Document:

Exhibit 10.1

 

EXECUTION VERSION

 

SECOND AMENDMENT TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

Dated as of March 20, 2017

 

This SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is by and among MERIT MEDICAL SYSTEMS, INC., a Utah corporation (the “Borrower”), certain subsidiaries of the Borrower party hereto (the “Subsidiary Guarantors”), the lenders who are party to this Amendment (the “Consenting Lenders”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).

 

PRELIMINARY STATEMENTS

 

WHEREAS, the Borrower, the lenders party thereto (the “Lenders”), and the Administrative Agent entered into that certain Second Amended and Restated Credit Agreement dated as of July 6, 2016 (as amended by that certain First Amendment to Second Amended and Restated Credit Agreement dated as of September 28, 2016, as amended hereby and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”); and

 

WHEREAS, the Borrower requested that the Administrative Agent and the Lenders agree to amend the Credit Agreement as specifically set forth herein and, subject to the terms of this Amendment, the Administrative Agent and the Consenting Lenders have agreed to grant such request of the Borrower.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

Section 1.                                           Capitalized Terms.  All capitalized terms not otherwise defined in this Amendment (including without limitation in the introductory paragraph and the Preliminary Statements hereto) shall have the meanings as specified in the Credit Agreement.

 

Section 2.                                           Amendments to Credit Agreement.  Subject to and in accordance with the terms and conditions set forth herein, the Administrative Agent and each of the Consenting Lenders hereby agrees as follows:

 

(a)                                 Section 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in appropriate alphabetical order:

 

““Second Amendment” means that certain Second Amendment to Second Amended and Restated Credit Agreement dated as of the Second Amendment Effective Date.”

 

““Second Amendment Effective Date” means March 20, 2017.”

 

(b)                                 Section 1.1 of the Credit Agreement is hereby amended by amending and restating the following definitions:

 

““Consolidated Total Funded Indebtedness” means, as of any date of determination with respect to the Borrower and its Subsidiaries on a Consolidated basis without duplication, the sum of all Indebtedness of the Borrower and its Subsidiaries

 

 

described in, clauses (a), (c), (f) and (i) of the definition of “Indebtedness”, but excluding (i) intercompany indebtedness among the Credit Parties and (ii) the Merit China Loan.”

 

““Merit China Loan” means a loan transaction pursuant to the following:  (a) the issuance of one or more standby letter(s) of credit for the account of Merit China in favor of HSBC Bank (Hong Kong) (the “HSBC LC”) in an aggregate face amount equal to the renminbi equivalent of $15,000,000, which is secured by cash of Merit China in amount equal to 100% of the face amount of the HSBC LC; (b) the making of one or more loan(s) by HSBC Bank (Hong Kong) to Merit HK in an aggregate amount equal to the face amount of the HSBC LC (the “HK Loan”), which is secured by the HSBC LC; and (c) the making of an intercompany loan by Merit HK to Merit Ireland with the proceeds of the HK Loan and the subsequent repayment by Merit Ireland of one or more existing intercompany loan(s) in an aggregate amount of $15,000,000 to the Borrower.”

 

(c)                                  Section 2.4(d) of the Credit Agreement is hereby amended by amending and restating the provision in its entirety to read as follows:

 

“(d)                           Prepayment of Revolving Credit Loans in connection with Mandatory Prepayments. In the event (i) proceeds remain after the prepayments of Term Loan Facility pursuant to Section 4.4(b)(vi)(B), (ii) proceeds remain after the prepayments of Term Loan Facility pursuant to Section 4.4(b)(vi)(C)(1) or Section 4.4(b)(vi)(C)(4) or (iii) the Borrower elects to use the Net Cash Proceeds of an Equity Issuance to repay the Revolving Extensions of Credit pursuant to Section 4.4(b)(vi)(C)(2) or Section 4.4(b)(vi)(C)(3), the amount of such proceeds shall be used on the date of the required prepayment under Section 4.4(b) to prepay the outstanding principal amount of the Revolving Extensions of Credit, either with or without a corresponding reduction of the Revolving Credit Commitment (as specified in the applicable provision under which the prepayment is made), in each case, with remaining proceeds, if any, refunded to the Borrower. Each prepayment of the Revolving Extensions of Credit pursuant to this subsection (d) shall be applied (1) first, to the principal amount of outstanding Swingline Loans until paid in full, (2) second to the principal amount of outstanding Revolving Credit Loans until paid in full and (3) third, with respect to any Letters of Credit then outstanding, a payment of Cash Collateral into a Cash Collateral account opened by the Administrative Agent, for the benefit of the Revolving Credit Lenders, in an amount equal to the aggregate L/C Obligations then outstanding (such Cash Collateral to be applied in accordance with Section 12.2(b)).”

