Exhibit 10.2

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of August 5, 2016
(the “Effective Date”) between SILICON VALLEY BANK, a California corporation
(“Bank”), and SUNSHINE HEART, INC., a Delaware corporation (“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

 

Accounting terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following GAAP. 
Notwithstanding the foregoing, unless specifically set forth herein, all
financial covenant calculations shall be computed with respect to the Borrower
only, and not on a consolidated basis.  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

 

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.

 

2.2                               Revolving Advances.

 

(a)                                 Availability.  Subject to the terms and
conditions of this Agreement and to deduction of Reserves, Bank shall make
Advances not exceeding the Availability Amount.  Amounts borrowed under the
Revolving Line may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)                                 Termination; Repayment.  The Revolving Line
terminates on the Revolving Line Maturity Date, when the principal amount of all
Advances, the unpaid interest thereon, and all other Obligations relating to the
Revolving Line shall be immediately due and payable.

 

2.3                               Term Loan Advances.

 

(a)                                 Availability.  Subject to the terms and
conditions of this Agreement, during the Draw Period, Bank shall make advances
(each, a “Term Loan Advance” and collectively, the “Term Loan Advances”)
available to Borrower in an aggregate original principal amount not to exceed
Four Million Dollars ($4,000,000.00).  Each Term Loan Advance shall be in an
amount equal to at least One Million Dollars ($1,000,000.00).  After repayment,
no Term Loan Advance (or any portion thereof) may be reborrowed.

 

(b)                                 Interest Payments.  Commencing on the first
(1st) Payment Date of the month following the month in which the Funding Date of
the applicable Term Loan Advance occurs and continuing on each Payment Date
thereafter, Borrower shall make monthly payments of interest on such Term Loan
Advance, in arrears, at the rate set forth in Section 2.5(a)(ii).

 

(c)                                  Repayment.  Commencing on the Amortization
Date and continuing on the Payment Date of each month thereafter, Borrower shall
repay the Term Loan Advances in (i) equal monthly installments of principal
based on the applicable Repayment Schedule, plus (ii) monthly payments of
interest on such Term Loan Advance, in arrears, at the rate set forth in Section
2.5(a)(ii).  All outstanding principal and accrued interest with respect to the
Term Loan Advances, and all other outstanding Obligations with respect to the
Term Loan Advances, are due and payable in full on the Term Loan Maturity Date.

 

(d)                                 Mandatory Prepayment Upon an Acceleration. 
If the Term Loan Advances are accelerated following the occurrence of an Event
of Default, Borrower shall immediately pay to Bank an amount

 

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equal to the sum of (i) all outstanding principal plus accrued and unpaid
interest, (ii) the Prepayment Premium, (iii) the Final Payment, plus (iv) 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 Term Loan
Advances.  Borrower shall have the option to prepay all, but not less than all,
of the Term Loan Advances advanced by Bank under this Agreement, provided
Borrower (i) provides written notice to Bank of its election to prepay the Term
Loan 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, (B) the Prepayment Premium, (C) the Final Payment, plus (D) 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.

 

2.4                               Overadvances.  If, at any time, the
outstanding principal amount of any Advances exceeds the lesser of either the
Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in
cash the amount of such excess (such excess, the “Overadvance”). Without
limiting Borrower’s obligation to repay Bank any Overadvance, Borrower agrees to
pay Bank interest on the outstanding amount of any Overadvance, on demand, at
the Default Rate.

 

2.5                               Payment of Interest on the Credit Extensions.

 

(a)                                 Interest.

 

(i)             Advances.  Subject to Section 2.5(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to (i) at times when a Streamline Period is not in effect, one
and three-quarters of one percent (1.75%) above the Prime Rate, and (ii) at
times when a Streamline Period is in effect, one percent (1.0%) above the Prime
Rate, which interest shall, in each case, be payable monthly in accordance with
Section 2.5(d) below.

 

(ii)          Term Loan Advance.  Subject to Section 2.5(b), the principal
amount of outstanding Term Loan Advances shall accrue interest at a floating per
annum rate equal to two and one-half of one percent (2.50%) above the Prime
Rate, which interest shall be payable monthly in accordance with Section 2.5(d)
below.

 

(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 four percent (4.0%) above the rate
that is otherwise applicable thereto (the “Default Rate”).  Fees and expenses
which are required to be paid by Borrower pursuant to the Loan Documents
(including, without limitation, Bank Expenses) but are not paid when due shall
bear interest until paid at a rate equal to the highest rate applicable to the
Obligations.  Payment or acceptance of the increased interest rate provided in
this Section 2.5(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)                                 Payment; Interest Computation.  Interest is
payable monthly on the Payment Date and shall be computed on the basis of a
360-day year for the actual number of days elapsed.  In computing interest, (i)
all payments received after 12:00 p.m. Eastern time on any day shall be deemed
received at the opening of business on the next Business Day, and (ii) the date
of the making of any Credit Extension shall be included and the date of payment
shall be excluded; provided, however, that if any Credit Extension is repaid on
the same day on which it is made, such day shall be included in computing
interest on such Credit Extension.

 

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2.6                               Fees.  Borrower shall pay to Bank:

 

(a)                                 Commitment Fee.  A fully earned,
non-refundable commitment fee of Seven Thousand Five Hundred Dollars
($7,500.00), on the Effective Date;

 

(b)                                 2017 Anniversary Fee.  A non-refundable
anniversary fee (the “2017 Anniversary Fee”) in connection with the Revolving
Line of Seven Thousand Five Hundred Dollars ($7,500.00), which shall be earned
as of the Effective Date and shall be due and payable on the earliest to occur
of (i) August 5, 2017, (ii) the occurrence of an Event of Default, or (iii) the
termination of this Agreement;

 

(c)                                  2018 Anniversary Fee.  A non-refundable
anniversary fee (the “2018 Anniversary Fee”) in connection with the Revolving
Line of Seven Thousand Five Hundred Dollars ($7,500.00), which shall be earned
as of the Effective Date and shall be due and payable on the earliest to occur
of (i) August 5, 2018, (ii) the occurrence of an Event of Default, or (iii) the
termination of this Agreement;

 

(d)                                 2019 Anniversary Fee.  A non-refundable
anniversary fee (the “2019 Anniversary Fee”) in connection with the Revolving
Line of Seven Thousand Five Hundred Dollars ($7,500.00), which shall be earned
as of the Effective Date and shall be due and payable on the earliest to occur
of (i) August 5, 2019, (ii) the occurrence of an Event of Default, or (iii) the
termination of this Agreement;

 

(e)                                  Termination Fee.  Upon termination of this
Agreement or the Revolving Line for any reason prior to the Revolving Line
Maturity Date, in addition to the payment of any other amounts then-owing, a
termination fee (the “Termination Fee”) in an amount equal to (i)  two percent
(2.0%) of the Revolving Line if terminated on or before August 5, 2017, and (ii)
one percent (1.0%) of the Revolving Line if terminated after August 5, 2017 but
on or before the Revolving Line Maturity Date;

 

(f)                                   Final Payment.  The Final Payment, when
due hereunder;

 

(g)                                  Prepayment Premium.  The Prepayment
Premium, when due hereunder; and

 

(h)                                 Bank Expenses.  All Bank Expenses (including
reasonable attorneys’ fees and expenses for documentation and negotiation of
this Agreement) incurred through and after the Effective Date, when due (or, if
no stated due date, upon demand by Bank).

 

(i)                                     Fees Fully Earned.  Unless otherwise
provided in this Agreement or in a separate writing by Bank, Borrower shall not
be entitled to any credit, rebate, or repayment of any fees earned by Bank
pursuant to this Agreement notwithstanding any termination of this Agreement or
the suspension or termination of Bank’s obligation to make loans and advances
hereunder.  Bank may deduct amounts owing by Borrower under the clauses of this
Section 2.6 pursuant to the terms of Section 2.7(c).  Bank shall provide
Borrower written notice of deductions made from the Designated Deposit Account
pursuant to the terms of the clauses of this Section 2.6.

 

2.7                               Payments; Application of Payments; Debit of
Accounts.

 

(a)                                 All payments to be made by Borrower under
any Loan Document shall be made in immediately available funds in Dollars,
without setoff or counterclaim, before 12:00 p.m. Eastern time on the date when
due.  Payments of principal and/or interest received after 12:00 p.m. 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
shall be due the next Business Day, and additional fees or interest, as
applicable, shall continue to accrue until paid.

 

(b)                                 Bank has the exclusive right to determine
the order and manner in which all payments with respect to the Obligations may
be applied.  Borrower shall have no right to specify the order or the accounts
to which Bank shall allocate or apply any payments required to be made by
Borrower to Bank or otherwise received by Bank under this Agreement when any
such allocation or application is not specified elsewhere in this Agreement.

 

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(c)                                  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.

 

2.8                               Withholding.  Payments received by Bank from
Borrower under this Agreement will be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority (including any interest, additions to tax or penalties
applicable thereto).  Specifically, however, if at any time any Governmental
Authority, applicable law, regulation or international agreement requires
Borrower to make any withholding or deduction from any such payment or other sum
payable hereunder to Bank, Borrower hereby covenants and agrees that the amount
due from Borrower with respect to such payment or other sum payable hereunder
will be increased to the extent necessary to ensure that, after the making of
such required withholding or deduction, Bank receives a net sum equal to the sum
which it would have received had no withholding or deduction been required, and
Borrower shall pay the full amount withheld or deducted to the relevant
Governmental Authority.  Borrower will, upon request, furnish Bank with proof
reasonably satisfactory to Bank indicating that Borrower has made such
withholding payment; provided, however, that Borrower need not make any
withholding payment if the amount or validity of such withholding payment is
contested in good faith by appropriate and timely proceedings and as to which
payment in full is bonded or reserved against by Borrower.  The agreements and
obligations of Borrower contained in this Section 2.8 shall survive the
termination of this Agreement.  Bank shall deliver to Borrower, upon the
reasonable request of Borrower, an executed copy of IRS Form W-9 certifying that
Bank is exempt from U.S. federal backup withholding tax.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to Initial Credit
Extension.  Bank’s obligation to make the initial Credit Extension is subject to
the condition precedent that 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 signatures to the Loan
Documents;

 

(b)                                 the Operating Documents and long-form good
standing certificates of Borrower certified by the Secretary of State (or
equivalent agency) of Borrower’s jurisdiction of organization or formation and a
good standing certificate in each jurisdiction in which Borrower is qualified to
conduct business, each as of a date no earlier than thirty (30) days prior to
the Effective Date;

 

(c)                                  duly executed signatures to the completed
Borrowing Resolutions for Borrower;

 

(d)                                 certified copies, dated as of a recent date,
of financing statement searches, as Bank may 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;

 

(e)                                  the Perfection Certificate of Borrower,
together with the duly executed signature thereto;

 

(f)                                   a landlord’s consent in favor of Bank for
12988 Valley View Road, Eden Prairie, Minnesota 55344, by the landlord thereof,
together with the duly executed original signatures thereto (which such original
signatures may be provided to Bank promptly following the Effective Date,
provided manual pdf copies are provided to Bank on the Effective Date);

 

(g)                                  evidence satisfactory to Bank that the
insurance policies and endorsements required by Section 6.7 hereof are in full
force and effect, together with appropriate evidence showing additional insured
clauses or endorsements in favor of Bank, except as provided in Section 3.5;

