Exhibit 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of September 13,
2010 (the “Effective Date”) between SILICON VALLEY BANK, a California
corporation (“Bank”), and CRAY INC., a Washington 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. 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.
2.1.1 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. No Advances shall be permitted on the Effective Date. Amounts borrowed
hereunder 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. In addition, at Borrower’s option, Borrower shall
have the option to terminate this Agreement without penalty or premium, provided
Borrower (i) provides written notice to Bank of its election to terminate this
Agreement at least fifteen (15) days prior to such termination, and (ii) pays,
on the date of the termination (A) all accrued and unpaid interest with respect
to the Revolving Line through the date of termination; (B) all remaining unpaid
principal amount owing on the Revolving Line as of the termination date; and
(C) all other sums, if any, that shall have become due and payable hereunder
with respect to the Revolving Line.
2.1.2 Letters of Credit Sublimit.
(a) As part of the Revolving Line, Bank shall issue or have issued Letters of
Credit denominated in Dollars or a Foreign Currency for Borrower’s account. The
aggregate Dollar Equivalent amount utilized for the issuance of Letters of
Credit shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. The aggregate Dollar Equivalent of the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) may not exceed Fifteen Million Dollars
($15,000,000).
(b) If, on the Revolving Line Maturity Date (or the effective date of any
termination of this Agreement), there are any outstanding Letters of Credit,
then on such date Borrower shall provide to Bank cash collateral in an amount
equal to 105% of the Dollar Equivalent of the face amount of all such Letters of
Credit 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. All Letters of Credit
shall be in form and substance acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank’s standard Application and
Letter of Credit Agreement (the “Letter of Credit Application”). Borrower agrees
to execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request. Borrower further agrees to be bound by the
regulations and interpretations of the issuer of any Letters of Credit
guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.

 

 

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(c) The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional, and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.
(d) Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the Dollar Equivalent of
the amount thereof (plus fees and charges in connection therewith such as wire,
cable, SWIFT or similar charges).
(e) To guard against fluctuations in currency exchange rates, upon the issuance
of any Letter of Credit payable in a Foreign Currency, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount
equal to ten percent (10%) of the face amount of such Letter of Credit. The
amount of the Letter of Credit Reserve may be adjusted by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.
2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal
amount of any Advances plus (b) the face amount of any outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), exceeds the lesser of either the Revolving Line or the
Borrowing Base (if applicable), Borrower shall immediately pay to Bank in cash
such excess.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rate.
(i) Advances.
(A) Each Advance shall, at Borrower’s option, in accordance with the terms of
this Agreement, be either in the form of a Prime Rate Advance or a LIBOR
Advance; provided that in no event shall Borrower maintain at any time LIBOR
Advances having more than four (4) different Interest Periods.
(B) Each Advance shall bear interest on the outstanding principal amount thereof
from the date when made, continued or converted until paid in full at a rate per
annum equal to (i) for Prime Rate Advances, the Prime Rate plus the applicable
Prime Rate Margin and (ii) for LIBOR Advances, the LIBOR Rate plus the
applicable LIBOR Rate Margin. On and after the expiration of any Interest Period
applicable to any LIBOR Advance outstanding on the date of occurrence of an
Event of Default or acceleration of the Obligations, the Effective Amount of
such LIBOR Advance shall, during the continuance of such Event of Default or
after acceleration, bear interest at a rate per annum equal to the rate
applicable to Prime Rate Advances plus five percent (5.00%). Pursuant to the
terms hereof, interest on each Advance shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of any
Advance pursuant to this Agreement for the portion of any Advance so prepaid and
upon payment (including prepayment) in full thereof. All accrued but unpaid
interest on the Advances shall be due and payable on the Revolving Line Maturity
Date.
(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 five percentage points (5.00%) above the rate that is otherwise applicable
thereto (the “Default Rate”) unless Bank otherwise elects from time to time in
its sole discretion to impose a smaller increase. 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 2.3(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) Prime Rate Advances. Each change in the interest rate of the Prime Rate
Advances based on changes in the Prime Rate shall be effective on the effective
date of such change and to the extent of such change. The Prime Rate Margin
applicable to Prime Rate Advances shall be determined on the basis of Borrower’s
most recent quarterly Leverage Ratio, as reported to Bank in Borrower’s
financial statements provided pursuant to Section 6.2(d), and such Prime Rate
Margin shall be adjusted promptly upon each receipt of such financial
statements.

 

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(d) LIBOR Advances. The interest rate applicable to each LIBOR Advance shall be
determined in accordance with Section 3.7(a) hereunder. Subject to Sections 3.7
and 3.8, such rate shall apply during the entire Interest Period applicable to
such LIBOR Advance, and interest calculated thereon shall be payable on the
Interest Payment Date applicable to such LIBOR Advance. The LIBOR Rate Margin
applicable to LIBOR Advances shall be determined on the basis of Borrower’s most
recent quarterly Leverage Ratio, as reported to Bank in Borrower’s financial
statements provided pursuant to Section 6.2(d), and such LIBOR Rate Margin shall
be adjusted promptly upon each receipt of such financial statements.
(e) Computation; 360-Day Year. In computing interest, 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. Interest shall be computed on the basis of a 365/366-day
year for the actual number of days elapsed in the case of Prime Rate Advances,
and on the basis of a 360-day year for the actual number of days elapsed for all
other interest and fees hereunder.
(f) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or
any other amounts Borrower owes Bank when due. These debits shall not constitute
a set-off.
2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of $93,750
(equal to three-eighths percent (0.375%) of the Revolving Line), on the
Effective Date;
(b) Letter of Credit Fees. (i) Bank’s reasonable customary fees and expenses for
the issuance or renewal of Letters of Credit upon the issuance of such Letter of
Credit, each anniversary of the issuance during the term of such Letter of
Credit, and upon the renewal of such Letter of Credit by Bank, and (ii) a letter
of credit fee equal to the LIBOR Rate Margin multiplied by the undrawn amount of
each Letter of Credit, due and payable upon the issuance of each Letter of
Credit;
(c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line
Facility Fee”), payable quarterly, in arrears, on a calendar year basis, in an
amount equal to (i) three-eighths percent (0.375%) per annum of the average
unused portion of the Revolving Line when Borrower’s Leverage Ratio is less than
or equal to 1.00:1.00 or when no Advances are outstanding, and (ii) one-half
percent (0.50%) per annum of the average unused portion of the Revolving Line
when Borrower’s Leverage Ratio is greater than 1.00:1.00 or if trailing twelve
month EBITDA is less than $1.00. The Unused Revolving Line Facility Fee shall be
determined on the basis of Borrower’s most recent quarterly Leverage Ratio, as
reported to Bank in Borrower’s financial statements provided pursuant to
Section 6.2(d). Borrower shall not be entitled to any credit, rebate or
repayment of any Unused Revolving Line Facility Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of the Agreement or the
suspension or termination of Bank’s obligation to make loans and advances
hereunder; and
(d) Bank Expenses. Reasonable Bank Expenses (including reasonable attorneys’
fees and expenses for documentation and negotiation of this Agreement) incurred
through and after the Effective Date until the termination of all Obligations,
when due.
2.5 Payments. All payments (including prepayments) to be made by Borrower under
any Loan Document shall be made in immediately available funds in U.S. Dollars,
without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when
due. Payments of principal and/or interest received after 12:00 p.m. Pacific
time are considered received at the opening of business on the next Business
Day. When a payment is due on a day that is not a Business Day, the payment
shall be due the next Business Day, and additional fees or interest, as
applicable, shall continue to accrue until paid.

 

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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 original signatures to the Loan Documents;
(b) Borrower’s Operating Documents and a good standing certificate of Borrower
certified by the Secretary of State of the State of Washington as of a date no
earlier than thirty (30) days prior to the Effective Date;
(c) duly executed original signatures to the completed Borrowing Resolutions for
Borrower;
(d) certified copies, dated as of a recent date, of financing statement
searches, as Bank shall request, accompanied by written evidence (including any
UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with
the initial Credit Extension, will be terminated or released;
(e) the Perfection Certificates of Borrower, together with the duly executed
original signature thereto;
(f) the duly executed original signatures to the Guaranty;
(g) evidence satisfactory to Bank that the insurance policies required by
Section 6.5 hereof are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements
in favor of Bank; and
(h) payment of the fees and Bank Expenses then due as specified in Section 2.4
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) except as otherwise provided in Section 3.5(a), timely receipt of an
executed Notice of Borrowing;
(b) the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the Notice of
Borrowing 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 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) if a Borrowing Base Period is in effect, receipt of a completed Borrowing
Base Certificate executed by a Responsible Officer of Borrower; and
(d) in Bank’s sole discretion, there has not been a Material Adverse Change.
3.3 Post-Closing Conditions.
(a) Borrower shall use reasonable efforts to assist Bank in obtaining a
landlord’s consent in favor of Bank, in form and substance satisfactory to Bank,
for each of Borrower’s leased facilities in Seattle, Washington, Chippewa Falls,
Wisconsin, St. Paul, Minnesota and Austin, Texas by the respective landlord
thereof, together with the duly executed original signatures thereto;

 

