receivables), Equipment,
Inventory, contract rights or rights to payment of money, leases, license
agreements, franchise agreements, General Intangibles (except as provided
below), commercial tort claims, documents, instruments (including any promissory
notes), chattel paper (whether tangible or electronic), cash, deposit accounts,
certificates of deposit, fixtures, letters of credit rights (whether or not the
letter of credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets, whether now
owned or hereafter acquired, wherever located; and
all Borrower's Books relating to the foregoing, and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include any of
the following, whether now owned or hereafter acquired any copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
thereby, know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing; provided, however, the Collateral shall
include all Accounts, license and royalty fees and other revenues, proceeds, or
income arising out of or relating to any of the foregoing.
Pursuant to the terms of a certain negative pledge arrangement with
Bank, Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Bank's prior written consent.
4
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS NOON E.S.T.*
Fax To: Date: __________________
================================================================================
LOAN PAYMENT:
Spire Corporation and Bandwidth Semiconductor, LLC
--------------------------------------------------
From Account #_________________________ To Account #________________________
(Deposit Account #) (Loan Account #)
Principal $____________________________ and/or Interest $___________________
AUTHORIZED SIGNATURE:__________________ Phone Number: ______________________
Print Name/Title: _____________________
================================================================================
================================================================================
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 representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
request for an advance; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:
AUTHORIZED SIGNATURE:__________________ Phone Number: ______________________
Print Name/Title: _____________________
================================================================================
================================================================================
OUTGOING WIRE REQUEST:
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE IS TO BE
WIRED.
Deadline for same day processing is noon, E.S.T.
Beneficiary Name: _____________________ Amount of Wire: $___________________
Beneficiary Bank: _____________________ Account Number: ____________________
City and State: _____________________
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 #:________________________
================================================================================
* Unless otherwise provided for an Advance bearing interest at LIBOR.
1
EXHIBIT C
---------
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:_______________
FROM: SPIRE CORPORATION AND BANDWIDTH SEMICONDUCTOR, LLC
The undersigned authorized officer of Spire Corporation or Bandwidth
Semiconductor, LLC ("Borrower") certifies that under the terms and conditions of
the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (1)
Borrower is in complete compliance for the period ending _______________ with
all required covenants except as noted below, (2) there are no Events of
Default, (3) all representations and warranties in the Agreement are true and
correct in all material respects on this date except as noted below; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies that
these are prepared in accordance with GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges that no borrowings may be requested at any time or date
of determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
- -------------------------------------------- ---------------------------------------- ---------------
REPORTING COVENANT REQUIRED COMPLIES
- -------------------------------------------- ---------------------------------------- ---------------
- -------------------------------------------- ---------------------------------------- ---------------
Monthly financial statements Monthly within 30 days Yes No
with Compliance Certificate
- -------------------------------------------- ---------------------------------------- ---------------
Annual financial statement (CPA Audited) FYE within 150 days Yes No
- -------------------------------------------- ---------------------------------------- ---------------
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
- -------------------------------------------- ---------------------------------------- ---------------
Board Approved Projections Annually, within 45 days of approval Yes No
- -----------------------------------------------------------------------------------------------------
- -------------------------------------------- ----------------- --------------- ----------------------
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- -------------------------------------------- ----------------- --------------- ----------------------
Maintain on a Monthly Basis:
- -------------------------------------------- ----------------- --------------- ----------------------
Minimum Adjusted Quick Ratio ____* :1.0 _____:1.0 Yes No
- -------------------------------------------- ----------------- --------------- ----------------------
Maintain on a Quarterly Basis:
- -------------------------------------------- ----------------- --------------- ----------------------
Minimum Net Revenue $______** $______ Yes No
- -----------------------------------------------------------------------------------------------------
* As set forth in Section 6.7(a) of the Agreement
** As set forth in Section 6.7(b) of the Agreement
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The following financial covenant analysis and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.
The following are the exceptions with respect to the certification
above: (If no exceptions exist, state "No exceptions to note.")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Spire Corporation BANK USE ONLY
By: Received by:
----------------------------------- -----------------------
Name: AUTHORIZED SIGNER
---------------------------------
Title: Date:
-------------------------------- -------------------------------
Bandwidth Semiconductor, LLC Verified:
--------------------------
AUTHORIZED SIGNER
By: Date:
----------------------------------- ------------------------------
Name:
--------------------------------
Title: Compliance Status: Yes No
--------------------------------
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SCHEDULE 1 TO COMPLIANCE CERTIFICATE
------------------------------------
FINANCIAL COVENANTS OF BORROWER
-------------------------------
Dated: __________
In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall control.
I. ADJUSTED QUICK RATIO (Section 6.7(a))
Required: (i) 1.0 to 1.0 as of the months ending May 31, 2007, and June 30,
2007 (ii) 1.5 to 1.0 as of the month ending July 31, 2007, and as
of the last day of each month thereafter
Actual: ___: 1.0
================================================================================
A. Aggregate value of the unrestricted cash of Borrower $_______
- --------- ----------------------------------------------------------------------
B. Aggregate value of the net billed accounts receivable of Borrower $_______
- --------- ----------------------------------------------------------------------
C. Quick Assets (the sum of lines A and B) $_______
- --------- ----------------------------------------------------------------------
D. Aggregate value of Obligations to Bank $_______
- --------- ----------------------------------------------------------------------
E. Aggregate value of all amounts received or invoiced by Borrower in advance
of performance under contracts and not yet recognized as revenue $_______
- --------- ----------------------------------------------------------------------
F. Quick Liabilities (the sum of lines D, minus E) $_______
- --------- ----------------------------------------------------------------------
G. Adjusted Quick Ratio (line C divided by line F) ________
================================================================================
_____ No, not in compliance ____ Yes, in compliance
3