 

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(h)                                 with respect to the initial Term Loan
Advance, evidence satisfactory to Bank in Bank’s sole but reasonable discretion
that Borrower is in compliance with the Liquidity financial covenant set forth
in Section 6.9(a) hereof as of the Funding Date of such initial Term Loan
Advance and on a pro forma basis after such initial Term Loan Advance is made;

 

(i)                                     with respect to the initial Advance, the
completion of an initial audit of the Accounts, Borrower’s Books and the other
Collateral with results satisfactory to Bank in its sole and absolute discretion
(the “Initial Audit”); and

 

(j)                                    payment of the fees and Bank Expenses
then due as specified in Section 2.6 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 conditions precedent:

 

(a)                                 timely receipt of (i) with respect to
requests for Advances, an executed Transaction Report and (ii) with respect to
requests for Term Loan Advances, an executed Payment/Advance Form;

 

(b)                                 the representations and warranties in this
Agreement shall be true, accurate, and complete in all material respects on the
date of the Transaction Report and/or Payment/Advance Form, as applicable, 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 this Agreement remain true, accurate, and
complete 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;

 

(c)                                  with respect to requests for Term Loan
Advances, receipt of evidence satisfactory to Bank in Bank’s sole but reasonable
discretion that Borrower is in compliance with the Liquidity financial covenant
set forth in Section 6.9(a) hereof as of the Funding Date of such Term Loan
Advance and on a pro forma basis after such Term Loan Advance is made; and

 

(d)                                 Bank determines in its reasonable business
judgment that there has not been any material impairment in the general affairs,
results of operation, financial condition or the prospect of repayment of the
Obligations, or 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 precedent to any Credit Extension.  Borrower expressly agrees
that a Credit Extension made 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 the making of any Credit Extension in the absence of a required item shall
be in Bank’s sole discretion.

 

3.4                               Procedures for Borrowing.

 

(a)                                 Advances.  Subject to the prior satisfaction
of all other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall
be irrevocable) by electronic mail by 12:00 p.m. Eastern time on the Funding
Date of the Advance.  In connection with such notification, Borrower must
promptly deliver to Bank by electronic mail a completed Transaction Report
executed by an Authorized Signer together with such other reports and
information, including without limitation, sales journals, cash receipts
journals, accounts receivable aging reports, as Bank may reasonably request. 
Bank shall credit proceeds of an Advance to the Designated Deposit Account. 
Bank may make Advances

 

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under this Agreement based on instructions from an Authorized Signer or without
instructions if the Advances are necessary to meet Obligations which have become
due.

 

(b)                                 Term Loan Advances.  Subject to the prior
satisfaction of all other applicable conditions to the making of a Term Loan
Advance set forth in this Agreement, to obtain a Term Loan Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by electronic mail by
12:00 p.m. Eastern time two (2) Business Days prior to the proposed Funding Date
of the Term Loan Advance.  In connection with such notification, Borrower must
promptly deliver to Bank by electronic mail a completed Payment/Advance Form
executed by an Authorized Signer together with such other reports and
information, as Bank may reasonably request.  Bank shall credit proceeds of the
Term Loan Advance to the Designated Deposit Account.  Bank may make a Term Loan
Advance under this Agreement based on instructions from an Authorized Signer or
without instructions if the Term Loan Advance is necessary to meet Obligations
which have become due.

 

3.5                               Post-Closing Conditions.  Within thirty (30)
days after the Effective Date, deliver to Bank evidence satisfactory to Bank
showing lender loss payable clauses or endorsements in favor of Bank and a
certificate of insurance with respect to Borrower’s property insurance
reasonably satisfactory to Bank.

 

4                                         CREATION OF SECURITY INTEREST

 

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 acknowledges that it previously has entered, and/or may in the future
enter, into Bank Services Agreements with Bank.  Regardless of the terms of any
Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
perfected security interest in the Collateral granted herein (subject only to
Permitted Liens that are permitted pursuant to the terms of this Agreement to
have superior priority to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations, any
obligations which, by their terms, survive termination of this Agreement and any
Obligations under Bank Services Agreements that are cash collateralized in
accordance with this Section 4.1) are repaid in full in cash.  Upon payment in
full in cash of the Obligations (other than inchoate indemnity obligations, any
obligations which, by their terms, survive termination of this Agreement and any
Obligations under Bank Services Agreements that are cash collateralized in
accordance with this Section 4.1) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at the sole cost and expense of
Borrower, release its Liens in the Collateral and all rights therein shall
revert to Borrower.  In the event (x) all Obligations (other than inchoate
indemnity obligations, any obligations which, by their terms, survive
termination of this Agreement and any Obligations under Bank Services Agreements
that are cash collateralized in accordance with this Section 4.1), except for
Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank
shall terminate the security interest granted herein upon Borrower providing
cash collateral acceptable to Bank in its good faith business judgment for Bank
Services, if any.  In the event such Bank Services consist of outstanding
Letters of Credit, Borrower shall provide to Bank cash collateral in an amount
equal to (x) if such Letters of Credit are denominated in Dollars, then at least
one hundred five percent (105.0%); and (y) if such Letters of Credit are
denominated in a Foreign Currency, then at least one hundred ten percent
(110.0%), of the Dollar Equivalent of the face amount of all such Letters of
Credit plus, in each case, all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its business judgment), to secure
all of the Obligations relating to such Letters of Credit.

 

4.2                               Priority of Security Interest.  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 are permitted
pursuant to the terms of this Agreement to 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

 

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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.

 

4.3                               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

 

Borrower represents and warrants as follows:

 

5.1                               Due Organization, Authorization; Power and
Authority.  Borrower is duly existing and in good standing as a Registered
Organization in its jurisdiction of formation and is qualified and licensed to
do business and is in good standing in any jurisdiction in which the conduct of
its business or its ownership of property requires that it be qualified except
where the failure to do so could not reasonably be expected to have a material
adverse effect on Borrower’s business.  In connection with this Agreement,
Borrower has delivered to Bank a completed certificate signed by Borrower,
entitled “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) Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement).  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 by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s Operating Documents, (ii) contravene, conflict with, constitute a
default under or violate any material Requirement of Law, (iii) contravene,
conflict or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which Borrower or any of
its Subsidiaries or any of their property or assets may be bound or affected,
(iv) require any action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such Governmental
Approvals which have already been obtained and are in full force and effect), or
(v) conflict with, contravene, constitute a default or breach under, or result
in or permit the termination or acceleration of, 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,
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 Collateral Accounts at or with any bank or
financial institution other than Bank or Bank’s Affiliates except for the
Collateral Accounts described in the Perfection Certificate delivered to Bank in
connection herewith and which Borrower has taken such actions as are necessary
to give Bank a perfected security interest therein, pursuant to the terms of
Section 6.8(b).  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 permitted pursuant to Section 7.2.

 

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All Inventory is in all material respects of good and marketable quality, free
from material defects.

 

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate.  Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part.  To the best of Borrower’s
knowledge, no claim has been made that any part of the Intellectual Property
violates the rights of any third party except to the extent such claim would not
reasonably be expected to have a material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.

 

5.3                               Accounts Receivable.

 

(a)                                 For each Account with respect to which
Advances are requested and each Account included in the Borrowing Base, such
Account shall be an Eligible Account.

 

(b)                                 All statements made and all unpaid balances
appearing in all invoices, instruments and other documents evidencing the
Eligible Accounts are and shall be true and correct and all such invoices,
instruments and other documents, and all of Borrower’s Books are genuine and in
all respects what they purport to be.  All sales and other transactions
underlying or giving rise to each Eligible Account shall comply in all material
respects with all applicable laws and governmental rules and regulations. 
Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any
Account Debtor whose accounts are Eligible Accounts in any Transaction Report. 
To the best of Borrower’s knowledge, all signatures and endorsements on all
documents, instruments, and agreements relating to all Eligible Accounts are
genuine, and all such documents, instruments and agreements are legally
enforceable in accordance with their terms.

 

5.4                               Litigation.  There are no actions or
proceedings pending or, to the knowledge of any Responsible Officer, threatened
in writing by or against Borrower or any of its Subsidiaries involving more
than, individually or in the aggregate, Fifty Thousand Dollars ($50,000.00).

 

5.5                               Financial Statements; Financial Condition. 
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.

 

5.6                               Solvency.  The fair salable value of
Borrower’s consolidated assets (including goodwill minus disposition costs)
exceeds the fair value of Borrower’s 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.

 

5.7                               Regulatory Compliance.  Borrower is not an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act of 1940, as amended.  Borrower is not engaged as one
of its important activities in extending credit for margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower (a)
has complied in all material respects with all Requirements of Law, and (b) has
not violated any Requirements of Law 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

 

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given all notices to, all Governmental Authorities that are necessary to
continue their respective businesses as currently conducted.

 

5.8                               Subsidiaries; Investments.  Borrower does not
own any stock, partnership, or other ownership interest or other equity
securities except for Permitted Investments.

 

5.9                               Tax Returns and Payments; Pension
Contributions.  Borrower 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 (a) to the
extent such taxes are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, so long as such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor, or (b) if such taxes, assessments, deposits and
contributions do not, individually or in the aggregate, exceed Five Thousand
Dollars ($5,000.00).

 

To the extent Borrower defers payment of any contested taxes, Borrower shall (i)
notify Bank in writing of the commencement, settlement or other disposition of
the proceedings, and (ii) post bonds or take 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
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10                        Use of Proceeds.  Borrower shall use the proceeds of
the Credit Extensions in connection with the Gambro Acquisition, as working
capital, and to fund its general business requirements and not for personal,
family, household or agricultural purposes.

 

5.11                        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 representation, warranty, or other statement
was 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 in light of the circumstances under
which they were made (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).

 

5.12                        Definition of “Knowledge.”  For purposes of the Loan
Documents, whenever a representation or warranty is made to Borrower’s knowledge
or awareness, to the “best of” Borrower’s knowledge, or with a similar
qualification, knowledge or awareness means the actual knowledge, after
reasonable investigation, of any Responsible Officer.

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1                               Government Compliance.

 

(a)                                 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.  Borrower shall comply, and have each Subsidiary comply, in all
material respects, with all laws, ordinances and regulations to which it is
subject.

 

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(b)                                 Obtain all of the Governmental Approvals
necessary for the performance by Borrower of its obligations under the Loan
Documents to which it is a party and the grant of a security interest to Bank in
the Collateral.  Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Bank.