 

(d)                                 Section 4.4(b) of the Credit Agreement is hereby amended by:

 

(i)                                     amending and restating clause (vi) thereof in its entirety to read as follows:

 

“(vi)                        Notice; Manner of Payment.

 

(A)                               Upon the occurrence of any event triggering the prepayment requirement under clauses (i) through (v) above, the Borrower shall promptly deliver a Notice of Prepayment to the Administrative Agent (which notice shall, in addition to providing the information contemplated by Exhibit D, identify the sub-clause of this Section 4.4(b)(vi) under which the applicable prepayment will be applied and, to the extent applicable under Section 4.4(b)(vi)(C)(4), the amount

 

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of each applicable Loan elected to be prepaid), and upon receipt of such notice, the Administrative Agent shall promptly so notify the Lenders.

 

(B)                            Each prepayment of the Extensions of Credit under clauses (i), (iii), (iv) and (v) of this Section 4.4(b) shall be applied as follows: (1) first, ratably between the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans to reduce in inverse order of maturity the remaining scheduled principal installments of the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans and (2) second, to the extent of any excess, to repay the Revolving Extensions of Credit pursuant to Section 2.4(d), without a corresponding reduction in the Revolving Credit Commitment.

 

(C)                               Each prepayment of the Extensions of Credit under clause (ii) of this Section 4.4(b) shall be applied, in the Borrower’s sole discretion, in one of the following ways:

 

(1)                                 (x) first, ratably between the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans to reduce in inverse order of maturity the remaining scheduled principal installments of the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans, and (y) second, to the extent of any excess, to repay the Revolving Extensions of Credit pursuant to Section 2.4(d), without a corresponding reduction in the Revolving Credit Commitment; or

 

(2)                                 (x) first, to repay the Revolving Extensions of Credit in accordance with Section 2.4(d), without a corresponding reduction in the Revolving Credit Commitment and (y) second, to the extent of any excess, ratably between the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans to reduce in inverse order of maturity the remaining scheduled principal installments of the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans; or

 

(3)                                 (x) first, to repay the Revolving Extensions of Credit in accordance with Section 2.4(d), with a corresponding permanent reduction in the Revolving Credit Commitment in accordance with Section 2.5 and (y) second, to the extent of any excess, ratably between the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans to reduce in inverse order of maturity the remaining scheduled principal installments of the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans; or

 

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(4)                                 solely to the extent that the Net Cash Proceeds from the applicable Equity Issuance exceed $50,000,000 (provided, for clarity, that the Borrower will not be required to elect prepayment in accordance with this clause (4) of Section 4.4(b)(vi)(C) if the Net Cash Proceeds from the applicable Equity Issuance exceed $50,000,000), (x) first, ratably between the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans to reduce in inverse order of maturity the remaining scheduled principal installments of the Initial Term Loans and (unless otherwise agreed by the applicable Incremental Lenders) any Incremental Term Loans in an aggregate amount of not less than $50,000,000, and (y) second, to the extent of any remaining amount, to repay the Revolving Extensions of Credit pursuant to Section 2.4(d), without a corresponding reduction in the Revolving Credit Commitment.