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(b) within one Business Day of the Effective Date, delivery of original stock
certificates, together with duly executed assignments separate from certificate,
for each Guarantor; and
(c) within five Business Days of the Effective Date, delivery of duly executed
original signatures to the Control Agreement with Wells Fargo Bank, National
Association; and
(d) within five Business Days of the Effective Date, delivery of duly executed
original signatures to the completed Borrowing Resolutions for each Guarantor.
3.4 Covenant to Deliver. Except as otherwise provided in Section 3.3, 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.
3.5 Procedures for Borrowing.
(a) Subject to the prior satisfaction of all other applicable conditions to the
making of an Advance set forth in this Agreement, each Advance shall be made
upon Borrower’s irrevocable written notice delivered to Bank in the form of a
Notice of Borrowing, each executed by a Responsible Officer of Borrower or his
or her designee or without instructions if the Advances are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee. Borrower
will indemnify Bank for any loss Bank suffers due to such reliance. Such Notice
of Borrowing must be received by Bank prior to 12:00 p.m. Pacific time, (i) at
least three (3) Business Days prior to the requested Funding Date, in the case
of LIBOR Advances, and (ii) on the requested Funding Date, in the case of Prime
Rate Advances, specifying: (1) the amount of the Advance; (2) the requested
Funding Date; (3) whether the Advance is to be comprised of LIBOR Advances or
Prime Rate Advances; and (4) the duration of the Interest Period applicable to
any such LIBOR Advances included in such notice; provided that if the Notice of
Borrowing shall fail to specify the duration of the Interest Period for any
Advance comprised of LIBOR Advances, such Interest Period shall be one
(1) month.
(b) The proceeds of all such Advances will then be made available to Borrower on
the Funding Date by Bank by transfer to the Designated Deposit Account and,
subsequently, by wire transfer to such other account as Borrower may instruct in
the Notice of Borrowing.
3.6 Conversion and Continuation Elections.
(a) So long as (i) no Event of Default exists; (ii) Borrower shall not have sent
any notice of termination of this Agreement; and (iii) Borrower shall have
complied with such customary procedures as Bank has established from time to
time for Borrower’s requests for LIBOR Advances, Borrower may, upon irrevocable
written notice to Bank:
(1) elect to convert on any Business Day, Prime Rate Advances into LIBOR
Advances;
(2) elect to continue on any Interest Payment Date any LIBOR Advances maturing
on such Interest Payment Date; or
(3) elect to convert on any Interest Payment Date any LIBOR Advances maturing on
such Interest Payment Date into Prime Rate Advances.

 

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(b) Borrower shall deliver a Notice of Conversion/Continuation in accordance
with Section 10 to be received by Bank prior to 12:00 p.m. Pacific time (i) at
least three (3) Business Days in advance of the Conversion Date or Continuation
Date, if any Advances are to be converted into or continued as LIBOR Advances;
and (ii) on the Conversion Date, if any Advances are to be converted into Prime
Rate Advances, in each case specifying the:
(1) proposed Conversion Date or Continuation Date;
(2) aggregate amount of the Advances to be converted or continued;
(3) nature of the proposed conversion or continuation; and
(4) duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to any LIBOR
Advances, Borrower shall have timely failed to select a new Interest Period to
be applicable to such LIBOR Advances, Borrower shall be deemed to have elected
to convert such LIBOR Advances into Prime Rate Advances.
(d) Any LIBOR Advances shall, at Bank’s option, convert into Prime Rate Advances
in the event that (i) an Event of Default shall exist, or (ii) the aggregate
principal amount of the Prime Rate Advances which have been previously converted
to LIBOR Advances, or the aggregate principal amount of existing LIBOR Advances
continued, as the case may be, at the beginning of an Interest Period shall at
any time during such Interest Period exceed the Revolving Line. Borrower agrees
to pay Bank, upon demand by Bank (or Bank may, at its option, charge the
Designated Deposit Account or any other account Borrower maintains with Bank)
any amounts required to compensate Bank for any loss (including loss of
anticipated profits), cost, or expense incurred by Bank, as a result of the
conversion of LIBOR Advances to Prime Rate Advances pursuant to this
Section 3.6(d).
(e) Notwithstanding anything to the contrary contained herein, Bank shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR market to fund any LIBOR Advances, but the
provisions hereof shall be deemed to apply as if Bank had purchased such
deposits to fund the LIBOR Advances.
3.7 Special Provisions Governing LIBOR Advances. Notwithstanding any other
provision of this Agreement to the contrary, the following provisions shall
govern with respect to LIBOR Advances as to the matters covered:
(a) Determination of Applicable Interest Rate. As soon as practicable on each
Interest Rate Determination Date, Bank shall determine (which determination
shall, absent manifest error in calculation, be final, conclusive and binding
upon all parties) the interest rate that shall apply to the LIBOR Advances for
which an interest rate is then being determined for the applicable Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to Borrower.
(b) Inability to Determine Applicable Interest Rate. In the event that Bank
shall have determined (which determination shall be final and conclusive and
binding upon all parties hereto), on any Interest Rate Determination Date with
respect to any LIBOR Advance, that by reason of circumstances affecting the
London interbank market adequate and fair means do not exist for ascertaining
the interest rate applicable to such Advance on the basis provided for in the
definition of LIBOR, Bank shall on such date give notice (by facsimile or by
telephone confirmed in writing) to Borrower of such determination, whereupon
(i) no Advances may be made as, or converted to, LIBOR Advances until such time
as Bank notifies Borrower that the circumstances giving rise to such notice no
longer exist, and (ii) any Notice of Borrowing or Notice of
Conversion/Continuation given by Borrower with respect to Advances in respect of
which such determination was made shall be deemed to be rescinded by Borrower.

 

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(c) Compensation for Breakage or Non-Commencement of Interest Periods. Borrower
shall compensate Bank, upon written request by Bank (which request shall set
forth the manner and method of computing such compensation), for all losses,
expenses, unrealized gains and liabilities (including any interest paid by Bank
to lenders of funds borrowed by it to make or carry its LIBOR Advances, any
loss, expense or liability incurred by Bank in connection with the liquidation
or re-employment of such funds, and, in the case of complete or partial
principal payments or conversions of LIBOR Advances prior to the last day of the
applicable Interest Period, any amount by which (A) the additional interest
which would have been payable on the amount so prepaid or converted had it not
been paid or converted until the last day of the applicable Interest Period
exceeds (B) the interest which would have been recoverable by Bank by placing
the amount so received on deposit in the certificate of deposit markets, the
offshore currency markets, or United States Treasury investment products, as the
case may be, for a period starting on the date on which it was so paid or
converted and ending on the last day of such Interest Period at the interest
rate determined by Bank in its reasonable discretion), if any, that Bank may
incur: (i) if for any reason (other than a default by Bank or due to any failure
of Bank to fund LIBOR Advances due to impracticability or illegality under
Sections 3.8(c) and 3.8(d)) a borrowing or a conversion to or continuation of
any LIBOR Advance does not occur on a date specified in a Notice of Borrowing or
a Notice of Conversion/Continuation, as the case may be, or (ii) if for any
reason (including voluntary or mandatory prepayment or acceleration) any
complete or partial principal payment or any conversion of any of Borrower’s
LIBOR Advances occurs on a date prior to the last day of an Interest Period
applicable to that Advance. Bank’s determination as to such amount shall be
conclusive absent manifest error. Borrower shall immediately notify Borrower’s
account officer at Bank if any of the situations described in (ii) above occur.
(d) Assumptions Concerning Funding of LIBOR Advances. Calculation of all amounts
payable to Bank under this Section 3.7 and under Section 3.8 shall be made as
though Bank had actually funded each of its relevant LIBOR Advances through the
purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant
to the definition of LIBOR Rate in an amount equal to the amount of such LIBOR
Advance and having a maturity comparable to the relevant Interest Period;
provided, however, that Bank may fund each of its LIBOR Advances in any manner
it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this Section 3.7 and under
Section 3.8.
(e) LIBOR Advances After Default. After the occurrence and during the
continuance of an Event of Default, (i) Borrower may not elect to have an
Advance be made or continued as, or converted to, a LIBOR Advance after the
expiration of any Interest Period then in effect for such Advance and
(ii) subject to the provisions of Section 3.7(c), any Notice of
Conversion/Continuation given by Borrower with respect to a requested
conversion/continuation that has not yet occurred shall, at Bank’s option, be
deemed to be rescinded by Borrower and be deemed a request to convert or
continue Advances referred to therein as Prime Rate Advances.
3.8 Additional Requirements/Provisions Regarding LIBOR Advances.
(a) Borrower shall pay Bank, upon demand by Bank, from time to time such amounts
as Bank may determine to be necessary to compensate it for any costs incurred by
Bank that Bank determines are attributable to its making or maintaining of any
amount receivable by Bank hereunder in respect of any LIBOR Advances relating
thereto (such increases in costs and reductions in amounts receivable being
herein called “Additional Costs”), in each case resulting from any Regulatory
Change which:
(i) changes the basis of taxation of any amounts payable to Bank under this
Agreement in respect of any LIBOR Advances (other than changes which affect
taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which Bank has its principal office);
(ii) imposes or modifies any reserve, special deposit or similar requirements
relating to any extensions of credit or other assets of, or any deposits with,
or other liabilities of Bank (including any LIBOR Advances or any deposits
referred to in the definition of LIBOR); or
(iii) imposes any other condition affecting this Agreement (or any of such
extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the Effective Date which
will entitle Bank to compensation pursuant to this Section 3.8(a) as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. Bank will furnish Borrower with a statement setting forth the
basis and amount of each request by Bank for compensation under this
Section 3.8(a). Determinations and allocations by Bank for purposes of this
Section 3.8(a) of the effect of any Regulatory Change on its costs of
maintaining its obligations to make LIBOR Advances, of making or maintaining
LIBOR Advances, or on amounts receivable by it in respect of LIBOR Advances, and
of the additional amounts required to compensate Bank in respect of any
Additional Costs, shall be conclusive absent manifest error.