 

6.2                               Financial Statements, Reports, Certificates. 
Provide Bank with the following:

 

(a)                                 upon the request of the initial Advance and
at all times thereafter, a Transaction Report (and any schedules related
thereto, including accounts receivable and accounts payable aging reports) (i)
with each request for an Advance, (ii) on the 15th day and the 30th day (or, if
earlier, the last day) of each month when a Streamline Period is not in effect,
and (iii) within thirty (30) days after the end of each month when a Streamline
Period is in effect;

 

(b)                                 upon the request of the initial Advance and
at all times thereafter, within thirty (30) days after the end of each month,
(i) monthly accounts receivable agings, aged by invoice date, (ii) monthly
accounts payable agings, aged by invoice date, and outstanding or held check
registers, if any, and (iii) monthly reconciliations of accounts receivable
agings (aged by invoice date), transaction reports, and general ledger;

 

(c)                                  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 for such month certified by a Responsible Officer and in a form
acceptable to Bank (the “Monthly Financial Statements”);

 

(d)                                 within thirty (30) days after the last day
of each month and together with the Monthly Financial Statements, a duly
completed Compliance Certificate signed by a Responsible Officer, certifying
that as of the end of such month, Borrower was in full compliance with all of
the terms and conditions of this Agreement, and setting forth calculations
showing compliance with the financial covenants set forth in this Agreement and
such other information as Bank may reasonably request, including, without
limitation, a statement that at the end of such month there were no held checks;

 

(e)                                  as soon as available, but no later than the
earlier of (i) seven (7) days after approval by Borrower’s board of directors,
or (ii) thirty (30) days after the last day of Borrower’s fiscal year, and in
each case contemporaneously with any updates or changes thereto, annual
operating budgets (including income statements, balance sheets and cash flow
statements, by month), and annual financial projections (on a quarterly basis)
as approved by Borrower’s board of directors, together with any related business
forecasts used in the preparation of such annual financial projections;

 

(f)                                   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 (other than a going concern
qualification related to Borrower’s inability to continue to meet its
obligations as they become due without substantial disposition of assets outside
the ordinary course of business, restructuring of debt, externally forced
revisions of its operations, or similar actions for a reasonable period of time,
not to exceed one (1) year beyond the date of the financial statements being
audited) on the financial statements from an independent certified public
accounting firm reasonably acceptable to Bank;

 

(g)                                  within five (5) Business Days of filing,
copies of all periodic and other reports, proxy statements and other materials
filed by Borrower with the SEC, any Governmental Authority succeeding to any or
all of the functions of the SEC or with any national securities exchange, or
distributed to its shareholders, as the case may be.  Documents required to be
delivered pursuant to the terms hereof (to the extent any such documents are
included in materials otherwise filed with the SEC) may be delivered
electronically and if so delivered, shall be deemed to have been delivered on
the date on which Borrower posts such documents, or provides a link thereto, on
Borrower’s website on the Internet at Borrower’s website address; provided,
however, Borrower shall promptly notify Bank in writing (which may be by
electronic mail) of the posting of any such documents;

 

(h)                                 within five (5) days of delivery, copies of
all material statements, reports and notices made generally available to
Borrower’s security holders or to any holders of Subordinated Debt;

 

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(i)                                     as soon as available, but no later than
thirty (30) days after the last day of each month, a report containing clinical
and regulatory updates relating to Borrower’s business and operations,
including, without limitation with respect to Borrower’s “C-Pulse Heart Assist
System” product, in a form acceptable to Bank;

 

(j)                                    prompt report of any legal actions
pending or threatened in writing against Borrower or any of its Subsidiaries
that could result in damages or costs to Borrower or any of its Subsidiaries of,
individually or in the aggregate, Fifty Thousand Dollars ($50,000.00) or more;
and

 

(k)                                 other financial information reasonably
requested by Bank.

 

6.3                               Accounts Receivable.

 

(a)                                 Schedules and Documents Relating to
Accounts.  Borrower shall deliver to Bank transaction reports and schedules of
collections, as provided in Section 6.2, on Bank’s standard forms; provided,
however, that Borrower’s failure to execute and deliver the same shall not
affect or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor
shall Bank’s failure to advance or lend against a specific Account affect or
limit Bank’s Lien and other rights therein.  If requested by Bank, Borrower
shall furnish Bank with copies (or, at Bank’s request, originals) of all
contracts, orders, invoices, and other similar documents, and all shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts.  In addition, Borrower shall deliver to Bank, on its request, the
originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Accounts, in the same
form as received, with all necessary indorsements, and copies of all credit
memos.

 

(b)                                 Disputes.  Borrower shall promptly notify
Bank of all disputes or claims relating to Accounts in excess of Fifty Thousand
Dollars ($50,000.00).  Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do
any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the regular reports
provided to Bank; (ii) no Default or Event of Default has occurred and is
continuing; and (iii) after taking into account all such discounts, settlements
and forgiveness, the total outstanding Advances will not exceed the lesser of
the Revolving Line or the Borrowing Base.

 

(c)                                  Collection of Accounts.  Borrower shall
direct each Account Debtor to deliver or transmit all proceeds of Accounts into
a lockbox account, or such other “blocked account” as specified by Bank (either
such account, the “Cash Collateral Account”).  Whether or not an Event of
Default has occurred and is continuing, Borrower shall immediately deliver all
payments on and proceeds of Accounts to the Cash Collateral Account.  All
amounts received in the Cash Collateral Account will be (i) applied to
immediately reduce the Obligations under the Revolving Line when a Streamline
Period is not in effect, or (ii) so long as no Event of Default exists,
transferred to Borrower’s operating account with Bank when a Streamline Period
is in effect.

 

(d)                                 Returns.  Provided no Event of Default has
occurred and is continuing, if any Account Debtor returns any Inventory to
Borrower, Borrower shall promptly (i) determine the reason for such return, (ii)
issue a credit memorandum to the Account Debtor in the appropriate amount, and
(iii) provide a copy of such credit memorandum to Bank, upon request from Bank. 
In the event any attempted return occurs after the occurrence and during the
continuance of any Event of Default, Borrower shall hold the returned Inventory
in trust for Bank, and promptly notify Bank of the return of the Inventory.

 

(e)                                  Verification.  Bank may, from time to time,
verify directly with the respective Account Debtors the validity, amount and
other matters relating to the Accounts, either in the name of Borrower or Bank
or such other name as Bank may choose, and notify any Account Debtor of Bank’s
security interest in such Account.

 

(f)                                   No Liability.  Bank shall not be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to

 

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collect any Account, or for settling any Account in good faith for less than the
full amount thereof, nor shall Bank be deemed to be responsible for any of
Borrower’s obligations under any contract or agreement giving rise to an
Account.  Nothing herein shall, however, relieve Bank from liability for its own
gross negligence or willful misconduct.

 

6.4                               Remittance of Proceeds.  Except as otherwise
provided in Section 6.3(c), deliver, in kind, all proceeds arising from the
disposition of any Collateral to Bank in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower, to
be applied to the Obligations (a) prior to an Event of Default, pursuant to the
terms of Section 2.7(b) hereof, and (b) after the occurrence and during the
continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof;
provided that, if no Event of Default has occurred and is continuing, Borrower
shall not be obligated to remit to Bank the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of Twenty-Five Thousand Dollars
($25,000.00) or less (for all such transactions in any fiscal year).  Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower’s
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Bank.  Nothing in this
Section 6.4 limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.

 

6.5                               Taxes; Pensions.  Timely file, and require
each of its Subsidiaries to timely file, all required tax returns and reports
and timely pay, and require each of its Subsidiaries to timely pay, all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for deferred payment of any taxes
contested pursuant to the terms of Section 5.9 hereof, and shall deliver to
Bank, on demand, appropriate certificates attesting to such payments, and pay
all amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.

 

6.6                               Access to Collateral; Books and Records.  At
reasonable times, on three (3) Business Days’ notice (provided no notice is
required if an Event of Default has occurred and is continuing), Bank, or its
agents, shall have the right to inspect the Collateral and the right to audit
and copy Borrower’s Books.  The foregoing inspections and audits shall be
conducted at Borrower’s expense and no more often than once every twelve (12)
months (or more frequently as Bank determines in its sole discretion that
conditions warrant) unless an Event of Default has occurred and is continuing in
which case such inspections and audits shall occur as often as Bank shall
determine is necessary.  The charge therefor shall be One Thousand Dollars
($1,000.00) per person per day (or such higher amount as shall represent Bank’s
then-current standard charge for the same), plus reasonable out-of-pocket
expenses.  In the event Borrower and Bank schedule an audit more than ten (10)
days in advance, and Borrower cancels or seeks to or reschedules the audit with
less than ten (10) days written notice to Bank, then (without limiting any of
Bank’s rights or remedies) Borrower shall pay Bank a fee of One Thousand Dollars
($1,000.00) plus any out-of-pocket expenses incurred by Bank to compensate Bank
for the anticipated costs and expenses of the cancellation or rescheduling.  The
Initial Audit shall be completed within ninety (90) days of the Effective Date.

 

6.7                               Insurance.

 

(a)                                 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 financially sound and reputable insurance companies that are not
Affiliates of Borrower, and in amounts that are satisfactory to Bank.  All
property policies shall have a lender’s loss payable endorsement showing Bank as
the sole lender loss payee.  All liability policies shall show, or have
endorsements showing, Bank as an additional insured.  Bank shall be named as
lender loss payee and/or additional insured with respect to any such insurance
providing coverage in respect of any Collateral.

 

(b)                                 Ensure that proceeds payable under any
property policy are, at Bank’s option, payable to Bank on account of the
Obligations.  Notwithstanding the foregoing, (i) 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 Fifty Thousand Dollars ($50,000.00) with
respect to any loss, but not exceeding One Hundred Thousand Dollars
($100,000.00) 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 (A) shall be of equal or
like value as the replaced or repaired Collateral and (B) shall be deemed
Collateral in which Bank has been granted a first priority security interest,
and (ii) after the occurrence and during the continuance of an Event of

 

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Default, all proceeds payable under such casualty policy shall, at the option of
Bank, be payable to Bank on account of the Obligations.

 

(c)                                  Promptly after Bank’s request, Borrower
shall deliver certified copies of insurance policies and/or certificates of
insurance and evidence of all premium payments.  Each provider of any such
insurance required under this Section 6.7 shall agree, by endorsement upon the
policy or policies issued by it or by independent instruments furnished to Bank,
that it will give Bank thirty (30) days prior written notice before any such
policy or policies shall be materially altered or canceled and ten (10) days
prior written notice in the case of cancellation as a result of nonpayment.  If
Borrower fails to obtain insurance as required under this Section 6.7 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 6.7, and take any action under the policies Bank deems
prudent.

 

6.8                               Accounts.

 

(a)                                 Maintain all of its and all of its
Subsidiaries’ operating, depository and securities/investment accounts with Bank
and Bank’s Affiliates.  Notwithstanding the foregoing, (i) until the date that
is one hundred twenty (120) days following the Effective Date (the “Transition
Period”), Borrower shall be permitted to maintain (a) one (1) account with
JPMorgan Chase Bank in the United States, provided that the maximum balance in
such account shall not exceed Seven Hundred Thousand Dollars ($700,000.00) at
any time (the “Permitted JPMorgan Account”), and (b) one (1) additional account
with JPMorgan Chase Bank in the United States, provided that the maximum balance
in such account shall not exceed Fifty Thousand Dollars ($50,000.00) at any time
(the “Second Permitted JPMorgan Account”), (ii) Borrower and Australian
Subsidiary shall be permitted to maintain accounts in Australia with JPMorgan
Chase Bank, provided that the maximum aggregate balance in all such accounts
shall not exceed One Hundred Fifty Thousand Australian Dollars (AU$150,000.00)
at any time (the “Permitted Australian Accounts”), and (iii) Borrower shall be
permitted to maintain one (1) account in the United Kingdom with JPMorgan Chase
Bank, provided that the maximum balance in said account shall not exceed Forty
Thousand Euros (€40,000.00) at any time (the “Permitted UK Account”).