 

(e)                                  Section 10.1 of the Credit Agreement is hereby amended by adding the following proviso to the end of such Section:

 

“provided, however, if the Borrower elects to apply a mandatory prepayment required by Section 4.4(b)(ii) pursuant to Section 4.4(b)(vi)(C)(2) or Section 4.4(b)(vi)(C)(4) at any time prior to December 31, 2017, then the Borrower shall not permit the Consolidated Total Leverage Ratio as of the end of any fiscal quarter occurring after the date of application of such mandatory prepayment through, and including, March 31, 2018 to be greater than 3.50 to 1.00.”

 

(f)                                   Section 11.1 of the Credit Agreement is hereby amended by amending and restating subsection (b)(iii)(ii) thereof in its entirety to read as follows:

 

“(ii)                            incurred after the Closing Date in an aggregate principal amount not to exceed at any time outstanding (1) $50,000,000 less (2) the amount of Guaranty Obligations incurred pursuant to Section 11.1(i) on the applicable date of determination less (3) the amount of Investments made in the form of Permitted Acquisitions pursuant to Section 11.3(e)(ii) during the term of this Agreement on the applicable date of determination (which amount, for clarity, is subject to modification in the manner set forth in the proviso to Section 11.3(e)(ii)) less (4) the amount of Investments made pursuant to Section 11.3(g) during the term of this Agreement on the applicable date of determination; and”

 

(g)                                  Section 11.1 of the Credit Agreement is hereby amended by amending and restating subsection (i) thereof in its entirety to read as follows:

 

“(i)                               Guaranty Obligations of any Credit Party with respect to Indebtedness of any Subsidiary that is not a Credit Party in an aggregate amount not to exceed at any time outstanding (A) $50,000,000 less (B) the amount of Investments made in the form of Permitted Acquisitions pursuant to Section 11.3(e)(ii) during the term of this Agreement on the applicable date of determination (which amount, for clarity, is subject to modification in the manner set forth in the proviso to Section 11.3(e)(ii)) less (C) the amount of Investments made in the form of Indebtedness pursuant to Section 11.3(f)(iv) during the term of this Agreement on the applicable date of determination less (D) the

 

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amount of Investments made pursuant to Section 11.3(g) during the term of this Agreement on the applicable date of determination;”

 

(h)                                 Section 11.3 of the Credit Agreement is hereby amended by amending and restating subsection (e)(ii) thereof in its entirety to read as follows:

 

“(ii)                            Permitted Acquisitions to the extent that any Person or Property acquired in such acquisition does not become a Subsidiary Guarantor or a part of a Subsidiary Guarantor in an aggregate amount during the term of this Agreement not to exceed (A) $50,000,000 (excluding any portion thereof paid with the Net Cash Proceeds from any Equity Issuance by the Borrower other than any Equity Issuance related to any Disqualified Capital Stock) less (B) the amount of Guaranty Obligations incurred pursuant to Section 11.1(i) on the applicable date of determination less (C) the amount of Investments made in the form of Indebtedness pursuant to Section 11.3(f)(iv) during the term of this Agreement on the applicable date of determination less (D) the amount of Investments made pursuant to Section 11.3(g) during the term of this Agreement on the applicable date of determination; provided that, at any time during Fiscal Year 2017, to the extent that all or any portion of the $50,000,000 amount set forth in clause (A) above has been utilized, such utilized amount may be replenished by the amount of prepayments made during Fiscal Year 2017 pursuant to Section 4.4(b)(vi)(C)(1), (3) or (4) (in each case, in an aggregate amount not to exceed $50,000,000 after giving effect to such replenishment);”

 

(i)                                     Section 11.3 of the Credit Agreement is hereby amended by amending and restating subsection (g) thereof in its entirety to read as follows:

 