 

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(b) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation, or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank, or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank (a “Parent”)
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change, or compliance
(taking into consideration policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within five
(5) days after demand by Bank, Borrower shall pay to Bank such additional amount
or amounts as will compensate Bank for such reduction. A statement of Bank
claiming compensation under this Section 3.8(b) and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive absent manifest
error.
(c) If, at any time, Bank, in its sole and absolute discretion, determines that
(i) the amount of LIBOR Advances for periods equal to the corresponding Interest
Periods are not available to Bank in the offshore currency interbank markets, or
(ii) LIBOR does not accurately reflect the cost to Bank of lending the LIBOR
Advances, then Bank shall promptly give notice thereof to Borrower. Upon the
giving of such notice, Bank’s obligation to make the LIBOR Advances shall
terminate; provided, however, (i) LIBOR Advances shall not terminate if Bank and
Borrower agree in writing to a different interest rate applicable to LIBOR
Advances; and (ii) existing LIBOR Advances shall continue in full force and
effect.
(d) If it shall become unlawful for Bank to continue to fund or maintain any
LIBOR Advances, or to perform its obligations hereunder, upon demand by Bank,
Borrower shall prepay the LIBOR Advances in full with accrued interest thereon
and all other amounts payable by Borrower hereunder (including, without
limitation, any amount payable in connection with such prepayment pursuant to
Section 3.7(c)(ii)). Notwithstanding the foregoing, to the extent a
determination by Bank as described above relates to a LIBOR Advance then being
requested by Borrower pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, Borrower shall have the option, subject to the
provisions of Section 3.7(c)(ii), to (i) rescind such Notice of Borrowing or
Notice of Conversion/Continuation by giving notice (by facsimile or by telephone
confirmed in writing) to Bank of such rescission on the date on which Bank gives
notice of its determination as described above, or (ii) modify such Notice of
Borrowing or Notice of Conversion/Continuation to obtain a Prime Rate Advance or
to have outstanding Advances converted into or continued as Prime Rate Advances
by giving notice (by facsimile or by telephone confirmed in writing) to Bank of
such modification on the date on which Bank gives notice of its determination as
described above.
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.
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 may have superior priority to Bank’s Lien under this
Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Bank.
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.
4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank
to file financing statements, and will provide a copy of such financing
statements 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. Such financing statements may
indicate the Collateral as “all assets of the Debtor” or words of similar
effect, or as being of an equal or lesser scope, or with greater detail, all in
Bank’s discretion.

 

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5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization; Power and Authority. Each Credit Party 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 organizational 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) constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could reasonably be expected to have a material adverse effect on Borrower’s
business.
5.2 Collateral. Borrower has good title to, has rights in, and the power to
transfer each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no deposit accounts other than the deposit accounts with Bank, those
described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein. The Accounts
are bona fide, existing obligations of the Account Debtors.
The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as permitted pursuant to Section 7.2.
All Inventory is in all material respects of good and marketable quality.
Except as set forth in Schedule 5.2 hereto, 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.

 

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5.3 Accounts Receivable; Inventory. For any Eligible Account in any Borrowing
Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such 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. Whether or not an Event of Default has occurred and is
continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s
security interest in such funds and verify the amount of such Eligible Account.
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 Borrowing Base Certificate. 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.
For any item of Inventory consisting of “Eligible Inventory” in any Borrowing
Base Certificate, such Inventory (a) consists of finished goods, in good, new,
and salable condition, which is not perishable, returned, consigned, obsolete,
not sellable, damaged, or defective, and is not comprised of demonstrative or
custom inventory, works in progress, packaging or shipping materials, or
supplies, or consists of raw materials considered saleable by Bank in its sole
discretion; (b) meets all applicable governmental standards; (c) has been
manufactured in compliance with the Fair Labor Standards Act; (d) is not subject
to any Liens, except the first priority Liens granted or in favor of Bank under
this Agreement or any of the other Loan Documents; (e) does not consist of
Inventory sold on consignment, (f) is not over one year old; and (g) is located
at the locations identified by Borrower in the Perfection Certificate where it
maintains Inventory (or at any location permitted under Section 7.2).
5.4 Litigation. There are no actions or proceedings pending or, to the knowledge
of the Responsible Officers, threatened in writing by or against Borrower or any
of its Subsidiaries that are reasonably likely to have a Material Adverse
Change, but in any event there are no such actions or proceedings with
affirmatively stated damages claims exceeding One Million Dollars ($1,000,000).
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 assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.7 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 has complied in all material respects with
the Federal Fair Labor Standards Act. Neither Borrower nor any of its
Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or
a “subsidiary company” of a “holding company” as each term is defined and used
in the Public Utility Holding Company Act of 2005. Borrower has not violated any
laws, ordinances or rules, the violation of which could reasonably be expected
to have a material adverse effect on its business. None of Borrower’s or any of
its Subsidiaries’ properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each of its Subsidiaries have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all Government Authorities that are necessary to
continue their respective businesses as currently conducted.
5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.

 

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5.9 Tax Returns and Payments; Pension Contributions. As of the date hereof,
Borrower has no knowledge of nor has it received a notice from any applicable
governmental authority of the delinquency of any required tax returns or reports
or any foreign, federal, state and local taxes, assessments, deposits or
contributions owed by Borrower. Borrower may defer payment of any contested
taxes, provided that Borrower (a) in good faith contests its obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies Bank in writing of the commencement of, and any material
development in, the proceedings, (c) posts bonds or takes any other steps
required to prevent the governmental authority levying such contested taxes from
obtaining a Lien upon any of the Collateral that is other than a “Permitted
Lien”. Borrower is unaware of any material 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
solely as working capital and for general corporate 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 (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 the
Responsible Officers.
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 or operations. Borrower
shall comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower’s business.
(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 all of its property. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Bank.
6.2 Financial Statements, Reports, Certificates. Deliver to Bank:
(a) Borrowing Base Reports. Within forty-five (45) days after the last day of
each quarter, (i) aged listings of accounts receivable and accounts payable (by
invoice date) (ii) perpetual inventory reports for the Inventory valued on a
first-in, first-out basis at the lower of cost or market (in accordance with
GAAP) or such other inventory reports as are requested by Bank in its good faith
business judgment; and (iii) a deferred revenue report (collectively, the
“Borrowing Base Reports”);

 

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(b) Borrowing Base Certificate. Within forty-five (45) days after the last day
of each quarter during a Borrowing Base Period only, and together with the
Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a
Responsible Officer.
(c) Quarterly Financial Statements. As soon as available, but no later than
forty-five (45) days after the last day of each of each quarter of Borrower’s
fiscal year, a company prepared consolidated financial statements prepared under
GAAP without footnotes and final audit adjustments, consistently applied,
certified by a Responsible Officer and in a form acceptable to Bank;
(d) Annual Audited Financial Statements. As soon as available, but no later than
ninety (90) days after the last day of Borrower’s fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm acceptable to Bank in its
reasonable discretion;
(e) Compliance Certificates. Concurrently with the delivery of any financial
statements pursuant to clause (c), a duly completed Compliance Certificate
signed by a Responsible Officer, certifying that as of the end of such period,
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 shall
reasonably request;
(f) Other Statements. Within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt;
(g) SEC Filings. Within five (5) 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;
As to any information contained in the materials furnished pursuant to this
clause (g), Borrower shall not be required separately to furnish such
information under clauses (c), (d) and (f), but the foregoing shall not be in
derogation of the obligation of Borrower to furnish the information and
materials described in such clauses (c), (d) and (f) at the times specified
therein; provided, that Borrower shall provide paper copies to Bank of the
Compliance Certificates required by Section 6.2(e).
(h) Annual Financial Projections. Within 90 days after the end of each fiscal
year, annual financial projections, together with any related business forecasts
used in the preparation of such financial projections, for the following fiscal
year (on a quarterly basis);
(i) Legal Action Notice. A prompt report of any legal actions pending or
threatened in writing against Borrower or any of its Subsidiaries that are
reasonably likely to have a Material Adverse Change;
(j) Intellectual Property Notice. Prompt written notice of (i) any material
change in the composition of the Intellectual Property, (ii) the registration of
any copyright, including any subsequent ownership right of Borrower in or to any
copyright, patent or trademark not shown in the IP Security Agreement, and
(iii) Borrower’s knowledge of an event that could reasonably be expected to
materially and adversely affect the value of the Intellectual Property; and
(k) Other Financial Information. Budgets, sales projections, operating plans and
other related financial information reasonably requested by Bank.
6.3 Reserved.
6.4 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.

 

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6.5 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location and as Bank
may reasonably request. Insurance policies shall be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as loss payee and waive
subrogation against Bank. All liability policies shall show, or have
endorsements showing, Bank as an additional insured. All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer
shall give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy. At Bank’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. If Borrower
fails to obtain insurance as required under this Section 6.5 or to pay any
amount or furnish any required proof of payment to third persons and Bank, Bank
may make all or part of such payment or obtain such insurance policies required
in this Section 6.5, and take any action under the policies Bank deems prudent.
6.6 Operating Accounts.
(a) Maintain its primary securities accounts with Bank and Bank’s Affiliates
which accounts shall represent at least 50% of the dollar value of Borrower’s
cash and Cash Equivalents.
(b) 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 deposit accounts exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of Borrower’s employees
and identified to Bank by Borrower as such.
6.7 Financial Covenants. Maintain as of the last day of each quarter, unless
otherwise noted, on a consolidated basis with respect to Borrower and its
Subsidiaries:
(a) Adjusted Quick Ratio. A ratio of Quick Assets to Current Liabilities minus
the current portion of Deferred Revenue of at least 1.15 to 1.0.
(b) Trailing Twelve Month EBITDA. Maintain, measured as of the end of each
fiscal quarter, trailing 12 month EBITDA of at least the following:

      Period   Minimum EBITDA  
September 30, 2010
  $(25,000,000)  
December 31, 2010
  $0  
March 31, 2011 and thereafter
  $5,000,000 or as established by Bank based on projections provided by Borrower

EBITDA shall be deemed to be $3,379,000 for the fiscal quarter ending
September 30, 2009, $6,237,000 for the fiscal quarter ending December 31, 2009,
and ($7,803,000) for the fiscal quarter ending March 31, 2010.