 

(b)                                 In addition to and without limiting the
restrictions on (a), 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 Bank’s Affiliates.  For each Collateral Account that Borrower
at any time maintains, 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 which Control
Agreement may not be terminated without the prior written consent of Bank.  The
provisions of the previous sentence shall not apply to (i) prior to the
expiration of the Transition Period, (a) the Permitted JPMorgan Account and (b)
the Second Permitted JPMorgan Account, (ii) the Permitted Australian Accounts,
(iii) the Permitted UK Account, or (iv) 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.

 

6.9                               Financial Covenants.  Maintain at all times
upon the earlier to occur of (i) the Funding Date of the initial Term Loan
Advance or (ii) the Funding Date of the initial Advance, tested on the last day
of each month:

 

(a)                                 Liquidity.  Net Liquidity in an amount equal
to or greater than four (4) times Borrower’s Monthly Cash Burn Amount (the
“Liquidity Requirement”).  If Borrower fails to comply with the Liquidity
Requirement (which failure in and of itself is not an Event of Default),
Borrower shall immediately pledge to Bank and thereafter maintain in a separate
cash collateral money market account in the name of Borrower, unrestricted cash
in an amount equal to one hundred percent (100.0%) of the then outstanding
Obligations of Borrower to Bank, determined as of the date of such failure to
comply with the Liquidity Requirement and thereafter as of the last day of each
month.  Notwithstanding the foregoing, upon Bank’s receipt of evidence from
Borrower that Borrower has thereafter been in compliance with the Liquidity
Requirement each consecutive day for the prior sixty (60) consecutive days as
determined by Bank in its sole discretion, then the unrestricted cash pledged to
Bank pursuant to the terms hereof shall be promptly remitted to Borrower’s
Designated Deposit Account.

 

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(b)                                 Liquidity Ratio.  Unrestricted cash and Cash
Equivalents held by Borrower in accounts with Bank or Bank’s Affiliates equal to
or greater than one and one-quarter (1.25) of the amount of all outstanding
Obligations of Borrower to Bank.

 

6.10                        Protection of Intellectual Property Rights.

 

(a)                                 (i) Protect, defend and maintain the
validity and enforceability of its Intellectual Property; (ii) promptly advise
Bank in writing of material infringements or any other event that could
reasonably be expected to materially and adversely affect the value of its
Intellectual Property; and (iii) not allow any Intellectual Property material to
Borrower’s business to be abandoned, forfeited or dedicated to the public
without Bank’s written consent.

 

(b)                                 Provide written notice to Bank within ten
(10) days of entering or becoming bound by any Restricted License (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 (i) any
Restricted License 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 Restricted License, whether now existing or entered into in
the future, and (ii) Bank to have the ability in the event of a liquidation of
any Collateral to dispose of such Collateral in accordance with Bank’s rights
and remedies under this Agreement and the other Loan Documents.

 

6.11                        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.

 

6.12                        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. 
Deliver to Bank, within five (5) days after the same are sent or received,
copies of all correspondence, reports, documents and other filings with any
Governmental Authority regarding compliance with or maintenance of Governmental
Approvals or Requirements of Law or that could reasonably be expected to have a
material effect on any of the Governmental Approvals or otherwise on the
operations of Borrower or any of its Subsidiaries.

 

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 is, in the reasonable judgment of Borrower,
no longer economically practicable to maintain or useful in the ordinary course
of business of Borrower; (c) consisting of Permitted Liens and Permitted
Investments; (d) consisting of the sale or issuance of any stock of Borrower
permitted under Section 7.2 of this Agreement; (e) consisting of Borrower’s use
or transfer of money or Cash Equivalents in a manner that is not prohibited by
the terms of this Agreement or the other Loan Documents; and (f) of
non-exclusive licenses for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business.

 

7.2                               Changes in Business, Management, Control, 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) fail to provide notice to Bank of any Key Person departing from
or ceasing to be employed by Borrower within five (5) Business Days after such
Key Person’s departure from Borrower; or (d) permit or suffer any Change in
Control.

 

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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 ($10,000.00) in Borrower’s assets or property) or deliver any portion of
the Collateral valued, individually or in the aggregate, in excess of Fifty
Thousand Dollars ($50,000.00) to a bailee at a location other than to a bailee
and at a location already disclosed in the Perfection Certificate, (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.  If Borrower intends to
deliver any portion of the Collateral valued, individually or in the aggregate,
in excess of Fifty Thousand Dollars ($50,000.00) to a bailee, and Bank and such
bailee are not already parties to a bailee agreement governing both the
Collateral and the location to which Borrower intends to deliver the Collateral,
then Borrower will first receive the written consent of Bank, and such bailee
shall execute and deliver a bailee agreement in form and substance satisfactory
to Bank.

 

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 (including,
without limitation, by the formation of any Subsidiary), except for the Gambro
Acquisition.  Notwithstanding anything to the contrary herein, 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, allow, or suffer
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, 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 6.8(b) hereof.

 

7.7                               Distributions; Investments.  (a) Pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock; or (b) directly or indirectly make any Investment (including,
without limitation, by the formation of any Subsidiary) other than Permitted
Investments, or permit any of its Subsidiaries to do so.

 

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 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, provide for earlier or greater
principal, interest, or other payments thereon, 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, as amended, 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 (a) meet the minimum funding
requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction,
as defined in ERISA, from occurring, or (c) comply with the Federal Fair Labor
Standards Act, the failure of any of the conditions described in clauses (a)
through (c) which could reasonably be expected to have a material adverse effect
on

 

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Borrower’s business; 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 when due, or (b)
pay any other Obligations within three (3) Business Days after such Obligations
are due and payable (which three (3) Business Day cure period shall not apply to
payments due on the Maturity Date).  During the cure period, the failure to make
or pay any payment specified under clause (b) hereunder 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, 6.3,
6.4, 6.5, 6.6, 6.8, 6.9, or 6.10(b) 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 or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
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).  Cure periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in clause (a) above;

 

8.3                               Material Adverse Change.  A Material Adverse
Change occurs;

 

8.4                               Attachment; Levy; Restraint on Business.

 

(a)                                 (i) The service of process seeking to
attach, by trustee or similar process, any funds of Borrower or of any entity
under the control of Borrower (including a Subsidiary), or (ii) a notice of lien
or levy is filed against any of Borrower’s assets with an aggregate value in
excess of Ten Thousand Dollars ($10,000.00) by any Governmental Authority, and
the same under subclauses (i) and (ii) hereof are not, within ten (10) days
after the occurrence thereof, discharged or stayed (whether through the posting
of a bond or otherwise); provided, however, no Credit Extensions shall be made
during any ten (10) day cure period; or

 

(b)                                 (i) any material portion of Borrower’s
assets is attached, seized, levied on, or comes into possession of a trustee or
receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from
conducting all or any material part of its business;

 

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 is not dismissed or stayed within forty-five (45)
days (but no Credit Extensions shall be made while any of the conditions
described in clause (a) exist and/or until any Insolvency Proceeding is
dismissed);

 

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8.6                               Other Agreements.  There is, under any
agreement to which Borrower is a party with a third party or parties, (a) any
default resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount
individually or in the aggregate in excess of Fifty Thousand Dollars
($50,000.00); or (b) any breach or default by Borrower, which results in the
acceleration or demand by such third party or parties and such acceleration or
demand could have a material adverse effect on Borrower’s business;

 

8.7                               Judgments; Penalties.  One or more fines,
penalties or final judgments, orders or decrees for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000.00) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower by any Governmental Authority, and the same are not, within ten (10)
days after the entry, assessment or issuance thereof, discharged, satisfied, or
paid, or after execution thereof, stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay (provided
that no Credit Extensions will be made prior to the satisfaction, payment,
discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

 

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.  Any document, instrument,
or agreement evidencing any Subordinated Debt shall for any reason be revoked or
invalidated or otherwise cease to be in full force and effect, any Person shall
be in breach thereof or contest in any manner the validity or enforceability
thereof or deny that it has any further liability or obligation thereunder, or
the Obligations shall for any reason be subordinated or shall not have the
priority contemplated by this Agreement; or

 

8.10                        Governmental Approvals.  Any Governmental Approval
shall have been (a) revoked, rescinded, suspended, modified in an adverse manner
or not renewed in the ordinary course for a full term or (b) subject to any
decision by a Governmental Authority that designates a hearing with respect to
any applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) cause, or could reasonably be expected to cause,
a Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction.

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies.  Upon the occurrence and
during the continuance of an Event of Default, 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) deposit cash with
Bank in an amount equal to one hundred five percent (105.0%) for Letters of
Credit denominated in Dollars and one hundred ten percent (110.0%) for Letters
of Credit denominated in a currency other than Dollars, in each case of the
Dollar Equivalent of the aggregate face amount of all Letters of Credit
remaining undrawn (plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business
judgment)), to secure all of the Obligations relating to such Letters of Credit,
as collateral security for the repayment of any future drawings under such
Letters

 

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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)                                 terminate any FX Contracts;

 

(e)                                  verify the amount of, demand payment of and
performance under, and collect any Accounts and General Intangibles, settle or
adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, and notify any Person owing
Borrower money of Bank’s security interest in such funds;

 

(f)                                   make any payments and do any acts it
considers necessary or reasonable to protect the Collateral and/or its security
interest in the Collateral.  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;

 

(g)                                  apply to the Obligations any (i) balances
and deposits of Borrower it holds, or (ii) amount held by Bank owing to or for
the credit or the account of Borrower;

 

(h)                                 ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell the
Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask
works, rights of use of any name, trade secrets, trade names, Trademarks, and
advertising matter, or any similar property as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral and,
in connection with Bank’s exercise of its rights under this Section 9.1,
Borrower’s rights under all licenses and all franchise agreements inure to
Bank’s benefit;

 

(i)                                     place a “hold” on any account maintained
with Bank and/or deliver a notice of exclusive control, any entitlement order,
or other directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;

 

(j)                                    demand and receive possession of
Borrower’s Books; and

 

(k)                                 exercise all rights and remedies available
to Bank under the Loan Documents or at law or equity, including all remedies
provided under the Code (including disposal of the Collateral pursuant to the
terms thereof).

 

9.2                               Power of Attorney.  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 (other than inchoate indemnity
obligations, any obligations which, by their terms, survive termination of this
Agreement and any Obligations under Bank Services Agreements that are cash
collateralized in accordance with Section 4.1 of this Agreement) 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 (other than inchoate indemnity obligations,
any obligations which, by their terms, survive termination of this Agreement and
any Obligations under Bank Services Agreements that are cash collateralized in
accordance with

 

18

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Section 4.1 of this Agreement) have been fully repaid and performed and Bank’s
obligation to provide Credit Extensions terminates.

 

9.3                               Protective Payments.  If Borrower fails to
obtain the insurance called for by Section 6.7 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 or which may be required to
preserve the Collateral, 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 rate applicable to the
Obligations, 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.

 

9.4                               Application of Payments and Proceeds.  If an
Event of Default has occurred and is continuing, Bank shall have the right to
apply in any order 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.  Bank shall pay any surplus to Borrower by credit to the Designated
Deposit Account or to other Persons legally entitled thereto; Borrower shall
remain liable to Bank for any deficiency.  If Bank, 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.

 

9.5                               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,
in each case other than due to the gross negligence of or willful misconduct by
Bank.  Borrower bears all risk of loss, damage or destruction of the Collateral.