“(g)                            Investments in any Subsidiary that is not a Subsidiary Guarantor in an aggregate amount during the term of this Agreement not to exceed (i) $50,000,000 less (ii) the amount of Guaranty Obligations incurred pursuant to Section 11.1(i) on the applicable date of determination less (iii) the amount of Investments made in the form of Permitted Acquisitions pursuant to Section 11.3(e)(ii) during the term of this Agreement on the applicable date of determination (which amount, for clarity, is subject to modification in the manner set forth in the proviso to Section 11.3(e)(ii)) less (iv) the amount of Investments made in the form of Indebtedness pursuant to Section 11.3(f)(iv) during the term of this Agreement on the applicable date of determination;”

 

Section 3.                                           Conditions of Effectiveness.  The effectiveness of this Amendment shall be subject to the satisfaction of each of the following conditions precedent:

 

(a)                                 Executed Amendment.  The Administrative Agent shall have received counterparts of this Amendment executed by the Borrower, each other Credit Party, the Administrative Agent and the Lenders in sufficient number constituting Required Lenders.

 

(b)                                 No Default.  No Default or Event of Default shall have occurred and be continuing both before and after giving effect to this Amendment.

 

(c)                                  Payment of Fees.  The Administrative Agent shall have been paid or reimbursed for all fees and reasonable and documented out-of-pocket costs and expenses incurred by it or its Affiliates in connection with this Amendment, including, without limitation, the reasonable and documented fees, disbursements and other charges of counsel for the Administrative Agent and

 

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its Affiliates, to the extent such fees, cost and expenses have been invoiced on or before the date hereof.

 

Section 4.                                           Representations and Warranties.  The Borrower and each other Credit Party hereby represents and warrants to the Administrative Agent and the Lenders that:

 

(a)                                 both before and after giving effect to this Amendment, each of the representations and warranties set forth in the Credit Agreement and the other Loan Documents is true, correct and complete in all material respects as of the date hereof, except for any representation and warranty made as of an earlier date, which representation and warranty shall remain true, correct and complete as of such earlier date; provided, that any representation or warranty that is qualified by materiality or by reference to Material Adverse Effect shall be true, correct and complete in all respects as of the date hereof;

 

(b)                                 no Default or Event of Default has occurred or is continuing both before and after giving effect to this Amendment;

 

(c)                                  it has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Amendment and each of the other documents executed in connection herewith to which it is a party in accordance with their respective terms and the transactions contemplated hereby; and

 

(d)                                 this Amendment and each other document executed in connection herewith has been duly executed and delivered by the duly authorized officers of the Borrower and each other Credit Party, and each such document constitutes the legal, valid and binding obligation of the Borrower and each other Credit Party, enforceable in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws from time to time in effect which affect the enforcement of creditors’ rights in general and the availability of equitable remedies.

 

Section 5.                                           Limited Effect.  This Amendment is a Loan Document.  Except as expressly provided herein, the Credit Agreement and the other Loan Documents shall remain unmodified and in full force and effect.  Except as expressly provided herein, this Amendment shall not be deemed (a) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Credit Agreement or any other Loan Document, (b) to prejudice any right or rights which the Administrative Agent or the Lenders may now have or may have in the future under or in connection with the Credit Agreement or the other Loan Documents or any of the instruments or agreements referred to therein, as the same may be amended, restated, supplemented or modified from time to time, (c) to be a commitment or any other undertaking or expression of any willingness to engage in any further discussion with the Borrower, any of its Subsidiaries or any other Person with respect to any waiver, amendment, modification or any other change to the Credit Agreement or the Loan Documents or any rights or remedies arising in favor of the Lenders or the Administrative Agent, or any of them, under or with respect to any such documents or (d) to be a waiver of, or consent to or a modification or amendment of, any other term or condition of any other agreement by and among the Borrower or any of its Subsidiaries, on the one hand, and the Administrative Agent or any other Lender, on the other hand.  References in the Credit Agreement to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein”, “hereof” or other words of like import) and in any Loan Document to the “Credit Agreement” shall be deemed to be references to the Credit Agreement as modified hereby.