 

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6.8 Protection and Registration 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 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) If Borrower (i) obtains any Patent, registered Trademark, registered
Copyright, registered mask work, or any pending application for any of the
foregoing, whether as owner, licensee or otherwise, or (ii) applies for any
Patent or the registration of any Trademark, then Borrower shall immediately
provide written notice thereof to Bank and shall execute such intellectual
property security agreements and other documents and take such other actions as
Bank shall request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such property. If
Borrower decides to register any Copyrights or mask works in the United States
Copyright Office, Borrower shall: (x) provide Bank with at least fifteen
(15) days prior written notice of Borrower’s intent to register such Copyrights
or mask works together with a copy of the application it intends to file with
the United States Copyright Office (excluding exhibits thereto); (y) execute an
intellectual property security agreement and such other documents and take such
other actions as Bank may request in its good faith business judgment to perfect
and maintain a first priority perfected security interest in favor of Bank in
the Copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security agreement
with the United States Copyright Office contemporaneously with filing the
Copyright or mask work application(s) with the United States Copyright Office.
Borrower shall promptly provide to Bank copies of all applications that it files
for Patents or for the registration of Trademarks, Copyrights or mask works,
together with evidence of the recording of the intellectual property security
agreement necessary for Bank to perfect and maintain a first priority perfected
security interest in such property.
(c) 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).
6.9 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower’s books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.
6.10 Reserved.
6.11 Reserved.
6.12 Access to Collateral; Books and Records. Allow Bank, or its agents, at
reasonable times, on one (1) Business Day’s notice (provided no notice is
required if an Event of Default has occurred and is continuing), to inspect the
Collateral and audit and copy Borrower’s Books. Such inspections or audits shall
be conducted no more often than once every twelve (12) months unless an Event of
Default has occurred and is continuing. The foregoing inspections and audits
shall be at Borrower’s expense, and the charge therefor shall be $850 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 reschedule 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 $1,000 plus reasonable out-of-pocket
expenses incurred by Bank to compensate Bank for the anticipated costs and
expenses of the cancellation or rescheduling.
6.13 Formation or Acquisition of Subsidiaries. At the time that Borrower forms
any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary
after the Effective Date, Borrower shall (a) cause such new Subsidiary to
provide to Bank a joinder to the Guaranty, together with such appropriate
financing statements and/or Control Agreements, all in form and substance
satisfactory to Bank (including being sufficient to grant Bank a first priority
Lien (subject to Permitted Liens) in and to the assets of such newly formed or
acquired Subsidiary), (b) provide to Bank appropriate certificates and powers
and financing statements, pledging all of the direct or beneficial ownership
interest in such new Subsidiary, in form and substance satisfactory to Bank, and
(c) provide to Bank all other documentation in form and substance satisfactory
to Bank, which in its opinion is appropriate with respect to the execution and
delivery of the applicable documentation referred to above. Any document,
agreement, or instrument executed or issued pursuant to this Section 6.13 shall
be a Loan Document.

 

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6.14 Further Assurances. Execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent,
which shall not be unreasonably withheld:
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 the following, all of which
are permitted:
(a) Transfers in the ordinary course of business for reasonably equivalent
consideration;
(b) Transfers to Borrower or any of its Subsidiaries from Borrower or any of its
Subsidiaries;
(c) Transfers of property in connection with sale-leaseback transactions,
provided that the book value of all such property so Transferred shall not
exceed $1,000,000 in any fiscal year;
(d) Transfers of property to the extent such property is exchanged for credit
against, or proceeds are promptly applied to, the purchase price of other
property used or useful in the business of Borrower or its Subsidiaries;
(e) Transfers constituting non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business and other non-perpetual licenses that could not result in a legal
transfer of title of the licensed property but that may be exclusive in respects
other than territory and that may be exclusive as to territory only as to
discreet geographical areas outside of the United States;
(f) Transfers otherwise permitted by the Loan Documents;
(g) sales or discounting of delinquent accounts in the ordinary course of
business;
(h) Transfers associated with the making or disposition of a Permitted
Investment; and
(i) Transfers in connection with a permitted acquisition of a portion of the
assets or rights acquired for reasonably equivalent consideration.
7.2 Changes in Business; Change in Control; Jurisdiction of Formation. Engage in
any material line of business other than those lines of business conducted by
Borrower and its Subsidiaries on the date hereof and any businesses reasonably
related, complementary or incidental thereto or reasonable extensions thereof;
or permit or suffer any Change in Control. Borrower will not, without prior
written notice to Bank: (i) change its jurisdiction of organization, (ii) change
its organizational structure or type, (iii) change its legal name, (iv) change
any organizational number (if any) assigned by its jurisdiction of organization,
or add any new offices or business locations, including warehouses (unless such
new offices or business locations contain less than Five Hundred Thousand
Dollars ($500,000) in Borrower’s assets or property) or deliver any portion of
the Collateral valued, individually or in the aggregate, in excess of One
Hundred Thousand Dollars ($100,000) to a bailee at a location other than to a
bailee and at a location already disclosed in the Perfection Certificate;
provided that Collateral that is in-transit shall not be considered held with a
bailee. If Borrower intends to deliver any portion of the Collateral valued,
individually or in the aggregate, in excess of Five Hundred Thousand Dollars
($500,000) to a bailee, except with respect to those locations disclosed on the
Perfection Certificate, 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 in its sole discretion.

 

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7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any Person, or acquire, or permit any
of its Subsidiaries to acquire, all or substantially all of the capital stock or
property of a Person, except where no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement:
(a) any Subsidiary may merge or consolidate with (i) Borrower provided that
Borrower is the surviving entity, and (ii) one or more other Subsidiaries;
(b) Borrower or any Subsidiary may acquire, all or substantially all of the
capital stock or property of another Subsidiary; or
(c) such merger, consolidation or acquisition is a Transfer otherwise permitted
pursuant to Section 7.1.
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 the
Collateral, 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.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.6(b) hereof.
7.7 Distributions; Investments. (a) Pay any dividends or make any distribution
or payment or redeem, retire or purchase any capital stock other than Permitted
Distributions; or (b) directly or indirectly acquire or own any Person, or make
any Investment in any Person, other than Permitted Investments, or permit any of
its Subsidiaries to do so.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for
(a) transactions that are in the ordinary course of Borrower’s business, upon
fair and reasonable terms (when viewed in the context of any series of
transactions of which it may be a part, if applicable); or (b) transactions
among Borrower and its Subsidiaries and among Borrower’s Subsidiaries so long as
no Event of Default exists or could result therefrom.
7.9 Subordinated Debt. Make or permit any payment on or amendments of any
Subordinated Debt, except (a) payments pursuant to the terms of the Subordinated
Debt; (b) payments made with Borrower’s capital stock or other Subordinated
Debt; or (c) amendments to Subordinated Debt so long as such Subordinated Debt
remains subordinated in right of payment to this Agreement and any Liens
securing such Subordinated Debt remain subordinate in priority to Bank’s Lien
hereunder to the same extent as originally contemplated by 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 meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or
interest on any Credit Extension on its due date, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and
payable (which three (3) Business Day cure period shall not apply to payments
due on the Revolving Line Maturity Date). During the cure period, the failure to
make or pay any payment specified under clause (a) or (b) hereunder is not an
Event of Default (but no Credit Extension will be made during the cure period);

 

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8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4,
6.5, 6.6, 6.7, 6.11, 6.12, 6.13 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 Reserved.
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) on deposit or otherwise maintained with Bank or any Bank
Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s
assets by any government agency, 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 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 not dismissed or stayed within thirty (30) days (but no Credit Extensions
shall be made while of any of the conditions described in clause (a) exist
and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If (a) Borrower fails to (i) make any payment that is due
and payable with respect to any Material Indebtedness and such failure continues
after the applicable grace or notice period, if any, specified in the agreement
or instrument relating thereto, or (ii) perform or observe any other condition
or covenant, or any other event shall occur or condition exist under any
agreement or instrument relating to any Material Indebtedness, and such failure
continues after the applicable grace or notice period, if any, specified in the
agreement or instrument relating thereto and the effect of such failure, event
or condition is to cause, or to permit (whether or not exercised), the holder or
holders of such Material Indebtedness to accelerate the maturity of such
Material Indebtedness or cause, or permit (whether or not exercised), the
mandatory repurchase of any Material Indebtedness; or (b) there is a default in
any Material Contract that could reasonably have a material adverse effect on
Borrower’s business;
8.7 Judgments. One or more final judgments, orders, or decrees for the payment
of money in an amount, individually or in the aggregate, of at least One Million
Dollars ($1,000,000) (not covered by independent third-party insurance as to
which liability has been accepted by such insurance carrier) shall be rendered
against Borrower and the same are not, within ten (10) days after the entry
thereof, discharged or 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 discharge, stay,
or bonding of such judgment, order, or decree);

 

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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 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any
reason to be in full force and effect; (b) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations; (c) any
circumstance described in Sections 8.3, 8.4, 8.5, 8.6, 8.7, or 8.8 occurs with
respect to any Guarantor, (d) the liquidation, winding up, or termination of
existence of any Guarantor; or (e) (i) a material impairment in the perfection
or priority of Bank’s Lien in the collateral provided by Guarantor or in the
value of such collateral or (ii) a material adverse change in the general
affairs, management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations occurs with respect to any
Guarantor.
9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. While an Event of Default occurs and continues Bank
may, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) stop advancing money or extending credit for Borrower’s benefit under this
Agreement or under any other agreement between Borrower and Bank;
(c) demand that Borrower (i) deposit cash with Bank in an amount equal to 105%
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 of Credit, and Borrower shall forthwith deposit and pay such amounts,
and (ii) pay in advance all letter of credit fees scheduled to be paid or
payable over the remaining term of any Letters of Credit;
(d) settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Bank considers advisable, notify any
Person owing Borrower money of Bank’s security interest in such funds, and
verify the amount of such account;
(e) make any payments and do any acts it considers necessary or reasonable to
protect the Collateral and/or its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank’s rights
or remedies;
(f) apply to the Obligations any (i) balances and deposits of Borrower it holds,
or (ii) any amount held by Bank owing to or for the credit or the account of
Borrower;
(g) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section, Borrower’s rights under all licenses
and all franchise agreements inure to Bank’s benefit;

 

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(h) place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;
(i) demand and receive possession of Borrower’s Books; and 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, only 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 that may come into Bank’s
possession; (b) sign Borrower’s name on any invoice or bill of lading for any
Account or drafts against Account Debtors; (c) settle and adjust disputes and
claims about the Accounts directly with Account Debtors, for amounts and on
terms Bank determines reasonable; (d) make, settle, and adjust all claims under
Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or
any judgment based thereon, or otherwise take any action to terminate or
discharge the same; and (f) transfer the Collateral into the name of Bank or a
third party as the Code permits. Borrower hereby appoints Bank as its lawful
attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of Bank’s security interest in the Collateral
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney
in fact subject to the limitations described above, and all of Bank’s rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank’s obligation to provide Credit
Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by
Section 6.5 or fails to pay any premium thereon or fails to pay any other amount
which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest 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 Upon Default. If an Event of Default
has occurred and is continuing, Bank may apply any funds in its possession,
whether from Borrower account balances, payments, proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral, or
otherwise, to the Obligations in such order as Bank shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any deficiency. If
Bank, in its good faith business judgment, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Bank shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.
9.5 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. 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.