 

9.6                               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 the party granting the waiver 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 shall not preclude Bank
from exercising any other remedy under this Agreement or other remedy available
at law or in equity, 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.

 

9.7                               Demand Waiver.  Borrower waives demand, notice
of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees held by Bank
on which Borrower is liable.

 

10                                  NOTICES

 

All notices, consents, requests, approvals, demands, or other 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 mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance
with the terms of this Section 10.

 

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If to Borrower:

Sunshine Heart, Inc.

 

 

12988 Valley View Road

 

 

Eden Prairie, Minnesota 55344

 

 

Attn: Chief Financial Officer

 

 

Fax: (922) 224-0181

 

 

Email: Claudia.Drayton@sunshineheart.com

 

 

 

 

with a copy to:

Honigman Miller Schwarz and Cohn LLP

 

 

350 East Michigan Avenue, Suite 300

 

 

Kalamazoo, Michigan 49007

 

 

Attn: Phillip D. Torrence

 

 

Fax: (269) 337-7703

 

 

Email: ptorrence@honigman.com

 

 

 

 

If to Bank:

Silicon Valley Bank

 

 

275 Grove Street, Suite 2-200

 

 

Newton, Massachusetts 02466

 

 

Attn:

Mr. Sam Subilia

 

 

Fax:

(617) 527-0177

 

 

Email:

SSubilia@svb.com

 

 

 

 

with a copy to:

Riemer & Braunstein LLP

 

 

Three Center Plaza

 

 

Boston, Massachusetts 02108

 

 

Attn:

David A. Ephraim, Esquire

 

 

Fax:

(617) 692-3455

 

 

Email:

DEphraim@riemerlaw.com

 

 

11                                  CHOICE OF LAW, VENUE, AND JURY TRIAL WAIVER

 

Except as otherwise expressly provided in any of the Loan Documents, New York
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 New York, New York; provided, however, that nothing in
this Agreement shall be deemed to operate to preclude Bank from bringing suit or
taking other legal action in any other jurisdiction to realize on the Collateral
or any other security for the Obligations, or to enforce a judgment or other
court order in favor of Bank.  Borrower expressly submits and consents in
advance to such jurisdiction in any action or suit commenced in any such court,
and Borrower hereby waives any objection that it may have based upon lack of
personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court.  Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, 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.

 

This Section 11 shall survive the termination of this Agreement.

 

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12                                  GENERAL PROVISIONS

 

12.1                        Termination Prior to Maturity Date; Survival.  All
covenants, representations and warranties made in this Agreement shall continue
in full force until this Agreement has terminated pursuant to its terms and all
Obligations have been satisfied.  So long as Borrower has satisfied the
Obligations (other than inchoate indemnity obligations, any other obligations
which, by their terms, are to survive the termination of this Agreement, and any
Obligations under Bank Services Agreements that are cash collateralized in
accordance with Section 4.1 of this Agreement), this Agreement may be terminated
prior to the Maturity Date by Borrower, effective three (3) Business Days after
written notice of termination is given to Bank.  Those obligations that are
expressly specified in this Agreement as surviving this Agreement’s termination
shall continue to survive notwithstanding this Agreement’s termination.

 

12.2                        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.  Notwithstanding the foregoing, so long
as no Event of Default shall have occurred and is continuing, Bank shall not
assign its interest in the Loan Documents to any Person who in the reasonable
estimation of Bank is (a) a direct competitor of Borrower, whether as an
operating company or direct or indirect parent with voting control over such
operating company, or (b) a vulture fund or distressed debt fund.

 

12.3                        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 (each, an “Indemnified
Person”) harmless against:  (i) all obligations, demands, claims, and
liabilities (collectively, “Claims”) claimed or asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (ii)
all losses or expenses (including Bank Expenses) in any way suffered, incurred,
or paid by such Indemnified Person as a result of, following from, consequential
to, or arising from transactions between Bank and Borrower (including reasonable
attorneys’ fees and expenses), except for Claims and/or losses directly caused
by such Indemnified Person’s gross negligence or willful misconduct.

 

This Section 12.3 shall survive until all statutes of limitation with respect to
the Claims, losses, and expenses for which indemnity is given shall have run.

 

12.4                        Time of Essence.  Time is of the essence for the
performance of all Obligations in this Agreement.

 

12.5                        Severability of Provisions.  Each provision of this
Agreement is severable from every other provision in determining the
enforceability of any provision.

 

12.6                        Correction of Loan Documents.  Bank may correct
patent errors and fill in any blanks in the Loan Documents consistent with the
agreement of the parties.

 

12.7                        Amendments in Writing; Waiver; Integration.  No
purported amendment or modification of any Loan Document, or waiver, discharge
or termination of any obligation under any Loan Document, shall be enforceable
or admissible unless, and only to the extent, expressly set forth in a writing
signed by the party against which enforcement or admission is sought.  Without
limiting the generality of the foregoing, no oral promise or statement, nor any
action, inaction, delay, failure to require performance or course of conduct
shall operate as, or evidence, an amendment, supplement or waiver or have any
other effect on any Loan Document.  Any waiver granted shall be limited to the
specific circumstance expressly described in it, and shall not apply to any
subsequent or other circumstance, whether similar or dissimilar, or give rise
to, or evidence, any obligation or commitment to grant any further waiver.  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 the Loan Documents merge into the Loan
Documents.

 

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12.8                        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.

 

12.9                        Confidentiality.  In handling any confidential
information, Bank shall exercise the same degree of care that it exercises for
its own proprietary information, but disclosure of information may be made: (a)
to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together
with Bank, collectively, “Bank Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Bank
shall use its best efforts to obtain any 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; (e) as Bank considers appropriate
in exercising remedies under the Loan Documents; and (f) to third-party service
providers of Bank so long as such service providers have executed a
confidentiality agreement with Bank with terms no less restrictive than those
contained herein.  Confidential information does not include information that is
either: (i) in the public domain or in Bank’s possession when disclosed to Bank,
or becomes part of the public domain (other than as a result of its disclosure
by Bank in violation of this Agreement) after disclosure to Bank; or (ii)
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

 

Bank Entities may use confidential information for the development of databases,
reporting purposes, and market analysis so long as such confidential information
is aggregated and anonymized prior to distribution unless otherwise expressly
permitted by Borrower.  The provisions of the immediately preceding sentence
shall survive the termination of this Agreement.

 

12.10                 Electronic Execution of Documents.  The words “execution,”
“signed,” “signature” and words of like import in any Loan Document shall be
deemed to include electronic signatures or the keeping of records in electronic
form, each of which shall be of the same legal effect, validity and
enforceability as a manually executed signature or the use of a paper-based
recordkeeping systems, as the case may be, to the extent and as provided for in
any applicable law, including, without limitation, any state law based on the
Uniform Electronic Transactions Act.

 

12.11                 Right of Setoff.  Borrower hereby grants to Bank a Lien
and a right of setoff 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 subsidiary
of Bank) 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 setoff 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.

 

12.12                 Captions.  The headings used in this Agreement are for
convenience only and shall not affect the interpretation of this Agreement.

 

12.13                 Construction of Agreement.  The parties mutually
acknowledge that they and their attorneys have participated in the preparation
and negotiation of this Agreement.  In cases of uncertainty this Agreement shall
be construed without regard to which of the parties caused the uncertainty to
exist.

 

12.14                 Relationship.  The relationship of the parties to this
Agreement is determined solely by the provisions of this Agreement.  The parties
do not intend to create any agency, partnership, joint venture, trust, fiduciary
or other relationship with duties or incidents different from those of parties
to an arm’s-length contract.

 

12.15                 Third Parties.  Nothing in this Agreement, whether express
or implied, is intended to: (a) confer any benefits, rights or remedies under or
by reason of this Agreement on any persons other than the express parties to it
and their respective permitted successors and assigns; (b) relieve or discharge
the obligation or liability of any

 

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person not an express party to this Agreement; or (c) give any person not an
express party to this Agreement any right of subrogation or action against any
party to this Agreement.

 

13                                  DEFINITIONS

 

13.1                        Definitions.  As used in the Loan Documents, the
word “shall” is mandatory, the word “may” is permissive, the word “or” is not
exclusive, the words “includes” and “including” are not limiting, and the
singular includes the plural.  As used in this Agreement, the following
capitalized terms have the following meanings:

 

“2017 Anniversary Fee” is defined in Section 2.6(b).

 

“2018 Anniversary Fee” is defined in Section 2.6(c).

 

“2019 Anniversary Fee” is defined in Section 2.6(d).

 

“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.

 

“Advance” or “Advances” means a revolving credit loan (or revolving credit
loans) under the Revolving Line.

 

“Affiliate” is, with respect to any Person, each other Person that owns or
controls directly or indirectly the Person, any Person that controls or is
controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and members.

 

“Agreement” is defined in the preamble hereof.

 

“Amortization Date” is April 1, 2017; provided however, that upon the occurrence
of the Equity Event, the Amortization Date shall be October 1, 2017.

 

“Australian Subsidiary” is Sunshine Heart Company Pty Ltd., a company
incorporated under the laws of Australia and a Subsidiary of Borrower.

 

“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution
who is authorized to execute the Loan Documents, including any Credit Extension
request, on behalf of Borrower.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus (b) the outstanding principal
balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

“Bank Entities” is defined in Section 12.9.

 

“Bank Expenses” are all documented audit fees and expenses, costs, and expenses
(including reasonable attorneys’ fees and expenses) for preparing, amending,
negotiating, administering, defending and enforcing the Loan Documents
(including, without limitation, those incurred in connection with appeals or
Insolvency Proceedings) or otherwise incurred with respect to Borrower or any
Guarantor.

 

“Bank Services”  are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct

 

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deposit of payroll, business credit cards, and check cashing services), interest
rate swap arrangements, and foreign exchange services as any such products or
services may be identified in Bank’s various agreements related thereto (each, a
“Bank Services Agreement”).

 

“Bank Services Agreement” is defined in the definition of Bank Services.

 

“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 Base” is eighty percent (80.0%) of Eligible Accounts, as determined
by Bank from Borrower’s most recent Transaction Report; provided, however, that
Bank has the right, after consultation with Borrower, to decrease the foregoing
percentage in its good faith business judgment to mitigate the impact of events,
conditions, contingencies, or risks which may adversely affect the Collateral or
its value.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s board of directors (and, if required under the terms of
such Person’s Operating Documents, stockholders) 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 (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 set forth as a part of or attached as
an exhibit 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, including any Credit Extension request, on behalf of such
Person, together with a sample of the true signature(s) of such Person(s), and
(d) that Bank may conclusively rely on such certificate unless and until such
Person shall have delivered to Bank a further certificate canceling or amending
such prior certificate.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

 

“Cash Equivalents” means (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.; (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95.0%) of the assets of which constitute
Cash Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Change in Control” means (a) at any time, any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become,
or obtain rights (whether by means of warrants, options or otherwise) to become,
the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of forty percent (40.0%) or more of the
ordinary voting power for the election of directors of Borrower (determined on a
fully diluted basis) other than by the sale of Borrower’s equity securities in a
public offering or to venture capital or private equity investors so long as
Borrower identifies to Bank the venture capital or private equity investors at
least two (2) Business Days prior to the closing of the transaction and provides
to Bank a description of the material terms of the transaction; (b) during any
period of twelve (12) consecutive months, a majority of the members of the board
of directors or other equivalent governing body of Borrower cease to be composed
of individuals (i) who were members of that board or equivalent governing body
on the first day of such period, (ii) whose election or nomination to that board
or equivalent governing body was approved by individuals referred to in clause
(i) above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body or (iii) whose election or
nomination to that board or other equivalent governing body was approved by
individuals referred to in clauses (i) and (ii) above constituting at the time
of such election or nomination at least a majority of that board or equivalent
governing body; or (c) at any time, Borrower shall cease to own and control, of
record and beneficially, directly or indirectly, one hundred percent (100.0%) of
each class of

 

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outstanding capital stock of each subsidiary of Borrower free and clear of all
Liens (except Liens created by this Agreement).