 

Section 6.                                           Acknowledgement and Reaffirmation.  The Borrower and each other Credit Party (a) agrees that the transactions contemplated by this Amendment shall not limit or diminish the obligations of such Person under, or release such Person from any obligations under, the Credit Agreement, the

 

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Guaranty Agreement, the Collateral Agreement and each other Security Document to which it is a party, (b) confirms and reaffirms its obligations under the Credit Agreement, the Guaranty Agreement, the Collateral Agreement and each other Security Document to which it is a party and (c) agrees that the Credit Agreement, the Guaranty Agreement, the Collateral Agreement and each other Security Document to which it is a party remain in full force and effect and are hereby reaffirmed.

 

Section 7.                                           Costs, Expenses and Taxes.  The Borrower agrees to pay on demand all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable and documented fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities hereunder and thereunder.

 

Section 8.                                           Execution in Counterparts.  This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  Delivery of an executed counterpart of a signature page of this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment.

 

Section 9.                                           Governing Law.  This Amendment and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Amendment and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.

 

Section 10.                                    Entire Agreement.  This Amendment and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, the Issuing Lender, the Swingline Lender and/or the Arranger, constitute the entire agreement among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.

 

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

 

	
 
    	
MERIT MEDICAL   SYSTEMS, INC., as Borrower
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
MERIT   HOLDINGS, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
MERIT SENSOR   SYSTEMS, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
MERIT   SERVICES, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
BIOSPHERE   MEDICAL, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
BSMD   VENTURES, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    

 

Merit Medical Systems, Inc.

Second Amendment to Second Amended and Restated Credit Agreement

Signature Page

 

 

	
 
    	
BIOSPHERE MEDICAL   JAPAN, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
THOMAS MEDICAL   PRODUCTS, INC., as Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
DFINE, INC., as   Subsidiary Guarantor
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bernard Birkett
    
	
 
    	
Name:
    	
Bernard Birkett
    
	
 
    	
Title:
    	
Chief Financial Officer
    

 

Merit Medical Systems, Inc.

Second Amendment to Second Amended and Restated Credit Agreement

Signature Page

 

 

	
 
    	
ADMINISTRATIVE AGENT AND   LENDERS:
    
	
 
    	
 
    
	
 
    	
WELLS FARGO   BANK, NATIONAL ASSOCIATION,
    
	
 
    	
as Administrative   Agent, Swingline Lender, Issuing Lender and Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Jared Myres
    
	
 
    	
Name:
    	
Jared Myres
    
	
 
    	
Title:
    	
Vice President
    

 

Merit Medical Systems, Inc.

Second Amendment to Second Amended and Restated Credit Agreement

Signature Page

 

 

	
 
    	
BANK OF AMERICA,   N.A., as Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Heath Lipson
    
	
 
    	
Name:
    	
Heath Lipson
    
	
 
    	
Title:
    	
SUP
    

 

Merit Medical Systems, Inc.

Second Amendment to Second Amended and Restated Credit Agreement

Signature Page

 

 

	
 
    	
U.S. BANK   NATIONAL ASSOCIATION, as Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Nick Hintze
    
	
 
    	
Name:
    	
Nick Hintze
    
	
 
    	
Title:
    	
Vice President
    

 

Merit Medical Systems, Inc.

Second Amendment to Second Amended and Restated Credit Agreement

Signature Page

 

 

	
 
    	
HSBC BANK USA,   NATIONAL ASSOCIATION, as Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Christopher M. Ames
    
	
 
    	
Name:
    	
Christopher M.Ames
    
	
 
    	
Title:
    	
Senior Vice President
   Commercial Banking
    

 

Merit Medical Systems, Inc.