 

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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.

         
 
  If to Borrower:   Cray Inc.
901 Fifth Avenue, Suite 1000
Seattle, WA 98164
Attn: Brian Henry, Chief Financial Officer
Fax: (206) 701-2500
Email: brianh@cray.com
 
       
 
  If to Bank:   Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: John Kinzer
Fax: (303) 469-9028
Email: jkinzer@svb.com

11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. 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, or subsequently provided by Borrower in accordance with, 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.

 

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WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and orders applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help
remedies, foreclose against collateral, or obtain provisional remedies. The
private judge shall also determine all issues relating to the applicability,
interpretation, and enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents.
12.2 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its
directors, officers, employees, agents, attorneys, or any other Person
affiliated with or representing Bank (each, an “Indemnified Person”) harmless
against: (a) 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 (b) all losses or expenses
(including Bank Expenses) in any way suffered, incurred, or paid by such
Indemnified Person as a result of, following from, or arising from transactions
between Bank and Borrower contemplated by the Loan Documents (including
reasonable attorneys’ fees and expenses), except for Claims and/or losses
directly caused by such Indemnified Person’s gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.
12.5 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.

 

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12.6 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.
12.7 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, is an original, and all taken together, constitute one Agreement.
12.8 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been paid in full and satisfied. The obligation of Borrower in
Section 12.2 to indemnify Bank shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.
12.9 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, that any
prospective transferee or purchaser shall have entered into an agreement
containing provisions substantially the same as those in this Section); (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 becomes part of
the public domain 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 the confidential information for reporting purposes and
the development and distribution of databases and market analyses so long as
such confidential information is aggregated and anonymized prior to distribution
unless otherwise expressly prohibited by Borrower. The provisions of the
immediately preceding sentence shall survive the termination of this Agreement.
12.10 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between
Borrower and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled.
12.11 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.
12.12 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 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.

 

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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, the singular includes the plural,
and numbers denoting amounts that are set off in brackets are negative. As used
in this Agreement, the following capitalized terms have the following meanings:
“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.
“Advance” or “Advances” means an advance (or advances) under the Revolving Line,
either a Prime Rate Advance or a LIBOR Advance.
“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.
“Availability Amount” is the lesser of (a) the Revolving Line and (b) the
greater of (i) $15,000,000 and (ii) the amount available under the Borrowing
Base, minus (x) the Dollar Equivalent amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal
to the Letter of Credit Reserve, minus (y) the outstanding principal balance of
any Advances.
“Bank” is defined in the preamble hereof.
“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, 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 the Credit Parties.
“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 (a) 85% of Eligible Accounts plus (b) the lesser of 50% of
the value of Borrower’s Eligible Inventory (valued at the lower of cost or
wholesale fair market value) or $8,250,000, as determined by Bank from
Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank
may decrease the foregoing amount and percentages in its good faith business
judgment based on events, conditions, contingencies, or risks which, as
determined by Bank, may adversely affect Collateral.
“Borrowing Base Certificate” is that certain certificate in the form attached
hereto as Exhibit E.
“Borrowing Base Period” is any time, and only during such time period, Advances
(plus the sum of undrawn Letters of Credit, drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) exceed $15,000,000.
“Borrowing Base Report” is defined in Section 6.2(a).

 

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“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit F.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed except that if any determination of a “Business Day” shall relate to a
LIBOR Advance, the term “Business Day” shall also mean a day on which dealings
are carried on in the London interbank market.
“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; (d) money market funds
that comply with Rule 2a-7 and are rated AAA; and (e) Wells Fargo WFQXX fund so
long as the investment policy of the aforementioned does not materially change
from the existing policy.
“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of Borrower, is or becomes a beneficial owner
(within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Borrower, representing twenty-five percent (25%) or
more of the combined voting power of Borrower’s then outstanding securities; or
(b) during any period of twelve consecutive calendar months, individuals who at
the beginning of such period constituted the Board of Directors of Borrower
(together with any new directors whose election by the Board of Directors of
Borrower was approved by a vote of not less than two-thirds of the directors
then still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason other than death or disability to constitute a majority of the
directors then in office.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of California, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such
other 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.
“Committed Availability” means, as the date of determination, an amount equal to
the sum of the Availability Amount minus all outstanding Credit Extensions.
“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 D.
“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation, 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.

 

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“Continuation Date” means any date on which Borrower continues a LIBOR Advance
into another Interest Period.
“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.
“Conversion Date” means any date on which Borrower converts a Prime Rate Advance
to a LIBOR Advance or a LIBOR Advance to a Prime Rate Advance.
“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or 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, Letter of Credit, or any other extension of
credit by Bank for Borrower’s benefit.
“Credit Party” means Borrower, and each Guarantor.
“Current Assets” are amounts that under GAAP should be included on that date as
current assets on Borrower’s consolidated balance sheet.
“Current Liabilities” are all obligations and liabilities of Borrower to Bank,
including but not limited to all obligations under the Revolving Line regardless
of date of maturity, plus, without duplication, the aggregate amount of
Borrower’s Total Liabilities that mature within one (1) year.
“Default Rate” is defined in Section 2.3(b).
“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.
“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.
“Designated Deposit Account” is Borrower’s deposit account, account number
3300555413, maintained 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.
“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense and
amortization expense, plus (d) income tax expense, plus (e) to the extent
deducted in the calculation of Net Income, other non-cash items including, but
not limited to, stock-based compensation, changes in inventory and unrealized
foreign exchange losses, and plus (f) other items approved by bank in writing.

 

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“Effective Amount” means with respect to any Advances on any date, the aggregate
outstanding principal amount thereof after giving effect to any borrowing and
prepayments or repayments thereof occurring on such date.
“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;
(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, in which twenty-five percent (25%) or
more of the Accounts 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 unless such Accounts are
otherwise Eligible Accounts and (i) covered in full by credit insurance
satisfactory to Bank, less any deductible, (ii) supported by letter(s) of credit
acceptable to Bank, (iii) supported by a guaranty from the Export-Import Bank of
the United States, or (iv) that Bank otherwise approves of in writing;
(f) Accounts billed and/or payable outside of the United States unless Bank has
a first priority, perfected security interest or other enforceable Lien in such
Accounts under all applicable laws, including foreign laws (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 (excluding accounts under Subsection
(i) hereof), 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;
(i) 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;
(j) 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;
(k) Accounts owing from an Account Debtor that has not been invoiced or where
goods or services have not yet been rendered to the Account Debtor (sometimes
called memo billings or pre-billings);
(l) Accounts subject to contractual arrangements between Borrower and an Account
Debtor where payments shall be scheduled or due according to completion or
fulfillment requirements where the Account Debtor has a right of offset for
damages suffered as a result of Borrower’s failure to perform in accordance with
the contract;

 

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(m) 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);
(n) Accounts subject to trust provisions, subrogation rights of a bonding
company, or a statutory trust;
(o) 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 in its sole
discretion 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);
(p) Accounts for which the Account Debtor has not been invoiced;
(q) Accounts that represent non-trade receivables or that are derived by means
other than in the ordinary course of Borrower’s business;
(r) Accounts for which Borrower has permitted Account Debtor’s payment to extend
beyond 90 days;
(s) Accounts arising from chargebacks, debit memos or others payment deductions
taken by an Account Debtor (but only to the extent the chargeback is determined
invalid and subsequently collected by Borrower);
(t) Accounts arising from product returns and/or exchanges (sometimes called
“warranty” or “RMA” accounts);
(u) 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; and
(v) 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.
“Eligible Inventory” means Inventory that meets all of Borrower’s
representations and warranties in Section 5.3 and is otherwise acceptable to
Bank in all respects.
“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. For clarity, Equipment shall not be
classified as Inventory for purposes of GAAP.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.
“Event of Default” is defined in Section 8.
“Exchange Act” is the Securities Exchange Act of 1934, as amended.
“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.
“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.

 

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“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.
“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.
“Guarantors” is any present or future guarantor of the Obligations, including
Cray Brazil, Inc., Cray Japan, Inc., Cray Korea, Inc. and Cray Taiwan, Inc.
“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 12.2.
“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 all of a Credit Party’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, operating manuals;
(c) any and all source code;
(d) any and all design rights which may be available to a Borrower;
(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.
“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower and its Subsidiaries,
including, without limitation or duplication, all commissions, discounts, or
related amortization and other fees and charges with respect to letters of
credit and bankers’ acceptance financing and the net costs associated with
interest rate swap, cap, and similar arrangements, and the interest portion of
any deferred payment obligation (including leases of all types).