 

“Claims” is defined in Section 12.3.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of New York; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of New York, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of 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.

 

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.

 

“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, in each
case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold
with recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business. 
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.

 

“Control Agreement” is any control agreement entered into among the depository
institution at which 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.

 

“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.

 

“Credit Extension” is any Advance, any Term Loan Advance, any Overadvance, or
any other extension of credit by Bank for Borrower’s benefit.

 

“Currency” is coined money and such other banknotes or other paper money as are
authorized by law and circulate as a medium of exchange.

 

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

 

“Default Rate” is defined in Section 2.5(b).

 

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“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 account number ending in 430 (last three
digits), maintained by Borrower with Bank.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

 

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

 

“Draw Period” is the period of time commencing on the Effective Date and
continuing through the earlier to occur of (i) November 30, 2016 and (ii) an
Event of Default.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3.  Bank reserves the right at any time after the Effective Date to
adjust any of the criteria set forth below and to establish new criteria in its
good faith business judgment.  Unless Bank otherwise agrees in writing, Eligible
Accounts shall not include:

 

(a)                                 Accounts for which the Account Debtor is
Borrower’s Affiliate, officer, employee, or agent, and Accounts that are
intercompany Accounts;

 

(b)                                 Accounts that the Account Debtor has not
paid within ninety (90) days of invoice date regardless of invoice payment
period terms;

 

(c)                                  Accounts with credit balances over ninety
(90) days from invoice date;

 

(d)                                 Accounts owing from an Account Debtor if
fifty percent (50.0%) or more of the Accounts owing from such Account Debtor
have not been paid within ninety (90) days of invoice date;

 

(e)                                  Accounts owing from an Account Debtor which
does not have its principal place of business in the United States or Canada;

 

(f)                                   Accounts billed from and/or payable to
Borrower outside of the United States (sometimes called foreign invoiced
accounts);

 

(g)                                  Accounts owing from an Account Debtor to
the extent that Borrower is indebted or obligated in any manner to the Account
Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra”
accounts, accounts payable, customer deposits or credit accounts);

 

(h)                                 Accounts owing from an Account Debtor which
is a United States government entity or any department, agency, or
instrumentality thereof unless Borrower has assigned its payment rights to Bank
and the assignment has been acknowledged under the Federal Assignment of Claims
Act of 1940, as amended;

 

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(i)                                     Accounts for demonstration or
promotional equipment, or in which goods are consigned, or sold on a “sale
guaranteed”, “sale or return”, “sale on approval”, or other terms if Account
Debtor’s payment may be conditional;

 

(j)                                    Accounts owing from an Account Debtor
where goods or services have not yet been rendered to the Account Debtor
(sometimes called memo billings or pre-billings);

 

(k)                                 Accounts subject to contractual arrangements
between Borrower and an Account Debtor where payments shall be scheduled or due
according to completion or fulfillment requirements (sometimes called contracts
accounts receivable, progress billings, milestone billings, or fulfillment
contracts);

 

(l)                                     Accounts owing from an Account Debtor
the amount of which may be subject to withholding based on the Account Debtor’s
satisfaction of Borrower’s complete performance (but only to the extent of the
amount withheld; sometimes called retainage billings);

 

(m)                             Accounts subject to trust provisions,
subrogation rights of a bonding company, or a statutory trust;

 

(n)                                 Accounts owing from an Account Debtor that
has been invoiced for goods that have not been shipped to the Account Debtor
unless Bank, Borrower, and the Account Debtor have entered into an agreement
acceptable to Bank wherein the Account Debtor acknowledges that (i) it has title
to and has ownership of the goods wherever located, (ii) a bona fide sale of the
goods has occurred, and (iii) it owes payment for such goods in accordance with
invoices from Borrower (sometimes called “bill and hold” accounts);

 

(o)                                 Accounts for which the Account Debtor has
not been invoiced;

 

(p)                                 Accounts that represent non-trade
receivables or that are derived by means other than in the ordinary course of
Borrower’s business;

 

(q)                                 Accounts for which Borrower has permitted
Account Debtor’s payment to extend beyond ninety (90) days (including Accounts
with a due date that is more than ninety (90) days from invoice date);

 

(r)                                    Accounts arising from chargebacks, debit
memos or other payment deductions taken by an Account Debtor;

 

(s)                                   Accounts arising from product returns
and/or exchanges (sometimes called “warranty” or “RMA” accounts);

 

(t)                                    Accounts in which the Account Debtor
disputes liability or makes any claim (but only up to the disputed or claimed
amount), or if the Account Debtor is subject to an Insolvency Proceeding, or
becomes insolvent, or goes out of business;

 

(u)                                 Accounts owing from an Account Debtor with
respect to which Borrower has received Deferred Revenue (but only to the extent
of such Deferred Revenue);

 

(v)                                 Accounts owing from an Account Debtor, whose
total obligations to Borrower exceed twenty-five percent (25%) of all Accounts,
for the amounts that exceed that percentage, unless Bank approves in writing;
and

 

(w)                               Accounts for which Bank in its good faith
business judgment determines collection to be doubtful, including, without
limitation, accounts represented by “refreshed” or “recycled” invoices.

 

“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.

 

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“Equity Event” means confirmation by Bank, on or before March 31, 2017, that
Bank has received satisfactory evidence that Borrower has received, after the
Effective Date but on or before March 31, 2017, unrestricted and unencumbered
net cash proceeds in an amount of at least Twenty-Five Million Dollars
($25,000,000.00) from the issuance and sale by Borrower of new equity securities
of Borrower to investors reasonably acceptable to Bank.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Euros,” “euros” and “€” each mean the official currency of the European Union,
as adopted by the European Council at its meeting in Madrid, Spain on December
15 and 16, 1995.

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Final Payment” is (i) if Bank makes a Term Loan Advance or Term Loan Advances
to Borrower, a payment (in addition to and not in substitution for the regular
monthly payments of principal plus accrued interest) equal to the original
principal amount of the Term Loan Advances multiplied by two and one-half of one
percent (2.50%), due on the earliest to occur of (a) the Term Loan Maturity
Date, (b) the acceleration of the Term Loan Advances, (c) the prepayment of the
Term Loan Advances pursuant to Section 2.3(d) or 2.3(e), (d) the repayment in
full of all Obligations with respect to the Term Loan Advances, or (e) the
termination of this Agreement, or (ii) if no Term Loan Advance is made to
Borrower, a payment equal to Twenty-Five Thousand Dollars ($25,000.00) due on
the earlier to occur of (a) November 30, 2016, (b) the termination of this
Agreement, or (c) the termination of the credit facility provided in Section
2.3.

 

“Foreign Currency” means lawful money of a country other than the United States.

 

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

 

“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.

 

“FX Contract” is any foreign exchange contract by and between Borrower and Bank
under which Borrower commits to purchase from or sell to Bank a specific amount
of Foreign Currency on a specified date.

 

“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, provided that
for purposes of the classification of operating leases, GAAP shall be determined
on the basis of such principles in effect on the Effective Date.

 

“Gambro Acquisition” means the transaction contemplated by that certain Asset
Purchase Agreement between Borrower and Gambro UF Solutions, Inc., dated on or
about the date hereof.

 

“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 Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, 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.

 

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

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“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

 

“Guarantor” is any present or future guarantor of the Obligations.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and (d)
Contingent Obligations.

 

“Indemnified Person” is defined in Section 12.3.

 

“Initial Audit” is defined in Section 3.1

 

“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.

 

“Intellectual Property” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following:

 

(a)                                 its Copyrights, Trademarks and Patents;

 

(b)                                 any and all trade secrets and trade secret
rights, including, without limitation, any rights to unpatented inventions,
know-how and operating manuals;

 

(c)                                  any and all source code;

 

(d)                                 any and all design rights which may be
available to such Person;

 

(e)                                  any and all claims for damages by way of
past, present and future infringement of any of the foregoing, with the right,
but not the obligation, to sue for and collect such damages for said use or
infringement of the Intellectual Property rights identified above; and

 

(f)                                   all amendments, renewals and extensions of
any of the Copyrights, Trademarks or Patents.

 

“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 each of Borrower’s (a) Chief Executive Officer, who is John Erb
as of the Effective Date, and (b) Chief Financial Officer, who is Claudia
Drayton as of the Effective Date.

 

“Letter of Credit” is a standby or commercial letter of credit issued by Bank
upon request of Borrower based upon an application, guarantee, indemnity, or
similar agreement.

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

 

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“Liquidity Requirement” is defined in Section 6.9(a).

 

“Loan Documents” are, collectively, this Agreement and any schedules, exhibits,
certificates, notices, and any other documents related to this Agreement, the
Perfection Certificate, any Bank Services Agreement, any subordination
agreement, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement by Borrower and/or any
Guarantor with or for the benefit of Bank in connection with this Agreement or
Bank Services, all as amended, restated, or otherwise modified.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(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 the financial
covenant in Section 6.9(b) during the next succeeding financial reporting
period.

 

“Maturity Date” means the Revolving Line Maturity Date and the Term Loan
Maturity Date, as applicable.

 

“Monthly Cash Burn” is, determined on a consolidated basis with respect to
Borrower and its Subsidiaries, as of any date of determination, the difference
of (a) (i) Net Loss, plus (ii) unfinanced capital expenditures, minus (b) (i)
depreciation expenses, (ii) non-cash stock compensation expense and (iii) other
non-cash expenses as approved by Bank in its sole and absolute discretion.

 

“Monthly Cash Burn Amount” means, as of any date of determination, the most
recent Monthly Cash Burn for the preceding trailing three (3) months (calculated
on the last day of the subject month), divided by three (3).

 

“Monthly Financial Statements” is defined in Section 6.2(c).

 

“Net Liquidity” is, at any time, calculated with respect to Borrower only and
not on a consolidated basis, the sum of (a) (i) unrestricted cash and Cash
Equivalents held by Borrower in accounts with Bank or Bank’s Affiliates plus
(ii) the unused portion of the Availability Amount (provided that, prior to the
initial Advance being made hereunder, the unused portion of the Availability
Amount shall be Zero Dollars ($0.00)), minus (b) all outstanding Obligations of
Borrower to Bank.

 

“Net Loss” is, as of any date of determination, Borrower’s net losses,
determined in accordance with GAAP.