Second Amendment to Second Amended and Restated Credit Agreement

Signature PageExhibit

EXHIBIT 10.54

EIGHTH LOAN MODIFICATION AGREEMENT
This Eighth Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of December 15, 2016, by and between (i) SILICON VALLEY BANK, a California corporation with a loan production office located at 8020 Towers Crescent Drive, Suite 475, Vienna, Virginia 22182 (“Bank”), (ii) LUNA INNOVATIONS INCORPORATED, a Delaware corporation (“Innovations”), LUNA TECHNOLOGIES, INC., a Delaware corporation (“Technologies”), ADVANCED PHOTONIX, INC., a Delaware corporation (“API”), and PICOMETRIX, LLC, a Delaware limited liability company (“Picometrix”; Innovations, Technologies, API and Picometrix are referred to herein, individually and collectively, jointly and severally, as “Borrower”), each with offices located at 301 1st Street SW, Suite 200, Roanoke, Virginia 24011.
1.DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of February 18, 2010, evidenced by, among other documents, a certain Loan and Security Agreement dated as of February 18, 2010, between Borrower and Bank, as amended by a certain First Loan Modification Agreement, dated as of March 7, 2011, as further amended by a certain Second Loan Modification Agreement, dated as of May 18, 2011, as further amended by a certain Third Loan Modification Agreement, dated as of June 1, 2012, as further amended by a certain Fourth Loan Modification Agreement, dated as of March 1, 2013, as further amended by a certain Consent, Release and Fifth Loan Modification Agreement, dated as of January 21, 2014, as further amended by a certain Joinder, Consent and Sixth Loan Modification Agreement, dated as of May 8, 2015, and as further amended by a certain Waiver and Seventh Loan Modification Agreement, dated as of September 29, 2015 (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.
2.    DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement and in certain Intellectual Property Security Agreements executed by each Borrower in favor of Bank (collectively, the “IP Agreements”, and together with any other collateral security granted to Bank, the “Security Documents”). 
Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.
3.    DESCRIPTION OF CHANGE IN TERMS.
		
	A.
	Modifications to Loan Agreement.

		
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	The Loan Agreement shall be amended by deleting the following text appearing as Section 6.9 thereof:

“6.9    Financial Covenants.
(a)    Minimum Cash.  Borrower shall maintain at all times, to be certified as of the last day of each month, unrestricted cash at Bank of not less than Three Million Dollars ($3,000,000).
(b)    Liquidity Coverage Ratio.  Borrower shall maintain at all times, to be certified as of the last day of each month commencing with the month ending on September 30, 2015, a Liquidity Coverage Ratio of greater than 1.50 to 1.00.
(c)    Minimum Adjusted EBITDA.  Borrower shall achieve, measured as of the last day of each fiscal quarter during the following periods, Adjusted EBITDA of at least (loss not worse than) the following:

	
				
	Period
	Minimum Adjusted EBITDA

	Trailing three (3) month period ending September 30, 2015
	

	($600,000
	)

	Trailing six (6) month period ending December 31, 2015
	

	($250,000
	)

	Trailing nine (9) month period ending March 31, 2016
	($550,000)

	Trailing twelve (12) month period ending June 30, 2016, and the last day of each fiscal quarter thereafter on a trailing twelve (12) month basis
	$1.00”

and inserting in lieu thereof the following:
“6.9    Financial Covenants.
(a)    Minimum Cash.  Borrower shall maintain at all times, to be certified as of the last day of each month, unrestricted cash at Bank of not less than (i) Five Million Dollars ($5,000,000) through and including June 30, 2017, (ii) Four Million Dollars ($4,000,000) from July 1, 2017 through and including June 30, 2018, and (iii) Three Million Dollars ($3,000,000) at all times thereafter.
(b)    Liquidity Coverage Ratio.  Borrower shall maintain at all times, to be certified as of the last day of each month, a Liquidity Coverage Ratio of greater than 1.50 to 1.00.”
		
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	The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

“Adjusted 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, non-cash stock compensation expense, plus (f) to the extent paid by Borrower, up to $2,700,000 paid by Borrower to the Defense Contract Management Agency (“DCMA”) as refunds for overpayments by the DCMA, minus (g) Unfinanced Capital Expenditures, including, without limitation, capitalized Intellectual Property.
“Capital Expenditures” means, with respect to any person for any period, the sum of (a) the aggregate of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed, plus (b) to the extent not covered by clause (a), the aggregate of all expenditures by such Person and its Subsidiaries during such period to acquire by purchase or otherwise the business or capitalized assets or the capital stock of any other Person.
“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, if any, 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).
 “Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries, if any,  for any period as at any date of determination, the net profit (or loss), exclusive of any extraordinary gains, after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.
“Unfinanced Capital Expenditures” means, with respect to any Person for any period, the aggregate of all Capital Expenditures by such Person and its Subsidiaries during such period that are paid in cash and are not financed or funded using proceeds from (a) the issuance of additional equity interests of Borrower, (b) Credit Extensions, (c) Subordinated Debt, (d) specific equipment financing, (e) asset sales, (f) insurance proceeds, or (g) government grants or other incentives, and in each instance determined in accordance with GAAP.
		