 

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“Interest Payment Date” means, with respect to any LIBOR Advance, the last day
of each Interest Period applicable to such LIBOR Advance, but in no event less
frequently than quarterly, and with respect to Prime Rate Advances, the first
day of each month (or, if that day of the month does not fall on a Business Day,
then on the first Business Day following such date), and each date a Prime Rate
Advance is converted into a LIBOR Advance to the extent of the amount converted
to a LIBOR Advance.
“Interest Period” means, as to any LIBOR Advance, the period commencing on the
date of such LIBOR Advance, or on the conversion/continuation date on which the
LIBOR Advance is converted into or continued as a LIBOR Advance, and ending on
the date that is 1, 2, 3 or 6 months thereafter, in each case as Borrower may
elect in the applicable Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that (a) no Interest Period with
respect to any LIBOR Advance shall end later than the Revolving Line Maturity
Date, (b) the last day of an Interest Period shall be determined in accordance
with the practices of the LIBOR interbank market as from time to time in effect,
(c) if any Interest Period would otherwise end on a day that is not a Business
Day, that Interest Period shall be extended to the following Business Day
unless, in the case of a LIBOR Advance, the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day, (d) any Interest Period
pertaining to a LIBOR Advance that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period, and
(e) interest shall accrue from and include the first Business Day of an Interest
Period but exclude the last Business Day of such Interest Period.
“Interest Rate Determination Date” means each date for calculating the LIBOR for
purposes of determining the interest rate in respect of an Interest Period. The
Interest Rate Determination Date shall be the second Business Day prior to the
first day of the related Interest Period for a LIBOR Advance.
“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.
“IP Agreement” is that certain Intellectual Property Security Agreement executed
and delivered by Borrower to Bank dated as of the Effective Date.
“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.
“Letter of Credit Application” is defined in Section 2.1.2(b).
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(e).
“Leverage Ratio” is, as of the last day of any period, the ratio of (a) total
Indebtedness on such day to (b) trailing twelve month EBITDA for such period.
“LIBOR” means, for any Interest Rate Determination Date with respect to an
Interest Period for any Advance to be made, continued as or converted into a
LIBOR Advance, the rate of interest per annum determined by Bank to be the per
annum rate of interest at which deposits in United States Dollars are offered to
Bank in the London interbank market (rounded upward, if necessary, to the
nearest 0.0001%) in which Bank customarily participates at 11:00 a.m. (local
time in such interbank market) two (2) Business Days prior to the first day of
such Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Advance.
“LIBOR Advance” means an Advance that bears interest based at the LIBOR Rate.

 

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“LIBOR Rate” means, for each Interest Period in respect of LIBOR Advances
comprising part of the same Advances, an interest rate per annum (rounded
upward, if necessary, to the nearest 0.0001%) equal to LIBOR for such Interest
Period divided by one (1) minus the Reserve Requirement for such Interest
Period.
“LIBOR Rate Margin” means, from time to time, the following percentages per
annum, based upon the Borrower’s Leverage Ratio, as set forth below:

              Applicable Margin for   Leverage Ratio   LIBOR Advances and
Letter of Credit Fees  
Less than or equal to 1.00:1.00
    3.25 %
Greater than 1.00:1.00
    3.75 %

“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.
“Loan Documents” are, collectively, this Agreement, the Perfection Certificates,
the IP Agreement, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower any
Guarantor and/or for the benefit of Bank in connection with this Agreement, all
as amended, restated, or otherwise modified.
“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; or (c) a material impairment of the
prospect of repayment of any portion of the Obligations.
“Material Contract” means (a) any contract or other written agreement described
in the Perfection Certificate; (b) any contract or other agreement of Borrower
and any Subsidiary involving monetary liability of or to any such Person in an
amount in excess of Seventy-Five Million Dollars ($75,000,000); and (c) any
other contract, agreement, permit or license, written or oral, of Borrower and
any Subsidiary as to which the breach, nonperformance, cancellation of, failure
to renew by any party thereto, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Change.
“Material Indebtedness” is any Indebtedness the principal amount of which,
individually or in the aggregate, is equal to or greater than One Million
Dollars ($1,000,000).
“Net Income” means, as calculated on a consolidated basis for Borrower and its
Subsidiaries for any period, the net profit (or loss), after provision for
taxes, of Borrower and its Subsidiaries for such period taken as a single
accounting period.
“Notice of Borrowing” means a notice given by Borrower to Bank in accordance
with Section 3.2(a), substantially in the form of Exhibit B, with appropriate
insertions.
“Notice of Conversion/Continuation” means a notice given by Borrower to Bank in
accordance with Section 3.5, substantially in the form of Exhibit C, with
appropriate insertions.
“Obligations” are any Credit Party’s obligations to pay when due any debts,
principal, interest, Bank Expenses and other amounts any Credit Party owes Bank
now or later, whether under this Agreement, the Loan Documents, or otherwise,
including, without limitation, all obligations relating to letters of credit
(including reimbursement obligations for drawn and undrawn letters of credit),
cash management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of any Credit Party assigned to Bank, and to perform any Credit
Party’s duties under the Loan Documents.

 

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“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.
“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.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Distributions” are:
(a) purchases of capital stock from former employees, consultants and directors
pursuant to repurchase agreements or other similar agreements in an aggregate
amount not to exceed $1,000,000 in any fiscal year provided that at the time of
such purchase no Event of Default has occurred and is continuing;
(b) distributions or dividends consisting solely of Borrower’s capital stock;
(c) purchases for value of any rights distributed in connection with any
stockholder rights plan;
(d) purchases of capital stock or options to acquire such capital stock with the
proceeds received from a substantially concurrent issuance of capital stock or
convertible securities;
(e) purchases of capital stock pledged as collateral for loans to employees;
(f) purchases of capital stock in connection with the exercise of stock options
or stock appreciation rights by way of cashless exercise or in connection with
the satisfaction of withholding tax obligations; and
(g) purchases of fractional shares of capital stock arising out of stock
dividends, splits or combinations or business combinations.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;
(b) (i) any Indebtedness existing on the Effective Date that does not exceed
$100,000 in an aggregate principal amount, and (ii) any Indebtedness existing on
the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) guaranties of Permitted Indebtedness;
(f) Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;
(g) Indebtedness consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements entered into
in the ordinary course of business and designated to protect Borrower or its
Subsidiaries against fluctuations in interest rates, currency exchange rates, or
commodity prices;

 

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(h) Indebtedness between Borrower and any of its Subsidiaries or among any of
Borrower’s Subsidiaries;
(i) Indebtedness with respect to documentary letters of credit;
(j) capitalized leases and purchase money Indebtedness not to exceed $2,500,000
in the aggregate in any fiscal year secured by Liens permitted under clause
(c) of the definition of “Permitted Liens”;
(k) Indebtedness of entities acquired in any permitted merger or acquisition
transaction;
(l) extensions, renewals and refinancings of Permitted Indebtedness, provided
that the amount of such Indebtedness is not increased except by an amount equal
to a reasonable premium or other reasonable amount paid in connection with such
refinancing and by an amount equal to any existing, but unutilized, commitment
thereunder; and
(m) other unsecured indebtedness incurred by non-Credit Parties;
(n) other Indebtedness, if, on the date of incurring any Indebtedness pursuant
to this clause (m), the outstanding aggregate amount of all Indebtedness
incurred pursuant to this clause (m) does not exceed $500,000.
“Permitted Investments” are:
(a) Investments (including, without limitation, Subsidiaries) existing on the
Effective Date;
(b) Investments consisting of (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or its agencies or any State
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 2 years after its creation and having the highest rating from either
Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., (iii) Bank’s
certificates of deposit maturing no more than 2 years after issue; and
(iv) money market funds that comply with Rule 2a-7 and are rated AAA;
(c) Investments approved by Borrower’s Board of Directors or otherwise pursuant
to a Board-approved investment policy;
(d) Investments (i) by a Credit Party in another Credit Party; (ii) by a Credit
Party in a non-Credit Party for operating expenses and tax obligations in the
ordinary course of business; (iii) other Investments by a Credit Party in a
non-Credit Party not to exceed One Million Dollars ($1,000,000) in the
aggregate;
(e) Investments consisting of Collateral Accounts in the name of Borrower or any
Subsidiary so long as Bank has a first priority, perfected security interest in
such Collateral Accounts;
(f) Investments consisting of extensions of credit to Borrower’s or its
Subsidiaries’ customers in the nature of accounts receivable, prepaid royalties
or notes receivable in the ordinary course of business arising from the sale or
lease of goods, provision of services or licensing activities of Borrower;
(g) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
(h) Investments consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements entered into
in the ordinary course of business and designated to protect a Person against
fluctuations in interest rates, currency exchange rates, or commodity prices;
(i) Investments consisting of (i) travel advances and employee relocation loans
and other employee loans and advances in the ordinary course of business, and
(ii) loans to employees relating to the purchase of equity securities of
Borrower or its Subsidiaries pursuant to employee stock purchase plans or
agreements approved by Borrower’s Board of in an aggregate amount outstanding at
any time not to exceed $1,000,000;
(j) Investments permitted by Section 7.3; and

 