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, fees, the 2017 Anniversary Fee, the 2018 Anniversary Fee, the 2019
Anniversary Fee, the Final Payment, the Prepayment Premium, the Termination Fee,
Bank Expenses, and other amounts Borrower owes Bank now or later, whether under
this Agreement, the other Loan Documents, or otherwise, including, without
limitation, any interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank, and to perform
Borrower’s duties under the Loan Documents.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State (or equivalent agency) of such Person’s
jurisdiction of organization on a date that is no earlier than thirty (30) days
prior to the Effective Date, and, (a) if such Person is a corporation, its
bylaws in current form, (b) if such Person is a limited liability company, its
limited liability company agreement (or similar agreement), and (c) if such
Person is a partnership, its partnership agreement (or similar agreement), each
of the foregoing with all current amendments or modifications thereto.

 

“Overadvance” is defined in Section 2.4.

 

30

--------------------------------------------------------------------------------

 

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

“Payment/Advance Form” is that certain form in the form attached hereto as
Exhibit D.

 

“Payment Date” is (a) with respect to the Term Loan Advances, the first (1st)
calendar day of each month and (b) with respect to Advances, the last calendar
day of each month.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Australian Accounts” is defined in Section 6.8(a).

 

“Permitted Indebtedness” is:

 

(a)                                 Borrower’s Indebtedness to Bank under this
Agreement and the other Loan Documents;

 

(b)                                 Indebtedness existing on the Effective Date
which is shown on the Perfection Certificate;

 

(c)                                  Subordinated Debt;

 

(d)                                 unsecured Indebtedness to trade creditors
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 Liens permitted
under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;

 

(g)                                  Indebtedness to JPMorgan Chase Bank under
cash management services agreements arising in the ordinary course of Borrower’s
business in an aggregate principal amount not to exceed One Hundred Thousand
Dollars ($100,000.00); 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 (including, without limitation,
Subsidiaries) existing on the Effective Date which are shown on the Perfection
Certificate;

 

(b)                                 any loans, advances or capital contributions
to Subsidiaries for current, ordinary and necessary operating expenses provided
that (i) no Event of Default has occurred or would result therefrom, and (ii)
Borrower and its Subsidiaries are in compliance with the terms of Section
6.8(a); and

 

(c)                                  Investments consisting of Cash Equivalents.

 

“Permitted JPMorgan Account” is defined in Section 6.8(a).

 

“Permitted Liens” are:

 

(a)                                 Liens existing on the Effective Date which
are shown on the Perfection Certificate or arising under this Agreement or the
other Loan Documents;

 

31

--------------------------------------------------------------------------------

 

(b)                                 Liens for taxes, fees, assessments or other
government charges or levies, either (i) not due and payable or (ii) being
contested in good faith and for which Borrower maintains adequate reserves on
its Books, provided that no notice of any such Lien has been filed or recorded
under the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations adopted thereunder;

 

(c)                                  purchase money Liens or capital leases (i)
on Equipment acquired or held by Borrower incurred for financing the acquisition
of the Equipment securing no more than One Hundred Thousand Dollars
($100,000.00) 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)                                 Liens in favor of JPMorgan Chase Bank in an
aggregate amount not to exceed One Hundred Thousand Dollars ($100,000.00) to
secure Indebtedness under cash management services agreements arising in the
ordinary course of Borrower’s business and referenced in clause (g) of the
definition of Permitted Indebtedness; and

 

(e)                                  Liens incurred in the extension, renewal or
refinancing of the Indebtedness secured by Liens described in (a) through (d),
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.

 

“Permitted UK Account” is defined in Section 6.8(a).

 

“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.

 

“Prepayment Premium” shall be an additional fee payable to Bank in an amount
equal to:

 

(a)                                 for a prepayment of Term Loan Advances made
on or prior to the first (1st) anniversary of the Effective Date, three percent
(3.0%) of the outstanding principal amount of the Term Loan Advances before
giving effect to such prepayment;

 

(b)                                 for a prepayment of Term Loan Advances made
after the first (1st) anniversary of the Effective Date, but on or prior to the
second (2nd) anniversary of the Effective Date, two percent (2.0%) of the
outstanding principal amount of the Term Loan Advances before giving effect to
such prepayment; and

 

(c)                                  for a prepayment of Term Loan Advances made
after the second (2nd) anniversary of the Effective Date, one percent (1.0%) of
the outstanding principal amount of Term Loan Advances before giving effect to
such prepayment.

 

“Prime Rate” is the rate of interest per annum from time to time published in
the money rates section of The Wall Street Journal or any successor publication
thereto as the “prime rate” then in effect; provided that, in the event such
rate of interest is less than zero, such rate shall be deemed to be zero for
purposes of this Agreement; and provided further that if such rate of interest,
as set forth from time to time in the money rates section of The Wall Street
Journal, becomes unavailable for any reason as determined by Bank, the “Prime
Rate” shall mean the rate of interest per annum announced by Bank as its prime
rate in effect at its principal office in the State of California (such Bank
announced Prime Rate not being intended to be the lowest rate of interest
charged by Bank in connection with extensions of credit to debtors).

 

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

 

“Repayment Schedule” means the period of time equal to thirty-six (36)
consecutive months; provided, however, that upon the occurrence of the Equity
Event, the Repayment Schedule shall mean the period of time equal to thirty (30)
consecutive months.

 

32

--------------------------------------------------------------------------------

 

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its good faith business judgment, reducing
the amount of Advances and other financial accommodations which would otherwise
be available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business judgment, do or
would reasonably be expected to adversely affect (i) the Collateral or any other
property which is security for the Obligations or its value (including without
limitation any increase in delinquencies of Accounts), (ii) the assets, business
or prospects of Borrower or any Guarantor, or (iii) the security interests and
other rights of Bank in the Collateral (including the enforceability, perfection
and priority thereof); or (b) to reflect Bank’s reasonable belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to Bank is or may have been incomplete, inaccurate or
misleading in any material respect; or (c) in respect of any state of facts
which Bank determines constitutes an Event of Default or would reasonably be
expected to, with notice or passage of time or both, constitute an Event of
Default.

 

“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.

 

“Restricted License” is any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with Bank’s right to sell any Collateral.

 

“Revolving Line” is an aggregate principal amount not to exceed One Million
Dollars ($1,000,000.00) outstanding at any time.

 

“Revolving Line Maturity Date” is March 31, 2020.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.

 

“Second Permitted JPMorgan Account” is defined in Section 6.8(a).

 

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

 

“Streamline Period” is any period of time, on and after the Effective Date,
provided no Event of Default has occurred and is continuing, the period (a)
commencing on the first day of the month following the day that Borrower
provides to Bank a written report that Borrower has at all times during the
immediately preceding calendar month maintained Net Liquidity in an amount equal
to or greater than six (6) times Borrower’s Monthly Cash Burn Amount, as
determined by Bank in its reasonable discretion (the “Threshold Amount”) and (b)
terminating on the earlier to occur of (i) the occurrence of an Event of
Default, or (ii) the first day thereafter in which Borrower fails to maintain
the Threshold Amount on any day, as determined by Bank in its reasonable
discretion.  Upon the termination of a Streamline Period, Borrower must maintain
the Threshold Amount each consecutive day for one (1) fiscal quarter as
determined by Bank in its reasonable discretion, prior to entering into a
subsequent Streamline Period.  Borrower shall give Bank prior written notice of
Borrower’s election to enter into any such Streamline Period, and each such
Streamline Period shall commence on the first day of the monthly period
following the date the Bank determines, in its reasonable discretion, that the
Threshold Amount has been achieved.

 

“Subordinated Debt” is indebtedness for borrowed money incurred by Borrower
subordinated to all of Borrower’s now or hereafter indebtedness to Bank
(pursuant to a subordination, intercreditor, or other similar

 

33

--------------------------------------------------------------------------------

 

agreement in form and substance satisfactory to Bank entered into between Bank
and the other creditor), on terms acceptable to Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person.  Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or
Guarantor.

 

“Term Loan Advance” and “Term Loan Advances” are each defined in Section 2.3(a).

 

“Term Loan Maturity Date” is March 1, 2020.

 

“Termination Fee” is defined in Section 2.6(e).

 

“Threshold Amount” is defined in the definition of Streamline Period.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

 

“Transaction Report” is that certain report of transactions and schedule of
collections in the form attached hereto as Exhibit C.

 

“Transfer” is defined in Section 7.1.

 

“Transition Period” is defined in Section 6.8(a).

 

[Signature page follows.]

 

34

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWER:

 

 

 

SUNSHINE HEART, INC.

 

 

 

By

/s/ CLAUDIA DRAYTON

 

Name: Claudia Drayton

 

Title: Chief Financial Officer and Secretary

 

 

 

BANK:

 

 

 

SILICON VALLEY BANK

 

 

 

By

/s/ SAM SUBILIA

 

Name: Sam Subilia

 

Title: Vice President

 

 

--------------------------------------------------------------------------------

 

EXHIBIT A — COLLATERAL DESCRIPTION

 

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 as set forth on Exhibit A-1 (if any), 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 (i) any interest
of Borrower as a lessee or sublessee under a real property lease, (ii) rights
held under a license that are not assignable by their terms without the consent
of the licensor thereof (but only to the extent such restriction on assignment
is enforceable under applicable law), (iii) any Equipment that is subject to a
Lien that is permitted pursuant to clause (c) of the definition of Permitted
Liens, if the grant of a security interest with respect to such Equipment
pursuant to this Agreement would be prohibited by the agreement creating such
Permitted Lien or would otherwise constitute a default thereunder, provided,
that such Equipment will be deemed Collateral hereunder upon the termination and
release of such Permitted Lien, (iv) more than sixty-five percent (65.0%) of the
presently existing and hereafter arising issued and outstanding shares of
capital stock or other equity interests owned by Borrower of any Foreign
Subsidiary which shares or interests entitle the holder thereof to vote for
directors or any other matter, or (v) any Intellectual Property; provided,
however, the Collateral shall include all Accounts and all proceeds of
Intellectual Property.  If a judicial authority (including a U.S. Bankruptcy
Court) would hold that a security interest in the underlying Intellectual
Property is necessary to have a security interest in such Accounts and such
property that are proceeds of Intellectual Property, then the Collateral shall
automatically, and effective as of the Effective Date, include the Intellectual
Property (except for “intent-to-use” trademark applications at all times prior
to the recording of a statement of use with the United States Patent and
Trademark Office) to the extent necessary to permit perfection of Bank’s
security interest in such Accounts and such other property of Borrower that are
proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its Intellectual Property without
Bank’s prior written consent or as otherwise permitted by this Agreement.

 

--------------------------------------------------------------------------------

 

EXHIBIT A-1

 

COMMERCIAL TORT CLAIMS

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

TO:                        SILICON VALLEY BANK

Date:

 

FROM: SUNSHINE HEART, INC.

 

 

The undersigned authorized officer of SUNSHINE HEART, INC. (“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 5.9 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 Covenants

 

Required

 

Complies

 

 

 

 

 

Monthly financial statements with Compliance Certificate

 

Monthly within 30 days

 

Yes o  No o

Annual financial statement (CPA Audited)

 

FYE within 150 days

 

Yes o  No o

10-Q, 10-K and 8-K

 

Within 5 Business Days after filing with SEC

 

Yes o  No o

A/R & A/P Agings

 

Upon the request of the initial Advance and at all times thereafter, monthly
within 30 days

 

Yes o  No o

Transaction Reports (including accounts receivable and accounts payable aging
reports)

 

Upon the request of the initial Advance and at all times thereafter, monthly
within 30 days when a Streamline Period is in effect; on the 15th and 30th (or,
if earlier, the last day) of each month when a Streamline Period is not in
effect

 

Yes o  No o

Board projections

 

Earlier of (i) 7 days after Board approval, or (ii) thirty (30) days after FYE

 

Yes o  No o

Clinical and regulatory updates

 

Monthly within 30 days

 

Yes o  No o

 

Financial Covenant

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Maintain at all times upon the earlier to occur of (i) the Funding Date of the
initial Term Loan Advance or (ii) the Funding Date of the initial Advance:

 

 

 

 

 

 

Net Liquidity (tested monthly)

 

$              *

 

$              

 

Yes o  No o

Liquidity Ratio (tested monthly)

 

> 1.25:1.0

 

       :1.0

 

Yes o  No o

 

--------------------------------------------------------------------------------

* As set forth in Section 6.9(a) of the Agreement.