	3
	The Compliance Certificate appearing as Exhibit B to the Loan Agreement is hereby replaced with the Compliance Certificate in the form of Exhibit B attached hereto.

4.    FEES.  Borrower shall reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents. 
5.    RATIFICATION OF IP AGREEMENTS.  Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the IP Agreements, and acknowledges, confirms and agrees that said IP Agreements contain an accurate and complete listing of all Intellectual Property Collateral as defined in each respective IP Agreement, and each remains in full force and effect.  Notwithstanding the terms and conditions of any of the IP Agreements, Borrower shall not register any Copyrights or Mask Works in the United States Copyright Office unless it: (i) has given at least fifteen (15) days’ prior written notice to Bank of its intent to register such Copyrights or Mask Works and has provided Bank with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (ii) executes a security agreement or such other documents as Bank may reasonably request in order to maintain the perfection and priority of Bank’s security interest in the Copyrights proposed to be registered with the United States Copyright Office; and (iii) records such security documents with the United States Copyright Office contemporaneously with filing the Copyright application(s) with the United States Copyright Office.  Borrower shall promptly provide to Bank a copy of the Copyright application(s) filed with the United States Copyright Office, together with evidence of the recording of the security documents necessary for Bank to maintain the perfection and priority of its security interest in such Copyrights or Mask Works.  Borrower shall provide written notice to Bank of any application filed by Borrower in the United States Patent Trademark Office for a patent or to register a trademark or service mark within thirty (30) days of any such filing.
6.    RATIFICATION OF PERFECTION CERTIFICATE.  Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in that certain Perfection Certificate dated as of May 8, 2015, and acknowledges, confirms and agrees the disclosures and information provided to Bank in such Perfection Certificate remains true and correct in all material respects as of the date hereof.  
7.    AUTHORIZATION TO FILE.  Borrower hereby authorizes Bank to file UCC financing statements without notice to Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in order to further perfect or protect Bank’s interest in the Collateral, including a notice that any disposition of the Collateral, by either the Borrower or any other Person, shall be deemed to violate the rights of the Bank under the Code. 
8.    CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.
9.    RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of the Loan Agreement (as modified by this Loan Modification Agreement), and all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.
10.    NO DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.
11.    CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents.  Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations.  Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing.  No maker will be released by virtue of this Loan Modification Agreement.
12.    JURISDICTION/VENUE.  Section 11 of the Loan Agreement is hereby incorporated by reference in its entirety.
13.    COUNTERSIGNATURE.  This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.
14.    EFFECTIVENESS.  As a condition precedent to the effectiveness of this Loan Modification Agreement and Bank’s obligation to make the Term Loan, Bank shall have received the following prior to or concurrently with this Loan Modification Agreement, each in form and substance satisfactory to Bank:
		
	A.
	this Loan Modification Agreement duly executed on behalf of Borrower;

		
	B.
	certified copies, dated as of a recent date, of financing statement and other lien searches of each Borrower, as Bank may request and which shall be obtained by Bank, accompanied by written evidence (including any UCC termination statements) that the Liens revealed in any such searched either (i) will be terminated prior to or in connection with the Agreement, or (ii) in the sole discretion of Bank, will constitute Permitted Liens;

		
	C.
	Borrower’s payment of the fees set forth in Section 5 above; and

		
	D.
	such other documents as Bank may reasonably request.

[Signatures included on the following page]

IN WITNESS WHEREOF, the parties hereto have caused this Loan Modification Agreement to be executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first above written.

BORROWER:
LUNA INNOVATIONS INCORPORATED
By /s/ Scott A. Graeff     
Name:   Scott A. Graeff           
Title:     CSO & Treasurer
LUNA TECHNOLOGIES, INC.
By /s/ Scott A. Graeff
Name:      Scott A. Graeff          
Title:    President

ADVANCED PHOTONIX, INC. 
By /s/ Dale E. Messick     
Name:  Dale E. Messick            
Title:    President    
PICOMETRIX, LLC 
By /s/ Dale E. Messick 
Name: Dale E. Messick               
Title:    President
BANK:
SILICON VALLEY BANK
By: /s/ Alicia Fuller 
Name: Alicia Fuller     
Title: Director    

EXHIBIT B
COMPLIANCE CERTIFICATE

TO:    SILICON VALLEY BANK                        Date:                  
FROM:      LUNA INNOVATIONS INCORPORATED, et al
The undersigned authorized officer of Luna Innovations Incorporated, Luna Technologies, Inc., Advance Photonix, Inc., and Picometrix, LLC (individually and collectively, jointly and severally, the “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, if any, relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.  Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
	
			
	Please indicate compliance status by circling Yes/No under “Complies” column.

	 

	Reporting Covenant
	Required
	Complies

	 
	 
	 

	Monthly financial statements with  
Compliance Certificate
	Monthly within 30 days
	Yes   No

	10‐Q, 10‐K and 8-K
	Within 5 days after filing with SEC
	Yes   No

	Projections
	FYE within 30 days, and as amended
	Yes   No

	A/R & A/P Agings
	Monthly within 30 days
	Yes   No

	 

	

The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”)
____________________________________________________________________________

	
				
	Financial Covenant
	Required
	Actual
	Complies

	 
	 
	 
	 

	Maintain as indicated:
	 
	 
	 

	Minimum Cash
	**
	$_______
	Yes   No

	Liquidity Coverage Ratio
	>1.50:1.00
	:1.00
	Yes   No

**See Section 6.9(a)

The following financial covenant analyses 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.”)

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

	
		
	LUNA INNOVATIONS INCORPORATED
LUNA TECHNOLOGIES, INC.
ADVANCED PHOTONIX, INC.
PICOMETRIX, LLC

By:    
Name:    
Title:    

	BANK USE ONLY

Received by: _____________________
AUTHORIZED SIGNER
Date:    _________________________

Verified: ________________________
AUTHORIZED SIGNER
Date:    _________________________

Compliance Status:   Yes     No

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

I.    Minimum Cash (Section 6.9(a))

		
	Required:
	Borrower shall maintain at all times, to be certified as of the last day of each month, unrestricted cash at Bank of not less than (i) Five Million Dollars ($5,000,000) through and including June 30, 2017, (ii) Four Million Dollars ($4,000,000) from July 1, 2017 through and including June 30, 2018, and (iii) Three Million Dollars ($3,000,000) at all times thereafter.

Actual:

	
			
	A.
	Aggregate value of Borrower’s unrestricted cash at Bank
	$   

Is line A equal to or greater than $_________________?

  No, not in compliance                          Yes, in compliance

II.    Liquidity Coverage Ratio (Section 6.9(b))

		
	Required:
	Borrower shall maintain at all times, to be certified as of the last day of each month, a Liquidity Coverage Ratio of greater than 1.50 to 1.00.

Actual:

	
			
	A.
	Aggregate value of Borrower’s unrestricted cash at Bank
	$   

	B.
	Net accounts receivable of Borrower
	$   

	C.
	Line B multiplied fifty percent (60%)
	$   

	D.
	Line A. plus Line C
	$   

	E.
	Aggregate of all Obligations owing to Bank, including, without limitation, all issued and outstanding letters of credit 

	$   

	F.
	Line D divided by Line E
	$   

Is Line F greater than 1.50?

  No, not in compliance                          Yes, in compliance

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