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(k) joint ventures or strategic alliances in the ordinary course of Borrower’s
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided that
any cash investments by Borrower do not exceed One Million Dollars ($1,000,000)
in the aggregate in any fiscal year.
“Permitted Liens” are:
(a) (i) Liens securing Indebtedness under clause (b)(ii) or (k) of the
definition of “Permitted Indebtedness” hereunder, and (ii) Liens arising under
this Agreement and the other Loan Documents
(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) Liens (including with respect to capital leases) (i) on property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) acquired or held by Borrower or
its Subsidiaries incurred for financing such property (including accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto,
and the proceeds thereof) other than Accounts, Inventory, and Financed
Equipment, or (ii) existing on property (and accessions, additions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds
thereof) when acquired other than Accounts, Inventory, and Financed Equipment,
if the Lien is confined to such property (including accessions, additions,
parts, replacements, fixtures, improvements and attachments thereto, and the
proceeds thereof);
(d) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (c), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness it secures may not increase;
(e) Liens of carriers, warehousemen, suppliers, or other Persons that are
possessory in nature arising in the ordinary course of business so long as such
Liens attach only to Inventory, securing liabilities in the aggregate amount not
to exceed One Million Dollars ($1,000,000) and which are not delinquent or
remain payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;
(f) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than Liens imposed by ERISA);
(g) leases or subleases of real property granted in the ordinary course of
Borrower’s business (or, if referring to another Person, in the ordinary course
of such Person’s business), and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of Borrower’s business (or, if referring to another Person,
in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest
therein;
(h) non-exclusive license of Intellectual Property granted to third parties in
the ordinary course of business, and licenses of Intellectual Property that
could not result in a legal transfer of title of the licensed property that may
be exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas;
(i) Liens in favor of custom and revenue authorities arising as a matter of law
to secure the payment of custom duties in connection with the importation of
goods;
(j) customary Liens granted in favor of a trustee to secure fees and other
amounts owing to such trustee under an indenture or other similar agreement;
(k) Liens on assets acquired in mergers and acquisitions not prohibited by
Section 7 of this Agreement;

 

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(l) Liens consisting of pledges of cash, cash equivalents or government
securities to secure swap or foreign exchange contracts or letters of credit,
provided that the amount of all such Liens does not exceed $250,000;
(m) Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;
(n) Liens in favor of other financial institutions arising in connection with
Borrower’s deposit and/or securities accounts held at such institutions,
provided that Bank has a perfected security interest in the amounts held in such
deposit and/or securities accounts;
(o) deposits to secure the performance of bids, trade contracts (other than for
borrowed money), contracts for the purchase of property, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature, in each case, incurred in the ordinary course of business and not
representing an obligation for borrowed money; and
(p) Liens not otherwise described above, provided that (i) the amount of all
such Liens at any time outstanding is not in excess of $500,000 and (ii) such
Liens are subordinate in priority to Bank’s Lien hereunder.
“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
“Prime Rate” is the higher of (a) the prime rate published in the Western
edition of The Wall Street Journal, and (b) the federal funds rate plus 0.50%,
in each case on any date of determination.
“Prime Rate Advance” means an Advance that bears interest based at the Prime
Rate.
“Prime Rate Margin” means, from time to time, the following percentages per
annum, based upon the Borrower’s Leverage Ratio, as set forth below:

              Applicable Margin for   Leverage Ratio   Prime Rate Advances  
Less than or equal to 1.00:1.00
    1.00 %
Greater than 1.00:1.00
    1.50 %

“Quick Assets” is, on any date, Borrower’s consolidated, unrestricted cash and
Cash Equivalents, net billed accounts receivable and investments with maturities
of fewer than 12 months, determined according to GAAP.
“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.
“Regulatory Change” means, with respect to Bank, any change on or after the date
of this Agreement in United States federal, state, or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives, or requests applying to a class of
lenders including Bank, of or under any United States federal or state, or any
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
“Reserve Requirement” means, for any Interest Period, the average maximum rate
at which reserves (including any marginal, supplemental, or emergency reserves)
are required to be maintained during such Interest Period under Regulation D
against “Eurocurrency liabilities” (as such term is used in Regulation D) by
member banks of the Federal Reserve System. Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by Bank by reason of any Regulatory Change against (a) any
category of liabilities which includes deposits by reference to which the LIBOR
Rate is to be determined as provided in the definition of LIBOR or (b) any
category of extensions of credit or other assets which include Advances.

 

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“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 to reflect usage of cash management products provided
by Bank.
“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.
“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 the Bank’s right to sell any Collateral.
“Revolving Line” is an Advance or Advances in an amount equal to Twenty-Five
Million Dollars ($25,000,000).
“Revolving Line Maturity Date” is September 13, 2012.
“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.
“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.
“Settlement Date” is defined in Section 2.1.3.
“Subordinated Debt” (a) Indebtedness incurred by Borrower subordinated to
Borrower’s Indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form reasonably acceptable to Bank and approved by
Bank in writing, and (b) to the extent the terms of subordination do not change
adversely to Bank, refinancings, refundings, renewals, amendments or extensions
of any of the foregoing.
“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.
“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness.
“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.
“Transfer” is defined in Section 7.1.
“Unused Revolving Line Facility Fee” is defined in Section 2.4(c).
[Signature page follows.]

 

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

          BORROWER:    
 
        CRAY INC.    
 
       
By:
  /s/ Brian C. Henry
 
Name: Brian C. Henry    
 
  Title:   EVP & CFO    
 
        BANK:    
 
        SILICON VALLEY BANK    
 
       
By:
  /s/ Jay Wefel
 
Name: Jay Wefel    
 
  Title:   Relationship Manager    

 

 

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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, commercial tort claims, documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), securities, and all
other investment property (excluding that certain investment account (Account
Number 12894275) of Borrower at Wells Fargo Bank, National Association),
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 more than 65% of
the presently existing and hereafter arising issued and outstanding shares of
capital stock owned by Borrower of any Foreign Subsidiary which shares entitle
the holder thereof to vote for directors or any other matter.

 

 

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EXHIBIT B — [FORM OF] NOTICE OF BORROWING
CRAY INC.
Date:                     

     
To:
  Silicon Valley Bank
 
  3003 Tasman Drive
 
  Santa Clara, CA 95054
 
  Attention: Corporate Services Department
 
   
Re:
  Loan and Security Agreement dated as of September 13, 2010 (as amended,
modified, supplemented or restated from time to time, the “Loan Agreement”), by
and between Cray Inc. (“Borrower”), and Silicon Valley Bank (“SVB”)

Ladies and Gentlemen:
The undersigned refers to the Loan Agreement, the terms defined therein and used
herein as so defined, and hereby gives you notice irrevocably, pursuant to
Section 3.5 of the Loan Agreement, of its request for an Advance.
1. The requested Borrowing Date, which shall be a Business Day, is
                    .
2. The aggregate amount of the requested Advance is $                    .
3. The requested Advance shall consist of $                     of Prime Rate
Advance and $                     of LIBOR Advance.
4. The duration of the Interest Period for the LIBOR Advance included in the
requested Advance shall be                     [1, 2, 3 or 6] months.
5. The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the proposed Advance before and
after giving effect thereto, and to the application of the proceeds therefrom,
as applicable:
(a) each of the representations and warranties made by any Credit Party in or
pursuant to the Loan Documents shall be true and correct in all material
respects on and as of such date as if made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier date,
in which case such representations and warranties shall have been true and
correct in all material respects as of such earlier date;
(b) no Default or Event of Default shall have occurred as of or on such date or
after giving effect to the extensions of credit requested to be made on such
date; and
(c) the requested Advance will not, when added to the aggregate undrawn amount
of all outstanding Letters of Credit, exceed the Availability Amount.

 

 

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            CRAY INC.
      By:           Name:           Title:      

For internal Bank use only

                          Eurodollar Pricing Date   Eurodollar Rate    
Eurodollar Variance     Maturity Date  
 
            ——————— %        

 

 

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EXHIBIT C — [FORM OF] NOTICE OF CONVERSION/CONTINUATION
CRAY INC.
Date:                     

     
To:
  Silicon Valley Bank
 
  3003 Tasman Drive
 
  Santa Clara, CA 95054
 
  Attention: Corporate Services Department
 
   
Re:
  Loan and Security Agreement dated as of September 13, 2010 (as amended,
modified, supplemented or restated from time to time, the “Loan Agreement”), by
and between Cray Inc. (“Borrower”), and Silicon Valley Bank (“SVB”)

Ladies and Gentlemen:
The undersigned refers to the Loan Agreement, the terms defined therein being
used herein as therein defined, and hereby gives you notice irrevocably,
pursuant to Section 3.6 of the Loan Agreement, of the [conversion]
[continuation] of the Advances specified herein, that:
1. The date of the [conversion] [continuation] is                     , 20_____.
2. The aggregate amount of the proposed Advances to be [converted] is
$                     or [continued] is $                    .
3. The Advances are to be [converted into] [continued as] [LIBOR] [Prime Rate]
Advances.
4. The duration of the Interest Period for the LIBOR Advances included in the
[conversion] [continuation] shall be                      months.
5. The undersigned, on behalf of Borrower, hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
proposed [conversion] [continuation], before and after giving effect thereto and
to the application of the proceeds therefrom:
(a) each of the representations and warranties made by any Credit Party in or
pursuant to the Loan Documents shall be true and correct in all material
respects on and as of such date as if made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier date,
in which case such representations and warranties shall have been true and
correct in all material respects as of such earlier date; and
(b) no Default or Event of Default shall have occurred as of or on such date or
after giving effect to the [conversion] [continuation] requested to be made on
such date.

            CRAY INC.
      By:           Name:           Title:        

 

 

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EXHIBIT D
COMPLIANCE CERTIFICATE

      TO: SILICON VALLEY BANK   Date:                      FROM: CRAY INC.    