 

1

--------------------------------------------------------------------------------

 

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.

 

Streamline Period

 

Required

 

Actual

 

Complies

Maintain:

 

 

 

 

 

 

Net Liquidity in an amount equal to or greater than six (6) times Borrower’s
Monthly Cash Burn Amount

 

$     

 

$     

 

Yes o  No o

 

Other Matters

 

Have there been any amendments of or other changes to the capitalization table
of Borrower and to the Operating Documents of Borrower or any of its
Subsidiaries? If yes, provide copies of any such amendments or changes with this
Compliance Certificate.

 

Yes o

 

No o

 

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

 

 

SUNSHINE HEART, INC.

 

BANK USE ONLY

 

 

 

 

 

By:

 

 

Received by:

 

Name:

 

 

 

AUTHORIZED SIGNER

Title:

 

 

Date:

 

 

 

 

 

 

 

 

 

Verified:

 

 

 

 

 

AUTHORIZED SIGNER

 

 

 

Date:

 

 

 

 

 

 

 

 

Compliance Status:

Yes o   No o

 

2

--------------------------------------------------------------------------------

 

SCHEDULE 1 TO COMPLIANCE CERTIFICATE

 

FINANCIAL COVENANTS OF BORROWER

 

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall govern.

 

Dated:

 

 

 

I.                                        Liquidity (Section 6.9(a))

 

Required:                                                                                          
Maintain at all times upon the earlier to occur of (i) the Funding Date of the
initial Term Loan Advance or (ii) the Funding Date of the initial Advance,
tested on the last day of each month, Net Liquidity in an amount equal to or
greater than four (4) times Borrower’s Monthly Cash Burn Amount (the “Liquidity
Requirement”).  If Borrower fails to comply with the Liquidity Requirement
(which failure in and of itself is not an Event of Default), Borrower shall
immediately pledge to Bank and thereafter maintain in a separate cash collateral
money market account in the name of Borrower, unrestricted cash in an amount
equal to one hundred percent (100.0%) of the then outstanding Obligations of
Borrower to Bank, determined as of the date of such failure to comply with the
Liquidity Requirement and thereafter as of the last day of each month. 
Notwithstanding the foregoing, upon Bank’s receipt of evidence from Borrower
that Borrower has thereafter been in compliance with the Liquidity Requirement
each consecutive day for the prior sixty (60) consecutive days as determined by
Bank in its sole discretion, then the unrestricted cash pledged to Bank pursuant
to the terms hereof shall be promptly remitted to Borrower’s Designated Deposit
Account.

 

Actual:

 

A.

 

Aggregate value of the unrestricted cash and Cash Equivalents of Borrower in
accounts with Bank or Bank’s Affiliates

 

$

 

 

 

 

 

B.

 

The unused portion of the Availability Amount (provided that, prior to the
request of the initial Advance, the unused portion of the Availability Amount
shall be Zero Dollars ($0.00))

 

$

 

 

 

 

 

C.

 

Line A plus line B

 

$

 

 

 

 

 

D.

 

All outstanding Obligations of Borrower to Bank

 

$

 

 

 

 

 

E.

 

Line C minus Line D

 

$

 

 

 

 

 

F.

 

Borrower’s Net Losses for the preceding trailing three (3) months

 

$

 

 

 

 

 

G.

 

Aggregate value of unfinanced capital expenditures for the preceding trailing
three (3) months

 

$

 

 

 

 

 

H.

 

Sum of line F and line G

 

$

 

 

 

 

 

I.

 

Aggregate value of depreciation expenses for the preceding trailing three (3)
months

 

$

 

 

 

 

 

J.

 

Aggregate value of non-cash stock compensation expense for the preceding
trailing three (3) months

 

$

 

 

 

 

 

K.

 

Aggregate value of other non-cash expenses as approved by Bank in its sole and
absolute discretion for the preceding trailing three (3) months

 

$

 

 

 

 

 

L.

 

Sum of line I through line K

 

$

 

 

 

 

 

M.

 

Monthly Cash Burn for the preceding trailing three months (line H minus line L)

 

$

 

3

--------------------------------------------------------------------------------

 

N.

 

Monthly Cash Burn Amount (line M divided by 3)

 

$

 

 

 

 

 

O.

 

Line N multiplied by 4

 

$

 

Is line E equal to or greater than line O?

 

o  No, not in compliance

o  Yes, in compliance

 

II.                                   Liquidity Ratio (Section 6.9(b))

 

Required:                                                                                          
Maintain at all times upon the earlier to occur of (i) the Funding Date of the
initial Term Loan Advance or (ii) the Funding Date of the initial Advance,
tested on the last day of each month, unrestricted cash and Cash Equivalents
held by Borrower in accounts with Bank or Bank’s Affiliates equal to or greater
than one and one-quarter (1.25) of the amount of all outstanding Obligations of
Borrower to Bank.

 

Actual:

 

A.

 

Aggregate value of the unrestricted cash and Cash Equivalents of Borrower in
accounts with Bank or Bank’s Affiliates

 

$

 

 

 

 

 

B.

 

Amount of all outstanding Obligations of Borrower to Bank

 

$

 

 

 

 

 

C.

 

Line A divided by line B

 

 

 

Is line C equal to or greater than 1.25?

 

o  No, not in compliance

o  Yes, in compliance

 

4

--------------------------------------------------------------------------------

 

EXHIBIT C

 

Transaction Report

 

1

--------------------------------------------------------------------------------

 

[g163181ko11i001.gif]

 

[g163181ko11i002.gif]

 

Company name

 

Sunshine Heart Inc.

 

Report number

 

1

 

Report date

 

6/30/2016

 

 

 

 

 

Gross Domestic A/R Balance

 

$

—

 

Beg Loan Balance

 

$

—

 

 

 

 

 

Today’s Loan Advance Request

 

$

—

 

 

 

 

 

SALES JOURNAL

 

 

 

Invoices:

 

$

—

 

Credit Memos:

 

$

—

 

Misc. Adj. - Sales related:

 

$

—

 

Net New Invoices

 

$

—

 

 

 

 

 

CASH RECEIPTS JOURNAL

 

 

 

A/R Collections:

 

$

—

 

Non-A/R collections applied to Loan:

 

$

—

 

Net Collections Applied to Loan

 

$

—

 

 

 

 

 

AR Adjustments

 

 

 

Misc. if applicable

 

$

—

 

Reserves

 

$

—

 

 

 

General Input Sheet

 

 

--------------------------------------------------------------------------------

 

[g163181ko11i003.gif]

 

ACCOUNTS RECEIVABLE COLLATERAL

 

 

 

 

 

Beginning A/R Balance Per Previous Report

 

 

 

 

 

Add: Sales for Period

 

 

 

$

—

 

Less: Collections for Period

 

 

 

$

—

 

 

 

 

 

 

 

Ending Accounts Receivable Balance

 

 

 

$

—

 

Deduct: Ineligible Accounts Receivable

 

 

 

$

—

 

Total Eligible Accounts Receivable

 

 

 

$

—

 

 

 

 

 

 

 

COMPUTATION OF A/R BORROWING AVAILABILITY

 

 

 

 

 

Advance Rate

 

80

%

 

 

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Lower of Calculated Availability or Line limit

 

$

1,000,000

 

 

 

 

 

$

—

 

Reserves (if applicable):

 

 

 

 

 

 

 

$

—

 

Net Borrowing Availability: Before Loans

 

 

 

 

 

 

 

$

—

 

 

 

 

 

 

 

COMPUTATION OF TOTAL BORROWING BASE AVAILABILITY

 

 

 

 

 

Total Borrowing Base

 

 

 

$

—

 

 

 

 

 

 

 

COMPUTATION OF LOAN

 

 

 

 

 

Beginning Loan Balance

 

$

—

 

 

 

Less: Collections Applied to Loan

 

$

—

 

 

 

Misc. Adjustments

 

$

—

 

 

 

Ending Loan Balance - Before Loan Request

 

 

 

$

—

 

Unused Borrowing Availability Before Loan Request

 

$

—

 

 

 

 

 

 

 

 

 

New Loan Request: The undersigned hereby requests a loan advance in the amount
shown adjacent hereto.

 

 

 

 

 

Please deposit loan proceeds to my:  SVB Checking Account

Advance =  

 

$

—

 

 

 

New Loan Balance - After Loan Advance

 

 

 

$

—

 

Remaining Unused Borrowing Availability - After Loan Request

 

$

—

 

 

 

 

The above described Collateral is subject to a security interest in favor of
SILICON VALLEY BANK pursuant to the terms and conditions of a Loan & Security
Agreement’s, as executed by and between SILICON VALLEY BANK and the undersigned.

 

 

Transaction Report and Loan Request

 

 

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Accounts Receivable

 

Ineligibles As of

 

6/30/2016

 

 

 

 

 

90 Days Past Invoice Date

 

$

—

 

Credit Balances over 90 Days

 

$

—

 

Balance of 50% over 90 Day Accounts (Cross-Age or Current Affected)

 

$

—

 

Foreign Accounts

 

$

—

 

Contra / Customer Deposit Accounts

 

$

—

 

Concentration Limits in excess of 25%

 

$

—

 

U.S. Government Accounts without Assignment of Claims

 

$

—

 

Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts

 

$

—

 

Accounts with Memo or Pre-Billings;

 

$

—

 

Contract Accounts; Accounts with Progress / Milestone Billings

 

$

—

 

Accounts for Retainage Billings

 

$

—

 

Trust / Bonded Accounts

 

$

—

 

Bill and Hold Accounts

 

$

—

 

Unbilled Accounts

 

$

—

 

Non-Trade Accounts (If not already deducted above)

 

$

—

 

Chargebacks Accounts / Debit Memos

 

$

—

 

Product Returns/Exchanges

 

$

—

 

Disputed Accounts; Insolvent Account Debtor Accounts

 

$

—

 

Deferred Revenue

 

$

—

 

Other

 

$

—

 

 

 

 

 

Total Ineligible Accounts: (to BBC)

 

$

—

 

 

 

Ineligible Calculation

 

 

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EXHIBIT D — LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS NOON EASTERN TIME

 

Fax To:

Date:

 

 

LOAN PAYMENT:

SUNSHINE HEART, INC.

 

 

 

 

 

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 Term Loan 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:

 

         Borrower has provided evidence satisfactory to Bank in Bank’s sole but
reasonable discretion that Borrower is in compliance with the Liquidity
financial covenant set forth in Section 6.9(a) as of the Funding Date of such
Term Loan Advance and on a pro forma basis after such Term Loan Advance is made

 

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, Eastern Time

 

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 #:

 

 

1

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