The undersigned authorized officer of Cray 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 Covenant   Required   Complies  
 
           
Quarterly financial statements with Compliance Certificate
  Quarterly within 45 days   Yes No
Annual financial statement (CPA Audited) + CC
  FYE within 90 days   Yes No
10-Q, 10-K and 8-K
  Within 5 days after filing with SEC   Yes No
Borrowing Base Certificate; A/R & A/P Agings; deferred revenue report
  Quarterly within 45 days when Advances exceed $15,000,000 only   Yes No

The following Intellectual Property was registered (or a registration
application submitted) after the Effective Date (if no registrations, state
“None”)

                          Financial Covenant   Required     Actual     Complies
   
Maintain on a Quarterly Basis:
                       
Minimum Adjusted Quick Ratio
  1.15:1.0       _________:1.0     Yes No
Minimum TTM EBITDA: [see Schedule 1 below for historical EBITDA numbers]
                       
September 30, 2010
  ($25,000,000)     $ ___________     Yes No
December 31, 2010
  $0     $ ___________     Yes No
March 31, 2011 and thereafter
  $5,000,000 or
based on Board
projections                

 

 

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                      Performance Pricing     Applies  
 
  LIBOR RATE       Prime Rate          
Leverage Ratio > 1.00
    L + 3.75%       P + 1.50 %   Yes    No
Leverage Ratio < or equal to 1.00
    L + 3.25%        P + 1.00 %   Yes    No

The following financial covenant analys[is][es] and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.
The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)
 
 
 

                  CRAY INC.       BANK USE ONLY
 
               
By: 
          Received by:    
 
             
 
Name:              authorized signer
 
               
 
Title:          Date:    
 
               
 
               
 
          Verified:    
 
               
 
              authorized signer  
 
          Date:    
 
                              Compliance Status: Yes No

 

2

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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. Adjusted Quick Ratio (Section 6.7(a))
Required: 1.15:1.00
Actual:

         
A. Aggregate value of the unrestricted cash and cash equivalents of Borrower and
its Subsidiaries
  $                       
 
       
B. Aggregate value of the net billed accounts receivable of Borrower and its
Subsidiaries
  $                       
 
       
C. Aggregate value of the Investments with maturities of fewer than 12 months of
Borrower and it Subsidiaries
  $                       
 
       
D. Quick Assets (the sum of lines A through C)
  $                       
 
       
E. Aggregate value of Obligations to Bank
  $                       
 
       
F. Aggregate value of liabilities that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all
Indebtedness, and not otherwise reflected in line E above that matures within
one (1) year
  $                       
 
       
G. Current Liabilities (the sum of lines E and F)
  $                       
 
       
H. Aggregate value of all amounts received or invoiced by Borrower in advance of
performance under contracts and not yet recognized as revenue
  $                       
 
       
I. Line G minus line H
  $                       
 
       
J. Quick Ratio (line D divided by line I)
       

Is line J equal to or greater than 1.15:1:00?

     
                     No, not in compliance
                       Yes, in compliance

 

3

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II. TTM EBITDA (Section 6.7(b))
Required: See chart below

      Period   Minimum EBITDA   September 30, 2010   $(25,000,000)  
December 31, 2010   $0   March 31, 2011 and thereafter   $5,000,000 or as
established by Bank based on projections provided by Borrower

Actual:

         
A. Net Income
  $                       
 
       
B. To the extent included in the determination of Net Income
       
 
       
1. Income tax expense
  $                       
 
       
2. Depreciation expense
  $                       
 
       
3. Amortization expense
  $                       
 
       
4. Net Interest Expense
  $                       
 
       
5. Stock-based compensation
  $                       
 
       
6. Unrealized foreign exchange losses
  $                       
 
       
7. The sum of lines 1 through 6
  $                       
 
       
C. EBITDA (line A plus line B.7)1
                          

Is line C equal to or greater than the amount required per the chart above?

     
                     No, not in compliance
                       Yes, in compliance

 

      1  
EBITDA shall be deemed to be $3,379,000 for the fiscal quarter ending
September 30, 2009, $6,237,000 for the fiscal quarter ending December 31, 2009,
and ($7,803,000) for the fiscal quarter ending March 31, 2010.

 

4

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Performance Pricing
Leverage Ratio (Section 2.3)
Required:

                      Applicable Margin for   Applicable Margin for       LIBOR
Advances and   Prime Advances and   Leverage Ratio   Letter of Credit Fees  
Letter of Credit Fees  
Less than or equal to 1.00:1.00
      3.25 %     1.00 %
Greater than 1.00:1.00
      3.75 %     1.50 %

Actual:

         
A. Total Indebtedness
  $                                   
 
       
B. EBITDA (line II.C.)
  $                                    
 
       
C. Leverage Ratio (line A divided by line B)
                                      

What is the applicable performance pricing per the chart above?

 

 

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EXHIBIT E — BORROWING BASE CERTIFICATE
Borrower: Cray Inc.
Lender: Silicon Valley Bank
Commitment Amount: $25,000,000

         
ACCOUNTS RECEIVABLE
       
1. Accounts Receivable (invoiced) Book Value as of                     
  $                       
2. Additions (please explain on reverse)
  $                       
3. TOTAL ACCOUNTS RECEIVABLE
  $                       
 
       
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
       
4. 90 Days Past Invoice Date
  $                       
5. Balance of 50% over 90 Day Accounts
  $                       
6. Foreign Account Debtor Accounts
  $                       
7. Foreign Invoiced Accounts
  $                       
8. Contra/Customer Deposit Accounts
  $                       
9. Intercompany/Employee Accounts
  $                       
10. Credit Balances over 90 Days
  $                       
11. Concentration Limits (excluding accounts under #12)
  $                       
12. U.S. Governmental Accounts, unless pursuant to Assignment of Claims
  $                       
13. Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts
  $                       
14. Accounts with Progress/Milestone/Pre-billings; Contract Accounts
  $                       
15. Accounts for Retainage Billings
  $                       
16. Trust Accounts
  $                       
17. Bill and Hold Accounts
  $                       
18. Unbilled Accounts
  $                       
19. Non-Trade Accounts
  $                       
20. Accounts with Extended Term Invoices
  $                       
21. Accounts Subject to Chargebacks
  $                       
22. Disputed Accounts
  $                       
23. Other (please explain on reverse)
  $                       
24. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
  $                       
25. Eligible Accounts (#3 minus #24)
  $                       
26. ELIGIBLE AMOUNT OF ACCOUNTS ( 85% of #25)
  $                       
 
       
INVENTORY
       
27. Eligible Inventory Value as of                     
  $                       
28. ELIGIBLE AMOUNT OF INVENTORY (lesser of 50% of #27 and $8,250,000)
  $                       
 
       
BALANCES
       
29. Maximum Loan Amount
  $                       
30. Total Funds Available [Lesser of #29 or (#26 plus #28)]
  $                       
31. Present balance owing on Line of Credit
  $                       
32. Outstanding under Letters of Credit Sublimit
  $                       
33. Reserves for cash management services
  $                       
34. RESERVE POSITION (#30 minus #31, #32 and #33)
  $                       

[Continued on following page.]

 

 

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The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

                  COMMENTS:       BANK USE ONLY

 
          Received by:                                           
 
              authorized signer
 
          Date:                                                               
By:
                                                 Verified:  
                                                            
 
  Authorized Signer           authorized signer
Date:
                                                 Date:  
                                                                          
Compliance Status: Yes No

 

 

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EXHIBIT F — CORPORATE BORROWING CERTIFICATE

         
Borrower:
  Cray Inc.   Date:                     
Bank:
  Silicon Valley Bank    
 
       
 
  I hereby certify as follows, as of the date set forth above:    

1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My
title is as set forth below.
2. Borrower’s exact legal name is set forth above. Borrower is a corporation
existing under the laws of the state of Washington.
3. Attached hereto are true, correct and complete copies of Borrower’s
Certificate of Incorporation (including amendments), as filed with the Secretary
of State of the state in which Borrower is incorporated as set forth in
paragraph 1 above. Such Certificate of Incorporation have not been amended,
annulled, rescinded, revoked or supplemented, and remain in full force and
effect as of the date hereof.
4. The following resolutions were duly and validly adopted by Borrower’s Board
of Directors or by a Committee of the Board of Directors duly authorized to
adopt such resolutions at a duly held meeting of such directors or Committee (or
pursuant to a unanimous written consent or other authorized corporate action).
Such resolutions are in full force and effect as of the date hereof and have not
been in any way modified, repealed, rescinded, amended or revoked, and Bank may
rely on them until Bank receives written notice of revocation from Borrower.
Resolved, that any one of the following officers or employees of Borrower, whose
names, titles and signatures are below, may act on behalf of Borrower with
respect to the Silicon Valley Bank Loan and Security Agreement:

                          Authorized to             Add or Remove Name   Title  
Signature   Signatories                                                        
                                                                  
                       o                                                        
                                                                  
                       o                                                        
                                                                  
                       o                                                        
                                                                  
                       o

Resolved Further, that any one of the persons designated above with a checked
box beside his or her name may, from time to time, add or remove any individuals
to and from the above list of persons authorized to act on behalf of Borrower
with respect to the Silicon Valley Bank Loan and Security Agreement.
Resolved Further, that such individuals may, on behalf of Borrower:
Borrow Money. Borrow money from Silicon Valley Bank (“Bank”).
Execute Loan Documents. Execute any loan documents Bank requires.
Grant Security. Grant Bank a security interest in any of Borrower’s assets.
Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory
notes, or other indebtedness in which Borrower has an interest and receive cash
or otherwise use the proceeds.
Letters of Credit. Apply for letters of credit from Bank.
Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.

 

 

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

 

Further Acts. Designate other individuals to request advances, pay fees and
costs and execute other documents or agreements (including documents or
agreement that waive Borrower’s right to a jury trial) they believe to be
necessary to effectuate such resolutions.
Resolved Further, that all acts authorized by the above resolutions and any
prior acts relating thereto are ratified.
5. The persons listed above are Borrower’s officers or employees with their
titles and signatures shown next to their names.

            By:           Name:           Title:        

      ***  
If the Secretary, Assistant Secretary or other certifying officer executing
above is designated by the resolutions set forth in paragraph 4 as one of the
authorized signing officers, this Certificate must also be signed by a second
authorized officer or director of Borrower.

I, the                                     of Borrower, hereby certify as to
paragraphs 1 through 5 above, as of the date set forth above.
[print title]

            By:           Name:           Title: