Document:

Exhibit 10.4

 

GOLDMAN, SACHS & CO. | 200 WEST STREET | NEW YORK, NEW YORK 10282-2198 | TEL: 212-902-1000

 

Opening Transaction

 

	
To:
    	
Anacor Pharmaceuticals, Inc.
   1020 East Meadow Circle
   Palo Alto, CA 94303
    
	
 
    	
 
    
	
A/C:
    	
[  ]
    
	
 
    	
 
    
	
From:
    	
Goldman,   Sachs & Co.
    
	
 
    	
 
    
	
Re:
    	
Additional Capped Call   Transaction
    
	
 
    	
 
    
	
Ref. No:
    	
[  ]
    
	
 
    	
 
    
	
Date:
    	
April 1, 2016
    

 

Dear Ladies and Gentlemen:

 

The purpose of this communication (this “Confirmation”) is to set forth the terms and conditions of the above-referenced transaction entered into on the Trade Date specified below (the “Transaction”) between Goldman, Sachs & Co. (“Dealer”) and Anacor Pharmaceuticals, Inc. (“Counterparty”).  This communication constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.

 

1.              This Confirmation is subject to, and incorporates, the definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”).  Certain defined terms used herein have the meanings assigned to them in the Indenture to be dated as of April 6, 2016 between Counterparty and Wells Fargo Bank, National Association, as trustee (the “Indenture”), relating to the USD 250,000,000 principal amount of 2.00% Convertible Senior Notes due 2023 and the additional USD 37,500,000 principal amount of 2.00% Convertible Senior Notes due 2023 issued pursuant to the over-allotment option to purchase additional convertible securities exercised on the date hereof (the “Convertible Securities”).  In the event of any inconsistency between the terms defined in the Indenture and this Confirmation, this Confirmation shall govern.  For the avoidance of doubt, references herein to sections of the Indenture are based on the draft of the Indenture most recently reviewed by the parties at the time of execution of this Confirmation.  If any relevant sections of the Indenture are changed, added or renumbered between the execution of this Confirmation and the execution of the Indenture, the parties will amend this Confirmation in good faith to preserve the economic intent of the parties, as evidenced by such draft of the Indenture. Subject to the foregoing, the parties further acknowledge that references to the Indenture herein are references to the Indenture as in effect on the date of its execution and if the Indenture is amended, modified or supplemented following its execution, any such amendment, modification or supplement (other than any amendment, modification or supplement (x) pursuant to Section 8.01(b) of the Indenture that conforms the Indenture to the description of Convertible Securities in the Preliminary Offering Circular dated March 30, 2016, as supplemented by the related pricing term sheet or (y) pursuant to Section 4.07 of the Indenture) will be disregarded for purposes of this Confirmation (other than for purposes of Section 8(b)(i) below) unless the parties agree otherwise in writing.  The Transaction is subject to early unwind if the closing of the Convertible Securities is not consummated for any reason, as set forth below in Section 8(k).

 

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

 

This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates.  This Confirmation shall be subject to an agreement (the “Agreement”) in the form of the 2002 ISDA Master Agreement as if Dealer and

 

 

Counterparty had executed an agreement in such form on the date hereof (but without any Schedule except for, in respect of Section 5(a)(vi) of the Agreement (a) the election that the “Cross Default” provisions shall apply to Dealer with a “Threshold Amount” equal to 3% of the shareholders’ equity of The Goldman Sachs Group, Inc. (“GS Group”) as of the Trade Date, (b) the deletion of the phrase “, or becoming capable at such time of being declared,” from clause (1) thereof, (c) the following language added to the end thereof: “Notwithstanding the foregoing, a default under subsection (2) hereof shall not constitute an Event of Default if (x) the default was caused solely by error or omission of an administrative or operational nature; (y) funds were available to enable the party to make the payment when due; and (z) the payment is made within two Local Business Days of such party’s receipt of written notice of its failure to pay.” and (d) the term “Specified Indebtedness” shall have the meaning specified in Section 14 of the Agreement, except that such term shall not include obligations in respect of deposits received in the ordinary course of a party’s banking business). All of the obligations of Dealer hereunder shall be unconditionally guaranteed in favor of Counterparty by GS Group under the guarantee filed as Exhibit 10.45 to GS Group’s Form 10-K filed with the Securities and Exchange Commission on February 7, 2006.

 

All provisions contained in, or incorporated by reference to, the Agreement will govern this Confirmation except as expressly modified herein.  In the event of any inconsistency between this Confirmation and either the Equity Definitions or the Agreement, this Confirmation shall govern.

 

The Transaction hereunder shall be the sole Transaction under the Agreement.  If there exists any ISDA Master Agreement between Dealer and Counterparty or any confirmation or other agreement between Dealer and Counterparty pursuant to which an ISDA Master Agreement is deemed to exist between Dealer and Counterparty, then notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which Dealer and Counterparty are parties, the Transaction shall not be considered a Transaction under, or otherwise governed by, such existing or deemed ISDA Master Agreement.

 

2.              The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions.  The terms of the particular Transaction to which this Confirmation relates are as follows:

 

General Terms:

 

	
Trade Date:
    	
 
    	
April 1, 2016
    
	
 
    	
 
    	
 
    
	
Effective Date:
    	
 
    	
The closing date of the issuance of the Convertible   Securities issued pursuant to the over-allotment option to purchase   additional Convertible Securities exercised on the date hereof.
    
	
 
    	
 
    	
 
    
	
Option Style:
    	
 
    	
Modified American, as described under “Procedures   for Exercise” below.
    
	
 
    	
 
    	
 
    
	
Option Type:
    	
 
    	
Call
    
	
 
    	
 
    	
 
    
	
Seller:
    	
 
    	
Dealer
    
	
 
    	
 
    	
 
    
	
Buyer:
    	
 
    	
Counterparty
    
	
 
    	
 
    	
 
    
	
Shares:
    	
 
    	
The Common Stock of Counterparty, par value USD0.001   (Ticker Symbol: “ANAC”).
    
	
 
    	
 
    	
 
    
	
Applicable Percentage:
    	
 
    	
40.0%
    
	
 
    	
 
    	
 
    
	
Number of Options:
    	
 
    	
The number of Optional Securities (as defined in the   Purchase Agreement, dated as of March 31, 2016, between Goldman,   Sachs & Co., as the representative of the purchasers named therein,   and Counterparty (the “Purchase Agreement”))   in denominations of
    

 

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USD1,000 principal   amount purchased pursuant to the exercise by Goldman, Sachs & Co.,   as representative of the Purchasers (as defined in the Purchase Agreement),   of their over-allotment option to purchase additional Convertible Securities   pursuant to Section 2 of the Purchase Agreement. For the avoidance of   doubt, the Number of Options outstanding shall be reduced by each exercise of   Options hereunder.
    
	
 
    	
 
    	
 
    
	
Option Entitlement:
    	
 
    	
As of any date, a number of Shares per Option equal to the   “Conversion Rate” (as defined in the Indenture, but without regard to any   adjustments to the Conversion Rate pursuant to a Fundamental Change   Adjustment or a Discretionary Adjustment).
    
	
 
    	
 
    	
 
    
	
Fundamental Change Adjustment:
    	
 
    	
Any adjustment to the Conversion Rate pursuant to Section 4.06   of the Indenture.
    
	
 
    	
 
    	
 
    
	
Discretionary Adjustment:
    	
 
    	
Any adjustment to the Conversion Rate pursuant to   Section 4.05(b) of the Indenture.
    
	
 
    	
 
    	
 
    
	
Strike Price:
    	
 
    	
As of any date, an   amount in USD equal to USD1,000 divided by   the Option Entitlement as of such date. The Strike Price shall be rounded by   the Calculation Agent in a commercially reasonable manner.
    
	
 
    	
 
    	
 
    
	
Cap Price:
    	
 
    	
USD80.1750. For the   avoidance of doubt, and notwithstanding anything to the contrary herein or in   the Agreement or the Equity Definitions, in no circumstance shall the Cap   Price be adjusted to be less than the Strike Price.
    
	
 
    	
 
    	
 
    
	
Number of Shares:
    	
 
    	
As of any date, a   number of Shares equal to the product of (i) the Applicable Percentage,   (ii) the Number of Options and (iii) the Option Entitlement.
    
	
 
    	
 
    	
 
    
	
Premium:
    	
 
    	
USD840,000.00.
    
	
 
    	
 
    	
 
    
	
Premium Payment Date:
    	
 
    	
The Effective Date
    
	
 
    	
 
    	
 
    
	
Exchange:
    	
 
    	
The NASDAQ Global   Market
    
	
 
    	
 
    	
 
    
	
Related Exchange:
    	
 
    	
All Exchanges
    

 

Procedures for Exercise:

 

	
Exercise Dates:
    	
 
    	
Each Conversion Date.
    
	
 
    	
 
    	
 
    
	
Conversion Date:
    	
 
    	
Each “Conversion Date”   (as defined in the Indenture) occurring during the Exercise Period for   Convertible Securities each in denominations of USD1,000 principal amount   that are not “Relevant Convertible Securities” under (and as defined in) the   confirmation between the parties hereto regarding the Base Capped Call   Transaction dated March 31, 2016 (Transaction Ref. No.[      ]) (the “Base   Capped Call Transaction Confirmation”); provided that,   no Conversion Date shall be deemed to have occurred with respect to Exchanged   Securities, Excluded Convertible Securities or “Excluded
    

 

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Convertible Securities”   under (and as defined in) the Base Capped Call Transaction Confirmation (such   Convertible Securities, other than Exchanged Securities, Excluded Convertible   Securities and such “Excluded Convertible Securities” under the Base Capped   Call Transaction Confirmation, the “Relevant Convertible   Securities” for such Conversion Date). For the purposes of   determining whether any Convertible Securities will be Relevant Convertible   Securities or Excluded Convertible Securities hereunder or “Relevant   Convertible Securities” or “Excluded Convertible Securities” under, and as   defined in, the Base Capped Call Transaction Confirmation, Convertible   Securities that are converted pursuant to the Indenture shall be allocated   first to the Base Capped Call Transaction Confirmation until all Options   thereunder are exercised or terminated.
    
	
 
    	
 
    	
 
    
	
Exchanged Securities:
    	
 
    	
With respect to any   Conversion Date, any Convertible Securities with respect to which   Counterparty makes the election described in Section 4.12 of the   Indenture and the financial institution designated by Counterparty accepts   such Convertible Securities in accordance with Section 4.12 of the   Indenture. For the avoidance of doubt, (i) Convertible Securities are   “accepted” for purposes of the foregoing upon the earlier of the declaration   of the designated financial institution’s agreement to exchange such Convertible   Securities or delivery of such Convertible Securities to such financial   institution for purposes of such exchange and (ii) any Exchanged   Securities will be treated as Relevant Convertible Securities on any   subsequent Conversion Date with respect to such securities (for the avoidance   of doubt, subject to the exclusions for Exchanged Securities and Excluded   Securities set forth under “Conversion Date” above).
    
	
 
    	
 
    	
 
    
	
Excluded Convertible   Securities:
    	
 
    	
Convertible Securities   subject to the occurrence of an Excluded Conversion Event, as described in   Section 8(b)(i).
    
	
 
    	
 
    	
 
    
	
Exercise Period:
    	
 
    	
The period from and   excluding the Effective Date to and including the Expiration Date.
    
	
 
    	
 
    	
 
    
	
Expiration Date:
    	
 
    	
The second “Business   Day” (as defined in the Indenture) immediately preceding the “Maturity Date”   (as defined in the Indenture).
    
	
 
    	
 
    	
 
    
	
Automatic Exercise   during Final Conversion Period:
    	
 
    	
Applicable and means   that (unless Counterparty notifies Dealer in writing prior to 5:00 p.m., New   York City time, on the Expiration Date that it does not wish Automatic   Exercise to occur) all Options then outstanding as of 5:00 p.m., New York   City time, on the Expiration Date will be deemed to be
    

 

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automatically exercised   as if (i) a number of Convertible Securities (in denominations of   USD1,000 principal amount) equal to such number of then-outstanding Options   were converted with a “Conversion Date” (as defined in the Indenture)   occurring during the Final Conversion Period, (ii) the Convertible   Security Settlement Method applied to such Convertible Securities and   (iii) the “Observation Period” (as such term is defined in the   Indenture) were the Cash Settlement Averaging Period; provided that, no such automatic   exercise pursuant to this paragraph will occur if the “Daily VWAP” (as   defined in the Indenture) for each “VWAP Trading Day” (as defined in the   Indenture) during the Cash Settlement Averaging Period is less than or equal   to the Strike Price.
    
	
 
    	
 
    	
 
    
	
Final Conversion   Period:
    	
 
    	
The period from, and   including, January 15, 2023 to, and including, the Expiration Date.
    
	
 
    	
 
    	
 
    
	
Cash Settlement   Averaging Period:
    	
 
    	
The 40 consecutive   “VWAP Trading Days” (as defined in the Indenture) commencing on, and   including, the 42nd “Scheduled Trading Day” (as defined in the Indenture)   immediately preceding the “Maturity Date” (as defined in the Indenture).
    
	
 
    	
 
    	
 
    
	
Notice of Convertible   Security Settlement Method:
    	
 
    	
Prior to 4:00 p.m., New   York City time, on the earlier to occur of (x) the date on which it   makes the irrevocable election of a settlement method in accordance with   Section 8.01(l) of the Indenture and (y) January 15,   2023, Counterparty shall notify Dealer in writing of the “Settlement Method”   (as defined in the Indenture) (and, if applicable, the “Specified Dollar   Amount” (as defined in the Indenture)) elected (or deemed to be elected) with   respect to the Convertible Securities for which the relevant “Conversion   Date” (as such term is defined in the Indenture) occurs on or after   January 15, 2023.
    
	
 
    	
 
    	
 
    
	
Dealer’s Telephone   Number and Facsimile Number and Contact Details for purpose of Giving Notice:
    	
 
    	
As specified in   Section 6(b) below.
    

 

Settlement Terms:

 

	
Settlement Date:
    	
 
    	
For any Exercise Date,   the settlement date for the cash (if any) and/or Shares (if any) to be   delivered in respect of the Relevant Convertible Securities for the relevant   Conversion Date under the terms of the Indenture; provided   that the Settlement Date shall not be prior to the date one Settlement Cycle   following the final day of the Cash Settlement Averaging Period.
    
	
 
    	
 
    	
 
    
	
Delivery Obligation:
    	
 
    	
In lieu of the   obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, in   respect of an Exercise Date, Dealer will deliver to Counterparty on
    

 

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the related Settlement   Date (the “Delivery Obligation”):
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(i) (I) a   number of Shares equal to the product of the Applicable Percentage and the   aggregate number of Shares, if any, that Counterparty would be obligated to   deliver to the holder(s) of the Relevant Convertible Securities for such   Conversion Date pursuant to Section 4.03(a)(ii)(C) of the Indenture   (except that such number of Shares shall be determined without taking into   consideration any rounding pursuant to Section 4.03(b) of the   Indenture and shall be rounded down to the nearest whole number) and   (II) cash in lieu of any fractional Share resulting from such rounding;   and/or
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(ii) cash equal to   the product of the Applicable Percentage and the excess of (I) the   “Daily Principal Portion” (as defined in the Indenture) over   (II) USD25.00, for each “VWAP Trading Day” (as defined in the Indenture)   during the Cash Settlement Averaging Period per Convertible Security (in   denominations of USD1,000) that Counterparty would be obligated to deliver to   holder(s) of the Relevant Convertible Securities for such Conversion   Date pursuant to Section 4.03(a)(ii)(B) or 4.03(a)(ii)(C), of the   Indenture, as applicable;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
for each of clauses   (i) and (ii), determined as if Counterparty had elected to satisfy its   conversion obligation in respect of such Relevant Convertible Securities by   the Convertible Security Settlement Method, notwithstanding any different   actual election by Counterparty with respect to the settlement of such   Relevant Convertible Securities (collectively, the “Convertible Obligation”); provided that (i) if the “Daily VWAP” (as defined in   the Indenture) for any “VWAP Trading Day” (as defined in the Indenture)   during the Cash Settlement Averaging Period is equal to or greater than the   Cap Price, then clause (ii) of the relevant “Daily Conversion Value” (as   defined in the Indenture) for such “VWAP Trading Day” shall be determined as   if such “Daily VWAP” for such “VWAP Trading Day” were deemed to equal the Cap   Price and (ii) the Delivery Obligation shall be determined excluding any   Shares and/or cash that Counterparty is obligated to deliver to holder(s) of   the Relevant Convertible Securities as a direct or indirect result of any   adjustments to the Conversion Rate pursuant to a Fundamental Change   Adjustment or a Discretionary Adjustment and any interest payment that   Counterparty is (or would have been) obligated to deliver to   holder(s) of the Relevant Convertible Securities for such Conversion   Date. For the avoidance of doubt, if the “Daily Conversion
    

 

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Value” (as defined in   the Indenture) for any “VWAP Trading Day” (as defined in the Indenture)   occurring in the Cash Settlement Averaging Period is less than or equal to   USD25.00, Dealer will have no delivery obligation hereunder in respect of   such “VWAP Trading Day.”
    
	
 
    	
 
    	
 
    
	
Convertible Security Settlement   Method:
    	
 
    	
For any Relevant   Convertible Securities, if (i) Counterparty has notified Dealer in the   Notice of Convertible Security Settlement Method that it has elected to   satisfy its conversion obligation in respect of such Relevant Convertible Securities   in cash or in a combination of cash and Shares in accordance with   Section 4.03(a)(i) of the Indenture with a “Specified Dollar   Amount” (as defined in the Indenture) of at least USD1,000 (a “Cash Election”) and (ii) such Notice   of Convertible Security Settlement Method contains all of the Settlement   Method Election Provisions, the Convertible Security Settlement Method shall   be the settlement method actually so elected by Counterparty in respect of   such Relevant Convertible Securities; otherwise, the Convertible Security   Settlement Method shall assume Counterparty had made a Cash Election with   respect to such Relevant Convertible Securities with a “Specified Dollar   Amount” (as defined in the Indenture) of USD1,000 per Relevant Convertible   Security. Counterparty acknowledges   its responsibilities under applicable securities laws, and in particular   Section 9 and Section 10(b) of the Securities Exchange Act of   1934, as amended (the “Exchange Act”) and the rules and regulations   thereunder, in respect of any election of a settlement method with respect to   the Convertible Securities.
    
	
 
    	
 
    	
 
    
	
Settlement Method   Election Provisions:
    	
 
    	
In order for the   Convertible Security Settlement Method to be the settlement method actually   elected by Counterparty under the Indenture in respect of the applicable   Relevant Convertible Securities in accordance with “Convertible Security   Settlement Method” above, the Notice of Convertible Security Settlement   Method must contain in writing the following representations, warranties and   acknowledgments from Counterparty to Dealer as of such notice delivery date:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(i)                                     Counterparty is electing the Convertible   Security Settlement Method in good   faith and not as part of a plan or scheme to evade compliance with the U.S.   federal securities laws; Counterparty is not electing the settlement method   under the Indenture for the Relevant Convertible Securities or the   Convertible Security Settlement Method to create actual or apparent trading   activity in the Shares (or any
    

 

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security convertible into or exchangeable for Shares) or to raise or   depress or otherwise manipulate the price of the Shares (or any security   convertible into or exchangeable for Shares) or otherwise in violation of the   Exchange Act;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(ii)                                  Counterparty has not entered into or   altered any hedging transaction relating to the Shares corresponding to or offsetting   the Transaction; and
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(iii)                               any transaction that Dealer makes with   respect to the Shares during the period beginning at the time that   Counterparty delivers such notice and ending at the close of business on the   final day of the Cash Settlement Averaging Period shall be made by Dealer at   Dealer’s sole discretion for Dealer’s own account and Counterparty shall not   have, and shall not attempt to exercise, any influence over how, when,   whether or at what price Dealer effects such transactions, including, without   limitation, the prices paid or received by Dealer per Share pursuant to such   transactions, or whether such transactions are made on any securities   exchange or privately.
    
	
 
    	
 
    	
 
    
	
Other Applicable   Provisions:
    	
 
    	
To the extent Dealer is   obligated to deliver Shares hereunder, the provisions of Sections 9.8, 9.9,   9.10 and 9.11 of the Equity Definitions will be applicable as if “Physical   Settlement” applied to the Transaction; provided   that the Representation and Agreement contained in Section 9.11 of the   Equity Definitions shall be modified by excluding any representations therein   relating to restrictions, obligations, limitations or requirements under   applicable securities laws that exist as a result of the fact that   Counterparty is the issuer of the Shares.
    
	
 
    	
 
    	
 
    
	
Certificated Shares:
    	
 
    	
Notwithstanding   anything to the contrary in the Equity Definitions, Dealer may, in whole or   in part, deliver Shares required to be delivered to Counterparty hereunder in   certificated form in lieu of delivery through the Clearance System. With   respect to such certificated Shares, the Representation and Agreement   contained in Section 9.11 of the Equity Definitions shall be modified by   deleting the remainder of the provision after the word “encumbrance” in the   fourth line thereof.
    

 

Adjustments:

 

	
Method of Adjustment:
    	
 
    	
Notwithstanding   Section 11.2 of the Equity Definitions, upon the occurrence of any event   or
    

 

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condition set forth in   Section 4.04(a) through (e) of the Indenture or   Section 4.05(a) of the Indenture that would result in an adjustment   under the Indenture (it being understood that for purposes of such an event   or condition under Section 4.05(a) of the Indenture, Calculation   Agent may assume that the Cash Settlement Averaging Period or, in the case of   an Excluded Conversion Event, the commercially reasonable hedge unwind period   determined by Calculation Agent, applied to the relevant Convertible   Securities) (an “Adjustment Event”),   the Calculation Agent shall make the corresponding adjustment in respect of   any one or more of the Strike Price, the Number of Options and the Option Entitlement,   subject to “Discretionary Adjustments” below, to the extent an analogous   adjustment would be made under the Indenture, and (ii) upon the   occurrence of any Potential Adjustment Event, the Calculation Agent shall   determine the economic effect of such Potential Adjustment Event and, if the   Calculation Agent, acting in good faith and in a commercially reasonable   manner, determines that such economic effect is material, shall, but without   duplication of any adjustment hereunder, make any adjustment to the Cap Price   consistent with “Calculation Agent Adjustment” set forth in   Section 11.2(c) of the Equity Definitions (as modified hereby) to   preserve the fair value of the Transaction after taking into account such   Potential Adjustment Event. Promptly following the occurrence of any   Adjustment Event, Counterparty shall notify the Calculation Agent of such   Adjustment Event; and once the adjustments to be made to the terms of the   Indenture and the Convertible Securities in respect of such Adjustment Event   have been determined, Counterparty shall promptly notify the Calculation   Agent in writing of the details of such adjustments.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
For the avoidance of   doubt, Dealer shall not have any delivery obligation hereunder in respect of   any “Distributed Property” delivered by Counterparty pursuant to the second   sentence of Section 4.04(c) of the Indenture or any payment   obligation in respect of any cash paid by Counterparty pursuant to the second   sentence of Section 4.04(d) of the Indenture (collectively, the “Dilution Adjustment Fallback Provisions”), and no   adjustment shall be made to the terms of the Transaction (other than, if   applicable pursuant to the preceding paragraph, the Cap Price) on account of   any event or condition described in the Dilution Adjustment Fallback   Provisions.
    
	
 
    	
 
    	
 
    
	
Discretionary   Adjustments:
    	
 
    	
Notwithstanding   anything to the contrary herein or in the Equity Definitions, if the   Calculation Agent in good faith and while exercising commercially
    

 

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reasonable discretion   disagrees with any adjustment under the Indenture that involves an exercise   of discretion by Counterparty or its board of directors (including, without   limitation, pursuant to Section 4.05(a) of the Indenture or   pursuant to Section 4.07(a) of the Indenture or any supplemental   indenture entered into thereunder or in connection with the determination of   the fair value of any securities, property, rights or other assets), then the   Calculation Agent will determine the adjustment to be made to any one or more   of the Strike Price, Number of Options, Option Entitlement and any other   variable relevant to the exercise, settlement or payment of or under the   Transaction in a commercially reasonable manner and based on a commercially   reasonable Hedge Position and, for the avoidance of doubt, the Delivery   Obligation shall be calculated on the basis of such adjustments by the   Calculation Agent.
    

 

Extraordinary Events:

 

	
Merger Events:
    	
 
    	
Notwithstanding   Section 12.1(b) of the Equity Definitions, except to the extent set   forth under the provisions set forth under “Consequences of Announcement   Event” and “Announcement Event” below, a “Merger Event” means the occurrence   of any event or condition set forth in Section 4.07(a) of the   Indenture.
    
	
 
    	
 
    	
 
    
	
Consequences of Merger   Events/ Tender Offers:
    	
 
    	
Notwithstanding   Section 12.2 of the Equity Definitions, (i) upon the occurrence of   a Merger Event that would result in an adjustment under the Indenture, the   Calculation Agent shall make a corresponding adjustment in respect of the   nature or composition of the Shares to the extent an analogous adjustment   would be made under the Indenture; provided   that, for the avoidance of doubt, such adjustment shall be made without   regard to any adjustment to the Conversion Rate pursuant to a Fundamental   Change Adjustment or a Discretionary Adjustment; and provided   further that if, with respect to a Merger Event (other than a   Non-US Merger Transaction), the Counterparty to the Transaction following   such Merger Event will not be either (x) the Issuer or (y) a   subsidiary of Issuer whose obligations hereunder (including, without   limitation, under Sections 8(d) and 8(e)) are fully and unconditionally   guaranteed by Issuer, Dealer may elect (in its sole discretion) for   Cancellation and Payment (Calculation Agent Determination) to apply; and   (ii) upon the occurrence of a “Merger Event” (as defined in the Equity   Definitions) and/or a Tender Offer, the Calculation Agent shall determine the   economic effect of such Merger Event and/or Tender Offer and, if the   Calculation Agent, acting in good
    

 

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faith and in a   commercially reasonable manner, determines that such economic effect is   material, shall, but without duplication of any adjustment hereunder, make an   adjustment to the Cap Price consistent with “Modified Calculation Agent   Adjustment” set forth in Section 12.2(e) or 12.3(d) of the   Equity Definitions, as applicable; provided   that, in respect of a “Merger Event” (as defined in the Equity   Definitions), Section 12.2(e)(i)(A) of the Equity Definitions shall   be amended by replacing the words “exercise, settlement, payment or any other   terms of the Transaction (including, without limitation, the spread)” with   “Cap Price”; provided further   that, in respect of a Tender Offer, Section 12.3(d)(i)(A) of the   Equity Definitions shall be amended by replacing the words “exercise,   settlement, payment or any other terms of the Transaction (including, without   limitation, the spread)” with “Cap Price”.
    
	
 
    	
 
    	
 
    
	
Notice of Merger   Consideration and Consequences:
    	
 
    	
Upon the occurrence of   a Merger Event that causes the Shares to be converted into, or exchanged for,   or represent solely the right to receive, more than a single type of   consideration (determined based in part upon any form of stockholder   election), Counterparty shall reasonably promptly (but in any event prior to   the relevant merger date) notify the Calculation Agent of (i) the   weighted average per Share of the types and amounts of consideration received   by the holders of Shares that affirmatively make such an election (or, if no   holders of Shares make such an election, the types and amounts of   consideration actually received by holders of Shares), and (ii) the   details of the adjustment to be made under the Indenture in respect of such   Merger Event.
    
	
 
    	
 
    	
 
    
	
Tender Offer:
    	
 
    	
Applicable with respect   to the Cap Price as set forth herein; provided   that Section 12.1(d) of the Equity Definitions is hereby amended by   (x) replacing “10%” with “25%” in the third line thereof and   (y) replacing the words “voting shares of the Issuer” in the fourth line   thereof with the word “Shares”.
    
	
 
    	
 
    	
 
    
	
Consequences of   Announcement Event:
    	
 
    	
Modified Calculation   Agent Adjustment as set forth in Section 12.3(d) of the Equity   Definitions; provided that, in   respect of an Announcement Event, references to “Tender Offer” shall be   replaced by references to “Announcement Event” and references to “Tender   Offer Date” shall be replaced by references to “date of such Announcement   Event”; provided further that,   in respect of an Announcement Event, Section 12.3(d)(i)(A) shall be   amended by replacing the words “exercise, settlement, payment or any other   terms of the Transaction (including, without limitation, the spread)” with   “Cap Price”.
    

 

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An Announcement Event   shall be an “Extraordinary Event” for purposes of the Equity Definitions, to   which Article 12 of the Equity Definitions is applicable.
    
	
 
    	
 
    	
 
    
	
Announcement Event:
    	
 
    	
(i) The public announcement (x) by Issuer   or any of its affiliates of any “Merger Event” (as defined in the Equity   Definitions) or Tender Offer, the intention to enter into a “Merger Event”   (as defined in the Equity Definitions) or Tender Offer or any transaction or   event that, if completed, would constitute a “Merger Event” (as defined in   the Equity Definitions) or Tender Offer or (y) by a party to   the relevant proposed transaction or its affiliate of any “Merger Event”   (as defined in the Equity Definitions) or Tender Offer, the intention to   enter into a “Merger Event” (as defined in the Equity Definitions) or Tender   Offer or any transaction or event that in the commercially reasonable   determination of the Calculation Agent is likely to lead to a “Merger Event”   (as defined in the Equity Definitions) or Tender Offer (it being understood   that the Calculation Agent may make such determination by reference to the   impact of such announcement on the market for the Shares or options relating   to the Shares and such other factors as the Calculation Agent deems relevant   in its commercially reasonable determination), (ii) the public   announcement by Issuer or any of its subsidiaries of any acquisition where   the aggregate consideration exceeds 25% of the market capitalization of   Issuer as of the date of such announcement (an “Acquisition Transaction”), (iii) the public   announcement by Issuer of an intention to solicit or enter into, or to   explore strategic alternatives or other similar undertaking that may include,   a “Merger Event” (as defined in the Equity Definitions), Tender Offer and/or   Acquisition Transaction or (iv) any subsequent public   announcement by the Issuer, a party to the relevant proposed transaction   or any of their respective affiliates of a change to a transaction or intention   that is the subject of an announcement of the type described in clause (i),   (ii) or (iii) of this sentence (including, without limitation, a   new announcement, whether by Issuer, such a party or any of their   respective affiliates, relating to such a transaction or intention or the   announcement of a withdrawal from, or the abandonment or discontinuation of,   such a transaction or intention); provided that,   for the avoidance of doubt, the occurrence of an Announcement Event with   respect to any transaction or intention shall not preclude the occurrence of   a later Announcement Event with respect to such transaction or intention.
    

 

12

 

	
Nationalization, Insolvency   or Delisting:
    	
 
    	
Cancellation and   Payment (Calculation Agent Determination); provided   that in addition to the provisions of Section 12.6(a)(iii) of the   Equity Definitions, it will also constitute a Delisting if the Shares are not   immediately re-listed, re-traded or re-quoted on any of the New York Stock   Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or   their respective successors); if the Shares are immediately re-listed,   re-traded or re-quoted on any such exchange or quotation system, such exchange   or quotation system shall thereafter be deemed to be the Exchange.
    
	
 
    	
 
    	
 
    
	
Additional Termination   Event(s):
    	
 
    	
Notwithstanding   anything to the contrary in the Equity Definitions, if, as a result of an   Extraordinary Event, the Transaction would be cancelled or terminated   (whether in whole or in part) pursuant to Article 12 of the Equity   Definitions, an Additional Termination Event (with the terminated Transaction   (or portion thereof) being the Affected Transaction and Counterparty being   the sole Affected Party) shall be deemed to occur, and, in lieu of Sections   12.7, 12.8 and 12.9 of the Equity Definitions, Section 6 of the   Agreement shall apply to the Affected Transaction.
    
	
 
    	
 
    	
 
    
	
Additional Disruption   Events:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(a) Change in Law:
    	
 
    	
Applicable; provided that Section 12.9(a)(ii) of the Equity   Definitions is hereby amended by (i) replacing the phrase “the   interpretation” in the third line thereof with the phrase “, or public   announcement of, the formal or informal interpretation”, (ii) adding the   phrase “and/or Hedge Position” after the word “Shares” in clause   (X) thereof and (iii) immediately following the word “Transaction”   in clause (X) thereof, adding the phrase “in the manner contemplated by   the Hedging Party on the Trade Date”; provided, further that (i) any determination as to whether   (A) the adoption of or any change in any applicable law or regulation   (including, for the avoidance of doubt and without limitation, (x) any   tax law or (y) adoption or promulgation of new regulations authorized or   mandated by existing statute) or (B) the promulgation of or any change   in the interpretation by any court, tribunal or regulatory authority with   competent jurisdiction of any applicable law or regulation (including any   action taken by a taxing authority), in each case, constitutes a “Change in   Law” shall be made without regard to Section 739 of the Dodd-Frank Wall   Street Reform and Consumer Protection Act of 2010 or any similar legal   certainty provision in any legislation enacted, or rule or regulation   promulgated, on or after the Trade Date, and   (ii) Section 12.9(a)(ii) of the Equity Definitions is hereby   amended by replacing the
    

 

13

 

	
 
    	
 
    	
parenthetical beginning   after the word “regulation” in the second line thereof with the words   “(including, for the avoidance of doubt and without limitation, (x) any   tax law or (y) adoption or promulgation of new regulations authorized or   mandated by existing statute)”. Notwithstanding anything to the contrary in the   Equity Definitions, a Change in Law described in clause (Y) of   Section 12.9(a)(ii) of the Equity Definitions shall not constitute   a Change in Law and instead shall constitute an Increased Cost of Hedging as   described in Section 12.9(a)(vi) of the Equity Definitions.
    
	
 
    	
 
    	
 
    
	
(b) Failure to Deliver:
    	
 
    	
Applicable
    
	
 
    	
 
    	
 
    
	
(c) Insolvency Filing:
    	
 
    	
Applicable
    
	
 
    	
 
    	
 
    
	
(d) Hedging Disruption:
    	
 
    	
Applicable; provided   that:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(i)             Section 12.9(a)(v) of   the Equity Definitions is hereby modified by inserting the following words at   the end of clause (A) thereof: “in the manner contemplated by the   Hedging Party on the Trade Date”; and
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(ii)          Section 12.9(b)(iii) of   the Equity Definitions is hereby amended by inserting in the third line   thereof, after the words “to terminate the Transaction”, the words “or a   portion of the Transaction affected by such Hedging Disruption”.
    
	
 
    	
 
    	
 
    
	
(e) Increased Cost of Hedging:
    	
 
    	
Applicable solely with respect to a “Change in Law”   described in clause (Y) of Section 12.9(a)(ii) of the Equity   Definitions as set forth in the last sentence opposite the caption “Change in   Law” above.
    
	
 
    	
 
    	
 
    
	
Hedging Party:
    	
 
    	
Dealer; provided that, upon request from   Counterparty, Dealer shall promptly provide Counterparty with a written   report (in a commonly used file format for the storage and manipulation of   financial data) describing in reasonable detail any calculation made by   Dealer as Hedging Party (but without disclosing Dealer’s confidential or   proprietary models or other information that is subject to contractual, legal   or regulatory obligations to not disclose such information).
    
	
 
    	
 
    	
 
    
	
Determining Party:
    	
 
    	
Dealer; provided that, upon request from   Counterparty, Dealer shall promptly provide Counterparty with a written   report (in a commonly used file format for the storage and manipulation of   financial data) describing in reasonable detail any calculation made by   Dealer as Determining Party (but without disclosing Dealer’s confidential or   proprietary models or other information that is subject to contractual, legal   or regulatory obligations to not disclose such information).
    

 

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Non-Reliance:
    	
 
    	
Applicable
    
	
 
    	
 
    	
 
    
	
Agreements and   Acknowledgments Regarding Hedging Activities:
    	
 
    	
Applicable
    
	
 
    	
 
    	
 
    
	
Additional   Acknowledgments:
    	
 
    	
Applicable
    
	
 
    	
 
    	
 
    
	
3.              Calculation   Agent:
    	
 
    	
Dealer; provided that following the occurrence   and during the continuation of an Event of Default pursuant to   Section 5(a)(vii) of the Agreement with respect to which Dealer is   the sole Defaulting Party, if the Calculation Agent fails to timely make any   calculation, adjustment or determination required to be made by the   Calculation Agent hereunder or to perform any obligation of the Calculation   Agent hereunder and such failure continues for five (5) Exchange   Business Days following notice to the Calculation Agent by Counterparty of   such failure, Counterparty shall have the right to designate an independent,   nationally recognized equity derivatives dealer to replace Dealer as   Calculation Agent over the period during which such Event of Default has   occurred and is continuing, and the parties hereto shall work in good faith   to execute any appropriate documentation required by such replacement   Calculation Agent.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Following any   determination, adjustment or calculation by the Calculation Agent, the   Calculation Agent shall, upon request from Counterparty, promptly provide   Counterparty with a written report (in a commonly used file format for the   storage and manipulation of financial data) describing in reasonable detail   such determination, adjustment or calculation (but without disclosing   Dealer’s confidential or proprietary models or other information that is   subject to contractual, legal or regulatory obligations to not disclose such   information).
    
	
 
    	
 
    	
 
    
	
4.              Account   Details:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Dealer Payment   Instructions:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
[     ]
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Counterparty Payment   Instructions:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
To   be provided by Counterparty.
    
	
 
    	
 
    	
 
    
	
5.              Offices:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
The   Office of Dealer for the Transaction is:
    
	
 
    	
 
    	
 
    
	
200 West Street, New   York, New York 10282-2198
    
	
 
    	
 
    	
 
    
	
The   Office of Counterparty for the Transaction is:
    
	
 
    	
 
    	
 
    
	
1020 East Meadow Circle, Palo Alto, California 94303
    

 

15

 

6.              Notices: For purposes of this Confirmation:

 

(a)                                 Address for notices or communications to Counterparty:

To:                             Anacor Pharmaceuticals, Inc.

1020 East Meadow Circle

Palo Alto, California 94303

Attn:                    Graeme Bell

 

With a copy to:

 

Attn:                    Ryan Sullivan

 

(b)                                 Address for notices or communications to Dealer:

To:                             Goldman, Sachs & Co.

200 West Street

New York, NY 10282-2198

Attn:                    Bennett Schachter

Structured Equity Group

 

With a copy to:

 

Attn:                    Joshua Murray

 

7.              Representations, Warranties and Agreements:

 

(a)                                 In addition to the representations and warranties in the Agreement and those contained elsewhere herein, Counterparty represents and warrants to and for the benefit of, and agrees with, Dealer as follows:

 

(i)                                 On the Trade Date (A) none of Counterparty and its officers and directors is aware of any material nonpublic information regarding Counterparty or the Shares and (B) all reports and other documents filed by Counterparty with the Securities and Exchange Commission pursuant to the Exchange Act, when considered as a whole (with the more recent such reports and documents deemed to amend inconsistent statements contained in any earlier such reports and documents), do not contain any untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading.

 

(ii)                                  On the Trade Date, Counterparty is not engaged in a “distribution,” as such term is defined in Regulation M under the Exchange Act (“Regulation M”), of any securities of Counterparty, other than a distribution meeting the requirements of the exceptions set forth in sections 101(b)(10) and 102(b)(7) of Regulation M. Counterparty shall not engage in any such distribution until the second Exchange Business Day immediately following the Trade Date.

 

(iii)                           Without limiting the generality of Section 13.1 of the Equity Definitions, Counterparty acknowledges that neither Dealer nor any of its affiliates is making any representations or warranties or taking any position or expressing any view with respect to the treatment of the Transaction under any accounting standards including ASC Topic 260, Earnings Per Share, ASC Topic 815, Derivatives and Hedging, or ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (or any successor issue statements).

 

(iv)                              [Reserved].

 

(v)                             Prior to the Trade Date, Counterparty shall deliver to Dealer a resolution of Counterparty’s board of directors authorizing the Transaction and such other certificate or certificates as Dealer shall reasonably request. Based on such resolutions, neither Dealer nor any of its affiliates shall be subject to the restrictions under Section 203 of the Delaware General Corporation Law as an “interested stockholder” of Counterparty by virtue of (A) its role as initial purchaser of, or market-maker in, the Convertible Securities, (B) its entry into the Transaction and/or (C) any hedging transactions in Counterparty’s securities in connection with the Transaction.

 

(vi)                              Counterparty is not entering into this Confirmation to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares) in violation of the Exchange Act.

 

(vii)                           Counterparty is not, and after giving effect to the transactions contemplated hereby will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

 

(viii)                        On each of the Trade Date and the Premium Payment Date, Counterparty is not “insolvent” (as such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11

 

16

 

of the United States Code) (the “Bankruptcy Code”)) and Counterparty would be able to purchase the Number of Shares in compliance with the laws of the jurisdiction of Counterparty’s incorporation.

 

(ix)                              [Reserved].

 

(x)                                 To Counterparty’s knowledge, no state or local (including non-U.S. jurisdictions) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity) as a result of Dealer or its affiliates owning or holding (however defined) Shares.

 

(xi)                              Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities, including, without limitation, the transaction that is the subject of this confirmation and any transactions related hereto or contemplated hereby; (B) will exercise independent judgment in evaluating the recommendations of Dealer and its affiliates or associated persons with regard to any such securities transactions or strategies unless it has otherwise notified Dealer in writing; and (C) has total assets of at least USD50 million. Counterparty will notify Dealer if the immediately preceding statement contained in this Section 7(a)(xi) ceases to be true.

 

(xii)                           Without limiting the generality of Section 3(a) of the Agreement, neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of Counterparty hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of Counterparty, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument filed as an exhibit to Counterparty’s Annual Report on Form 10-K for the year ended December 31, 2015, as updated by any subsequent filings, to which Counterparty or any of its subsidiaries is a party or by which Counterparty or any of its subsidiaries is bound, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.

 

(b)                                 Each of Dealer and Counterparty agrees and represents that it is an “eligible contract participant” as defined in the U.S. Commodity Exchange Act, as amended, and is entering into the Transaction as principal (and not as agent or in any other capacity, fiduciary or otherwise) and not for the benefit of any third party.

 

(c)                                  Each of Dealer and Counterparty acknowledges that the offer and sale of the Transaction to it is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section 4(a)(2) thereof.  Accordingly, Counterparty represents and warrants to Dealer that (i) it has the financial ability to bear the economic risk of its investment in the Transaction and is able to bear a total loss of its investment and its investments in and liabilities in respect of the Transaction, which it understands are not readily marketable, are not disproportionate to its net worth, and it is able to bear any loss in connection with the Transaction, including the loss of its entire investment in the Transaction, (ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under the Securities Act, (iii) it is entering into the Transaction for its own account and without a view to the distribution or resale thereof, (iv) the assignment, transfer or other disposition of the Transaction has not been and will not be registered under the Securities Act and is restricted under this Confirmation, the Securities Act and state securities laws, and (v) its financial condition is such that it has no need for liquidity with respect to its investment in the Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated undertaking or indebtedness and is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of the Transaction.

 

(d)                                 Each of Dealer and Counterparty agrees and acknowledges that Dealer is a “financial institution,” “swap participant” and “financial participant” within the meaning of Sections 101(22), 101(53C) and 101(22A) of the Bankruptcy Code.  The parties hereto further agree and acknowledge (A) that this Confirmation is (i) a “securities contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, with respect to which each payment and delivery hereunder or in connection herewith is

 

17

 

a “termination value,” “payment amount” or “other transfer obligation” within the meaning of Section 362 of the Bankruptcy Code and a “settlement payment” within the meaning of Section 546 of the Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined in Section 101(53B) of the Bankruptcy Code, with respect to which each payment and delivery hereunder or in connection herewith is a “termination value,” “payment amount” or “other transfer obligation” within the meaning of Section 362 of the Bankruptcy Code and a “transfer” within the meaning of Section 546 of the Bankruptcy Code, and (B) that Dealer is entitled to the protections afforded by, among other sections, Sections 362(b)(6), 362(b)(17), 362(b)(27), 362(o), 546(e), 546(g), 546(j), 548(d)(2), 555, 560 and 561 of the Bankruptcy Code.

 

(e)                                  Counterparty shall deliver to Dealer (i) an incumbency certificate, dated as of the Effective Date, of Counterparty in customary form and (ii) an opinion of counsel (subject to customary qualifications, assumptions and exceptions), dated as of the Effective Date and reasonably acceptable to Dealer in form and substance, with respect to the matters set forth in Sections 3(a)(i), 3(a)(ii) and 3(a)(iv) of the Agreement and Sections 7(a)(vii) and 7(a)(xii) hereof. In addition, in connection with the entry into or consummation of any Non-US Merger Transaction (as defined below), Counterparty shall deliver to Dealer an opinion of counsel (subject to customary qualifications, assumptions and exceptions), dated as of the date of such Non-US Merger Transaction, with respect to the matters set forth in Sections 3(a)(i), 3(a)(ii), 3(a)(iv) and 3(a)(v) of the Agreement and Sections 7(a)(vii) and 7(a)(xii) of this Confirmation (as if references to (x) “execute” and “deliver” were each replaced with “assume” and (y) “execution, delivery” and “execution and delivery” were each replaced with “assumption”).  “Non-US Merger Transaction” means any Merger Event, reincorporation of Issuer, corporate inversion of Issuer or similar transaction pursuant to which (x) the consideration for the Shares includes (or, at the option of a holder of Shares, may include) shares of an entity or person that is not a corporation or is not organized under the laws of the United States, any State thereof or the District of Columbia, (y) the Issuer following such Merger Event, reincorporation of Issuer or corporate inversion of Issuer is organized in a jurisdiction other than the United States, any State thereof or the District of Columbia or (z) the Issuer following such Merger Event, reincorporation of Issuer, corporate inversion of Issuer or similar transaction will not be a corporation.

 

(f)                                   Counterparty understands that notwithstanding any other relationship between Counterparty and Dealer and its affiliates, in connection with this Transaction and any other over-the-counter derivative transactions between Counterparty and Dealer or its affiliates, Dealer or its affiliates is acting as principal and is not a fiduciary or advisor in respect of any such transaction, including any entry, exercise, amendment, unwind or termination thereof.

 

(g)                                  Counterparty represents and warrants that it has received, read and understands the OTC Options Risk Disclosure Statement and a copy of the most recent disclosure pamphlet prepared by The Options Clearing Corporation entitled “Characteristics and Risks of Standardized Options”.

 

(h)                                 Each party acknowledges and agrees to be bound by the Conduct Rules of the Financial Industry Regulatory Authority, Inc. applicable to transactions in options, and further agrees not to violate the position and exercise limits set forth therein.

 

(i)                                     Counterparty represents and warrants that the assets used in the Transaction (i) are not assets of any “plan” (as such term is defined in Section 4975 of the U.S. Internal Revenue Code (the “Code”)) subject to Section 4975 of the Code or any “employee benefit plan” (as such term is defined in Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) subject to Title I of ERISA, and (ii) do not constitute “plan assets” within the meaning of Department of Labor Regulation 2510.3-101, 29 CFR Section 2510-3-101.

 

8.  Other Provisions:

 

(a)                                 Right to Extend.  Dealer may postpone or add, in whole or in part, any Exercise Date or Settlement Date or any other date of valuation or delivery by Dealer, with respect to some or all of the relevant Options (in which event the Calculation Agent shall make appropriate adjustments to the Delivery Obligation), if Dealer determines, in its reasonable discretion, based on the advice of counsel in the case of clause (ii) below, that such extension or addition is reasonably necessary or appropriate (i) to maintain or unwind a commercially reasonable Hedge Position in light of existing liquidity conditions in the cash market, the stock borrow market or other relevant market (but only if the Calculation Agent determines that there is a material decrease in liquidity relative to Dealer’s expectations as of the Trade Date) or (ii) to

 

18

 

enable Dealer to effect transactions with respect to Shares or Share Termination Delivery Units in connection with maintaining or unwinding a commercially reasonable Hedge Position in a manner that would, if Dealer were Counterparty or an affiliated purchaser of Counterparty, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by Dealer); provided that such policies and procedures have been adopted by Dealer in good faith and are generally applicable in similar situations and applied in a non-discriminatory manner; provided further that solely with respect to a postponement pursuant to clause (i) above, no such Exercise Date or Settlement Date or any other date of valuation or delivery may be postponed or added more than 40 Exchange Business Days after the original Exercise Date or Settlement Date or other date of valuation or delivery, as the case may be.

 

(b)                                 Additional Termination Events.

 

(i)                                     The occurrence of (A) an event of default with respect to Counterparty under the terms of the Convertible Securities as set forth in Section 6.01 of the Indenture that results in the Convertible Securities becoming or being declared due and payable pursuant to the terms of the Indenture, (B) an Amendment Event, or (C) Dealer’s receipt of notice from Counterparty of an Excluded Conversion Event, in each case, shall constitute an Additional Termination Event with respect to which the Transaction is the sole Affected Transaction and Counterparty is the sole Affected Party, and Dealer shall promptly designate an Early Termination Date pursuant to Section 6(b) of the Agreement in respect of such Additional Termination Event and determine the amount payable pursuant to Section 6(e) of the Agreement; provided that in the case of an Excluded Conversion Event, the Transaction shall be subject to termination only in respect of a number of Options (the “Affected Number of Options”), equal to the lesser of (1) the number of Convertible Securities that cease to be outstanding in connection with or as a result of such Excluded Conversion Event minus the “Affected Number of Options” (as defined in the Base Capped Call Transaction Confirmation), if any, that relate to such Excluded Conversion Event (and, for the purposes of determining whether any Options under this Confirmation or under the Base Capped Call Transaction Confirmation will be among the Affected Number of Options hereunder or among the “Affected Number of Options” under, and as defined in, the Base Capped Call Transaction Confirmation, the Affected Number of Options shall be allocated first to the Base Capped Call Transaction Confirmation until all Options thereunder are exercised or terminated), and (2) the number of Options then outstanding.  For the avoidance of doubt, in determining the amount payable in respect of such Affected Transaction pursuant to Section 6 of the Agreement in connection with an Excluded Conversion Event (such amount, the “Excluded Conversion Unwind Payment”), the Calculation Agent shall assume (x) that the relevant Excluded Convertible Securities shall not have been converted and remain outstanding, (y) in the case of an Induced Conversion, that any adjustments, agreements, additional payments, deliveries or acquisitions by or on behalf of Counterparty or any affiliate of Counterparty in connection therewith had not occurred and (z) that no holders of Convertible Securities were entitled to receive any additional Shares pursuant to a Fundamental Change Adjustment, if any. Promptly following the occurrence of an Excluded Conversion Event, Counterparty shall notify Dealer of (x) such occurrence and (y) the “Settlement Method” (as defined in the Indenture) (and, if applicable, the “Specified Dollar Amount” (as defined in the Indenture)) elected (or deemed to be elected) with respect to the relevant Excluded Convertible Securities (which notice shall include the representations, warranties and acknowledgments set forth in Section 2 opposite the caption “Settlement Method Election Provisions”) (such notice, an “Excluded Conversion Event Notice”). Counterparty shall use commercially reasonable efforts to provide an Excluded Conversion Event Notice within five Scheduled Trading Days of the occurrence of an Excluded Conversion Event and, if such Excluded Conversion Event Notice is made after such five Scheduled Trading Day period, such Excluded Conversion Event Notice will contain the following representations, warranties and acknowledgments of Counterparty each made as of the date of such Excluded Conversion Event Notice:  (1) the representation and warranty set forth in Section 7(a)(i)(A) of this Confirmation (as if the reference to the “Trade Date” therein were replaced with a reference to the date of such Excluded Conversion Event Notice); (2) Counterparty

 

19

 

acknowledges its responsibilities under applicable securities laws, and in particular Section 9 and Section 10(b) of the Exchange Act and the rules and regulations thereunder, in respect of the delivery of such Excluded Conversion Event Notice; (3) Counterparty is delivering such Excluded Conversion Event Notice in good faith and not as part of a plan or scheme to evade compliance with the U.S. federal securities laws; (4) Counterparty is not delivering such Excluded Conversion Event Notice to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares) in violation of the Exchange Act; (5) Counterparty has not entered into or altered any hedging transaction relating to the Shares corresponding to or offsetting the Transaction; and (6) Counterparty acknowledges that any transaction that Dealer makes with respect to the Shares during the commercially reasonable period of time over which the Market Price (as defined below) is determined shall be made by Dealer at Dealer’s sole discretion for Dealer’s own account and Counterparty shall not have, and shall not attempt to exercise, any influence over how, when, whether or at what price Dealer effects such transactions, including, without limitation, the prices paid or received by Dealer per Share pursuant to such transactions, or whether such transactions are made on any securities exchange or privately.

 

If Counterparty has notified Dealer in the applicable notice of an Excluded Conversion Event that it has elected to satisfy its conversion obligation in respect of the related Excluded Convertible Securities entirely in Shares or in a combination of cash and Shares, then in lieu of paying the Excluded Conversion Unwind Payment entirely in cash, Dealer shall pay and/or deliver to Counterparty, on the date such Excluded Conversion Unwind Payment would otherwise be due (or within a commercially reasonable period of time thereafter, as determined by Dealer taking into account existing liquidity conditions and commercially reasonable hedging and hedge unwind activity or settlement activity in connection with delivery) (A) in the case where Counterparty has elected to satisfy its conversion obligation in respect of the related Excluded Convertible Securities entirely in Shares or in a combination of cash and Shares with a “Specified Dollar Amount” (as defined in the Indenture) equal to or less than USD1,000, a number of Shares equal to the quotient of (x) the amount of such Excluded Conversion Unwind Payment divided by (y) a market price per Share (which market price per Share may, but is not required to, correspond to the “Daily VWAP” over the “Observation Period” (each as defined in the Indenture), if applicable, with respect to the Excluded Convertible Securities) (the “Market Price”) determined by the Calculation Agent over a commercially reasonable period of time to unwind a commercially reasonable Hedge Position or (B) in the case where Counterparty has elected to satisfy its conversion obligation in respect of the related Excluded Convertible Securities in a combination of cash and Shares with a “Specified Dollar Amount” (as defined in the Indenture) greater than USD1,000, (x) an amount of cash equal to the lesser of (1) the amount of such Excluded Conversion Unwind Payment and (2) the product of (I) the product of the Applicable Percentage and the excess of such “Specified Dollar Amount” (as defined in the Indenture) over USD1,000 and (II) the Affected Number of Options and (y) if the amount of such Excluded Conversion Unwind Payment exceeds the amount of cash calculated pursuant to the immediately preceding clause (B)(x)(2), a number of Shares equal to the quotient of (x) the amount of such excess divided by (y) the Market Price determined by the Calculation Agent over a commercially reasonable period of time to unwind a commercially reasonable Hedge Position. Notwithstanding anything to the contrary herein, any payment calculated pursuant to this Section 8(b)(i) in respect of an Excluded Conversion Event shall be a “Payment Obligation” to which the Share Termination Alternative provisions of Section 8(c) below apply; provided that, for the avoidance of doubt, in the case of a payment or delivery pursuant to this Section 8(b)(i) following an Extraordinary Event, the Calculation Agent shall adjust the composition of the Shares as appropriate to reflect the composition of consideration received by holders of Shares in such Extraordinary Event (as determined in a manner consistent with the provisions opposite the caption “Share Termination Delivery Unit” below) and the provisions opposite the caption “Other Applicable Provisions” below shall apply.

 

“Amendment Event” means that Counterparty amends, modifies, supplements or obtains a

 

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waiver in respect of any term of the Indenture or the Convertible Securities governing the principal amount, coupon, maturity, repurchase obligation of Counterparty, absence of a redemption right of Counterparty, any term relating to conversion of the Convertible Securities (including changes to the conversion rate, conversion rate adjustment provisions, conversion settlement dates or conversion conditions), or any term that would require consent of the holders of not less than 100% of the principal amount of the Convertible Securities to amend (but excluding, for the avoidance of doubt, any amendment, modification or supplement described in clause (x) or (y) of the first paragraph of Section 1), in each case without the prior consent of Dealer.

 

“Excluded Conversion Event” means any conversion of Convertible Securities (other than Convertible Securities that are Exchanged Securities) with a “Conversion Date” (as defined in the Indenture) occurring prior to January 15, 2023.

 

“Induced Conversion” means a conversion of any Excluded Convertible Securities (A) in connection with (x) an adjustment to the Conversion Rate effected by Counterparty (whether any Discretionary Adjustment or otherwise) that is not required under the terms of the Indenture or (y) an agreement by Counterparty with the holder(s) of such Convertible Securities whereby, in the case of either (x) or (y), the holder(s) of such Convertible Securities receive upon conversion or pursuant to such agreement, as the case may be, a payment of cash or delivery of Shares or any other property or item of value that was not required under the terms of the Indenture or (B) after having been acquired from a holder of Convertible Securities by or on behalf of Counterparty or any of its affiliates other than pursuant to a conversion by such Holder and thereafter converted by or on behalf of Counterparty or any affiliate of Counterparty.

 

(ii) (1)                Promptly following any Repayment Event (as defined below) (but, in any event, within 5 Scheduled Trading Days following settlement thereof), Counterparty may notify Dealer of such Repayment Event and the aggregate principal amount of Convertible Securities subject to such Repayment Event (the “Repayment Convertible Securities”) (any such notice, a “Repayment Notice”); provided that any “Repayment Notice” delivered to Dealer pursuant to the Base Capped Call Transaction Confirmation shall be deemed to be a Repayment Notice pursuant to this Confirmation and the terms of such Repayment Notice shall apply, mutatis mutandis, to this Confirmation. The receipt by Dealer from Counterparty of any Repayment Notice shall constitute an Additional Termination Event as provided in this Section 8(b)(ii).

 

(2)                                 Upon receipt of any such Repayment Notice, Dealer shall designate an Exchange Business Day following receipt of such Repayment Notice (which Exchange Business Day shall be on or as promptly as reasonably practicable after the related settlement date for the relevant Repayment Event) as an Early Termination Date with respect to a portion (the “Repayment Terminated Portion”) of the Transaction consisting of a number of Options (the “Repayment Options”) equal to the lesser of (A) the number of Repayment Convertible Securities in denominations of USD1,000 that are subject to the relevant Repayment Event (and for the purposes of determining whether any Convertible Securities will be Repayment Convertible Securities hereunder or under, and as defined in, the Base Capped Call Transaction Confirmation, Convertible Securities that are subject to a Repayment Event shall be allocated first to the Base Capped Call Transaction Confirmation until all Options thereunder are exercised or terminated) and (B) the Number of Options as of the date Dealer designates such Early Termination Date, and as of such date, the Number of Options shall be reduced by the number of Repayment Options.

 

(3)                                 Any payment or delivery in respect of such termination of the Repayment Terminated Portion of the Transaction shall be made pursuant to Section 6 of the Agreement and, if applicable, Section 8(c) of this Confirmation.  Counterparty shall be the sole Affected Party with respect to such Additional Termination Event and the Repayment Terminated Portion of the Transaction shall be the sole Affected Transaction. “Repayment Event” means that (i) any Convertible Securities are repurchased by Counterparty or any of its subsidiaries, (ii) any

 

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Convertible Securities are delivered to Counterparty in exchange for delivery of any property or assets of Counterparty or any of its subsidiaries (howsoever described), (iii) any principal of any of the Convertible Securities is repaid prior to the final maturity date of the Convertible Securities (other than upon acceleration of the Convertible Securities described in Section 8(b)(i) of the Confirmation), or (iv) any Convertible Securities are exchanged by or for the benefit of the “Holders” (as defined in the Indenture) thereof for any other securities of Counterparty or any of its “Affiliates” (as defined in the Indenture) (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction; provided that no conversion of Convertible Securities pursuant to the terms of the Indenture shall constitute a Repayment Event.  Counterparty acknowledges its responsibilities under applicable securities laws, and in particular Section 9 and Section 10(b) of the Exchange Act and the rules and regulations thereunder, in respect of any action taken by Counterparty in respect of a Repayment Event, including, without limitation, the delivery of a Repayment Notice.

 

(4)                                 Counterparty acknowledges and agrees that, except to the extent provided above in this Section 8(b)(ii), all such Convertible Securities subject to a Repayment Event will be deemed for all purposes under the Transaction to be permanently extinguished and no longer outstanding.

 

(c)                                  Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events.  If Dealer shall owe Counterparty any amount pursuant to Section 12.2 of the Equity Definitions or “Consequences of Merger Events/Tender Offers” above, or Section 12.6, 12.7 or 12.9 of the Equity Definitions or pursuant to Section 6(d)(ii) of the Agreement (a “Payment Obligation”), Counterparty shall have the right, in its sole discretion, to require Dealer to satisfy any such Payment Obligation by the Share Termination Alternative (as defined below) by giving irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, no later than 12:00 noon, New York City time (it being understood and agreed that if such notice is given after 9:30 a.m., New York City time, the Calculation Agent may adjust such Payment Obligation in a commercially reasonable manner to reflect the additional costs and expenses incurred in connection with maintaining or unwinding a commercially reasonable hedge position as a result of such notification being given after such time), on the relevant merger date, Announcement Date, Early Termination Date or date of cancellation or termination in respect of an Extraordinary Event, as applicable (“Notice of Share Termination”); provided that Counterparty shall not have the right to so elect in the event (i) of an Insolvency, a Nationalization or a Merger Event, in each case, in which the consideration or proceeds to be paid to holders of Shares consists solely of cash, (ii) of an Event of Default in which Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected Party or an Extraordinary Event, which Event of Default, Termination Event or Extraordinary Event resulted from an event or events within Counterparty’s control or (iii) that Counterparty fails to remake the representation set forth in Section 7(a)(i)(A) of this Confirmation (as if the reference to “Trade Date” therein were replaced with a reference to the date of such election).  Upon such Notice of Share Termination, the following provisions shall apply on the Scheduled Trading Day immediately following the relevant merger date, Announcement Date, Early Termination Date or date of cancellation or termination in respect of an Extraordinary Event, as applicable:

 

Share Termination Alternative:                        If applicable, means that Dealer shall deliver to Counterparty the Share Termination Delivery Property on the date on which the Payment Obligation would otherwise be due pursuant to “Consequences of Merger Events/Tender Offers” above or Section 12.2, 12.6, 12.7 or 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as applicable, or such later date or dates as the Calculation Agent may reasonably determine (the “Share Termination Payment Date”), in satisfaction of the Payment Obligation.

 

Share Termination Delivery

Property:                                                                                                                                              A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price.  The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional

 

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                                                                                                                                                                                                portion of the aggregate amount of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price.

 

Share Termination Unit Price:                                The value of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Calculation Agent by commercially reasonable means and notified by the Calculation Agent to Dealer at the time of notification of the Payment Obligation.

 

Share Termination Delivery Unit:             In the case of a Termination Event, Event of Default, Delisting or Additional Disruption Event, one Share or, in the case of an Insolvency, Nationalization or Merger Event, one Share or a unit consisting of the number or amount of each type of property received by holders of all or substantially all Shares (determined on a per Share basis and without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Insolvency, Nationalization or Merger Event, as applicable.  If such Insolvency, Nationalization or Merger Event involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash.

 

Failure to Deliver:                                                                                                Applicable

 

Other Applicable Provisions:                                       If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9, 9.10 and 9.11 of the Equity Definitions will be applicable as if “Physical Settlement” applied to the Transaction, except that all references to “Shares” shall be read as references to “Share Termination Delivery Units”; provided that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws as a result of the fact that Counterparty is the issuer of any Share Termination Delivery Units (or any part thereof).

 

(d)                                 Disposition of Hedge Shares.  Counterparty hereby agrees that if, in the good faith reasonable judgment of Dealer based on the advice of counsel, the Shares (the “Hedge Shares”) acquired by Dealer for the purpose of hedging its obligations pursuant to the Transaction cannot be sold in the U.S. public market by Dealer without registration under the Securities Act, Counterparty shall, at its election: (i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer an effective registration statement under the Securities Act to cover the resale of such Hedge Shares and (A) enter into an agreement, in form and substance satisfactory to Dealer, substantially in the form of an underwriting agreement for a registered offering, (B) provide accountant’s “comfort” letters in customary form for registered offerings of equity securities, (C) provide disclosure opinions of nationally recognized outside counsel to Counterparty reasonably acceptable to Dealer, (D) provide other customary opinions, certificates and closing documents customary in form for registered offerings of equity securities and (E) afford Dealer a reasonable opportunity to conduct a “due diligence” investigation with respect to Counterparty customary in scope for underwritten offerings of equity securities; provided, however, that if Counterparty elects clause (i) above but the items referred to therein are not completed in a timely manner, or if Dealer, in its sole commercially reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this Section 8(d) shall apply at the election of Counterparty; (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities of similar size and type, in form and substance satisfactory to Dealer, including customary representations, covenants, blue sky and other governmental filings and/or registrations, indemnities to Dealer, due diligence rights (for Dealer or any designated buyer

 

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of the Hedge Shares from Dealer), opinions and certificates and such other documentation as is customary for private placements agreements, all reasonably acceptable to Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the Transaction that are necessary, in its reasonable judgment, to compensate Dealer for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement of similar size and type); or (iii) purchase the Hedge Shares from Dealer at the “Daily VWAP” (as defined in the Indenture) on such Exchange Business Days, and in the amounts, requested by Dealer.  This Section 8(d) shall survive the termination, expiration or early unwind of the Transaction.

 

(e)                                  Repurchase and Conversion Rate Adjustment Notices.  Counterparty shall, on any day on which Counterparty effects any repurchase of Shares or consummates or otherwise engages in any transaction or event that could reasonably be expected to lead to an increase in the Conversion Rate (a “Conversion Rate Adjustment Event”), give Dealer a written notice of such repurchase or Conversion Rate Adjustment Event (a “Repurchase Notice”) on such day if, following such repurchase or Conversion Rate Adjustment Event, the Notice Percentage would reasonably be expected to be (i) greater than 4.1% or (ii) greater by 0.5% than the Notice Percentage included in the immediately preceding Repurchase Notice, and, if such repurchase or Conversion Rate Adjustment Event, or the intention to effect the same, would constitute material nonpublic information with respect to Counterparty or the Shares, Counterparty shall make public disclosure thereof at or prior to delivery of such Repurchase Notice.  The “Notice Percentage” as of any day is the fraction, expressed as a percentage, the numerator of which is the Number of Shares plus the number of Shares underlying any other call options sold by Dealer to Counterparty and the denominator of which is the number of Shares outstanding on such day.  In the event that Counterparty fails to provide Dealer with a Repurchase Notice on the day and in the manner specified in this Section 8(e) then Counterparty agrees to indemnify and hold harmless Dealer, its affiliates and their respective directors, officers, employees, agents and controlling persons (Dealer and each such person being an “Indemnified Party”) from and against any and all losses (including losses relating to the Dealer’s commercially reasonable hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including without limitation, any forbearance from hedging activities or cessation of hedging activities and any losses in connection therewith with respect to this Transaction), claims, damages and liabilities (or actions in respect thereof), joint or several, to which such Indemnified Party may become subject under applicable securities laws, including without limitation, Section 16 of the Exchange Act or under any state or federal law, regulation or regulatory order, relating to or arising out of such failure.  If for any reason the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then Counterparty shall contribute, to the maximum extent permitted by law, to the amount paid or payable by the Indemnified Party as a result of such loss, claim, damage or liability.  In addition, Counterparty will reimburse any Indemnified Party for all reasonable, out-of-pocket expenses (including reasonable, out-of-pocket counsel fees and expenses) as they are incurred (after notice to Counterparty) in connection with the investigation of, preparation for or defense or settlement of any pending or threatened claim or any action, suit or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto and whether or not such claim, action, suit or proceeding is initiated or brought by or on behalf of Counterparty.  This indemnity shall survive the completion of the Transaction contemplated by this Confirmation and any assignment and delegation of the Transaction made pursuant to this Confirmation or the Agreement shall inure to the benefit of any permitted assignee of Dealer.

 

(f)                                    Transfer and Assignment.  Either party may transfer or assign any of its rights or obligations under the Transaction with the prior written consent of the non-transferring party, such consent not to be unreasonably withheld or delayed; provided that Dealer may transfer or assign without any consent of Counterparty its rights and obligations hereunder, in whole or in part, to any affiliate of Dealer (1) that has a long-term issuer rating that is equal to or better than Dealer’s credit rating at the time of such transfer or assignment or (2) whose obligations hereunder will be guaranteed, pursuant to the terms of a customary guarantee in a form used by Dealer or Dealer’s ultimate parent, as applicable, generally for similar transactions, by Dealer or Dealer’s ultimate parent; provided further that it shall be a condition to a transfer or assignment by Dealer without Counterparty’s consent that (x) as of the date of such transfer or assignment, and giving effect thereto, Counterparty will not be required (or, as determined by Dealer in good faith, reasonably expected) to pay the transferee, assignee or Dealer on any payment date an amount under Section 2(d)(i)(4) of the Agreement greater than an amount that Counterparty would have been

 

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required to pay to Dealer in the absence of such transfer or assignment and (y) as of the date of such transfer or assignment, and giving effect thereto, the transferee or assignee will not be required to withhold or deduct on account of Tax from any payments under the Agreement or will be required to gross up for such Tax under Section 2(d)(i)(4) of the Agreement. If at any time at which (1) the Equity Percentage exceeds 8.0% or (2) Dealer, Dealer Group (as defined below) or any person whose ownership position would be aggregated with that of Dealer or Dealer Group (Dealer, Dealer Group or any such person, a “Dealer Person”) under Section 203 of the Delaware General Corporation Law or other federal, state or local law, rule, regulation or regulatory order or organizational documents or contracts of Counterparty applicable to ownership of Shares (“Applicable Restrictions”), owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership in excess of a number of Shares equal to (x) the minimum number of Shares that would give rise to reporting, registration, filing or notification obligations (except for any filings of Form 13F, Schedule 13D or Schedule 13G under the Exchange Act) or other requirements (including obtaining prior approval by a state or federal regulator) of a Dealer Person under Applicable Restrictions and with respect to which such requirements have not been met or the relevant approval has not been received minus (y) 1% of the number of Shares outstanding on the date of determination (either such condition described in clause (1) or (2), an “Excess Ownership Position”), Dealer, in its discretion, is unable to effect a transfer or assignment to a third party after its commercially reasonable efforts on pricing and terms and within a time period reasonably acceptable to Dealer such that an Excess Ownership Position no longer exists, Dealer may designate any Scheduled Trading Day as an Early Termination Date with respect to a portion (the “Terminated Portion”) of the Transaction, such that an Excess Ownership Position no longer exists following such partial termination.  In the event that Dealer so designates an Early Termination Date with respect to a portion of the Transaction, a payment or delivery shall be made pursuant to Section 6 of the Agreement and Section 8(c) of this Confirmation as if (i) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Terminated Portion of the Transaction, (ii) Counterparty were the sole Affected Party with respect to such partial termination, (iii) such portion of the Transaction were the only Terminated Transaction and (iv) Dealer were the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement and to determine the amount payable pursuant to Section 6(e) of the Agreement. The “Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Dealer and any of its affiliates subject to aggregation with Dealer for purposes of the “beneficial ownership” test under Section 13 of the Exchange Act and all persons who may form a “group” (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) with Dealer (collectively, “Dealer Group”) “beneficially own” (within the meaning of Section 13 of the Exchange Act) without duplication on such day and (B) the denominator of which is the number of Shares outstanding on such day.  In the case of a transfer or assignment by Counterparty of its rights and obligations hereunder and under the Agreement, in whole or in part (any such Options so transferred or assigned, the “Transfer Options”), to any party, withholding of such consent by Dealer shall not be considered unreasonable if such transfer or assignment does not meet the reasonable conditions that Dealer may impose including, but not limited, to the following conditions:

 

(A)                           With respect to any Transfer Options, Counterparty shall not be released from its notice and indemnification obligations pursuant to Section 8(e) or any obligations under Section 2 (regarding Extraordinary Events) or 8(d) of this Confirmation;

 

(B)                           Prior to the occurrence of a Non-US Merger Transaction, any Transfer Options shall only be transferred or assigned to a third party that is a U.S. person (as defined in the Internal Revenue Code of 1986, as amended);

 

(C)                           Such transfer or assignment shall be effected on terms, including any reasonable undertakings by such third party (including, but not limited to, undertakings with respect to compliance with applicable securities laws in a manner that, in the reasonable judgment of Dealer, will not expose Dealer to material risks under applicable securities laws) and execution of any documentation and delivery of legal opinions with respect to securities laws and other matters by such third party and Counterparty as are requested and reasonably satisfactory to Dealer;

 

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(D)                           Dealer will not, as a result of such transfer and assignment, be required to pay the transferee on any payment date an amount under Section 2(d)(i)(4) of the Agreement greater than an amount that Dealer would have been required to pay to Counterparty in the absence of such transfer and assignment;

 

(E)                            An Event of Default, Potential Event of Default or Termination Event will not occur as a result of such transfer and assignment;

 

(F)                             Without limiting the generality of clause (B), Counterparty shall have caused the transferee to make such Payee Tax Representations and to provide such tax or other documentation as may be reasonably requested by Dealer to permit Dealer to determine that results described in clauses (D) and (E) will not occur upon or after such transfer and assignment; and

 

(G)                           Counterparty shall be responsible for all reasonable, out-of-pocket costs and expenses, including reasonable counsel fees, incurred by Dealer in connection with such transfer or assignment.

 

(g)                                  Staggered Settlement. Dealer may, by notice to Counterparty prior to any Settlement Date (a “Nominal Settlement Date”), elect to deliver the Shares on one or more dates (each, a “Staggered Settlement Date”) or at two or more times on the Nominal Settlement Date as follows:

 

(i)                                     in such notice, Dealer will specify to Counterparty the related Staggered Settlement Dates (each of which will be on or prior to the Nominal Settlement Date, but not prior to the earlier of the Conversion Date and the first day of the relevant Cash Settlement Averaging Period) or delivery times and how it will allocate the Shares it is required to deliver under “Delivery Obligation” (above) among the Staggered Settlement Dates or delivery times; and

 

(ii)                                  the aggregate number of Shares that Dealer will deliver to Counterparty hereunder on all such Staggered Settlement Dates and delivery times will equal the number of Shares that Dealer would otherwise be required to deliver on such Nominal Settlement Date.

 

(h)                                 Disclosure.  Effective from the date of commencement of discussions concerning the Transaction, Counterparty and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Counterparty relating to such tax treatment and tax structure.

 

(i)              No Netting or Set-off.  The provisions of Section 2(c) of the Agreement shall not apply to the Transaction. Each party waives any and all rights it may have to set-off delivery or payment obligations it owes to the other party under the Transaction against any delivery or payment obligations owed to it by the other party under any other agreement between the parties hereto, by operation of law or otherwise.

 

(j)            Equity Rights.  Dealer acknowledges and agrees that this Confirmation is not intended to convey to it rights with respect to the Transaction that are senior to the claims of common stockholders in the event of Counterparty’s bankruptcy.  For the avoidance of doubt, the parties agree that the preceding sentence shall not apply at any time other than during Counterparty’s bankruptcy to any claim arising as a result of a breach by Counterparty of any of its obligations under this Confirmation or the Agreement.  For the avoidance of doubt, the parties acknowledge that the obligations of Counterparty under this Confirmation are not secured by any collateral that would otherwise secure the obligations of Counterparty herein under or pursuant to any other agreement.

 

(k)         Early Unwind.  In the event the sale by Counterparty of the Optional Securities (as defined in the Purchase Agreement) is not consummated pursuant to the Purchase Agreement for any reason, or Counterparty fails to deliver to Dealer opinions of counsel as required pursuant to the first sentence of Section 7(e), in each case by the close of business in New York on the Premium Payment Date (or such later date as agreed upon by the parties) (the Premium Payment Date or such later date being the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”) on the Early Unwind Date and the Transaction and all of the respective rights and obligations of Dealer and Counterparty hereunder shall be cancelled and terminated.  Following such cancellation and termination, each party shall

 

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be released and discharged by the other party from, and agrees not to make any claim against the other party with respect to, any obligations or liabilities of either party arising out of, and to be performed in connection with, the Transaction either prior to or after the Early Unwind Date.  Dealer and Counterparty represent and acknowledge to the other that upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged.

 

(l)          Wall Street Transparency and Accountability Act of 2010.  The parties hereby agree that none of (v) Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“WSTAA”), (w) any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the Trade Date, (x) the enactment of WSTAA or any regulation under the WSTAA, (y) any requirement under WSTAA nor (z) an amendment made by WSTAA, shall limit or otherwise impair either party’s rights to terminate, renegotiate, modify, amend or supplement this Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under this Confirmation, the Equity Definitions incorporated herein or the Agreement (including, but not limited to, rights arising from a Change in Law, a Failure to Deliver, a Hedging Disruption, an Increased Cost of Hedging, an Excess Ownership Position or Illegality (as defined in the Agreement)).

 

(m) Payment by Counterparty. In the event that, following the payment of the Premium hereunder by counterparty, an Early Termination Date occurs or is designated with respect to the Transaction as a result of a Termination Event or an Event of Default and, as a result, Counterparty owes to Dealer an amount calculated under Section 6(e) of the Agreement, such amount shall be deemed to be zero.  For the avoidance of doubt, this Section 8(m) shall not preclude Dealer from bringing any legal action, suit or proceeding against Counterparty seeking monetary damages for a breach of this Confirmation or the Agreement or a misrepresentation made by Counterparty hereunder or thereunder.

 

(n)         Governing Law.  THE AGREEMENT, THIS CONFIRMATION AND ALL MATTERS ARISING IN CONNECTION WITH THE AGREEMENT AND THIS CONFIRMATION SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ITS CHOICE OF LAW DOCTRINE, OTHER THAN TITLE 14 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

(o)         Amendment.  This Confirmation and the Agreement may not be modified, amended or supplemented, except in a written instrument signed by Counterparty and Dealer.

 

(p)         Counterparts.  This Confirmation may be executed in several counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

(q)         Designation by Dealer. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such shares or other securities and otherwise to perform Dealer obligations in respect of the Transaction and any such designee may assume such obligations.  Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.

 

(r)            Tax Matters.

 

(i)                                     Withholding Tax imposed on payments to non-US counterparties under the United States Foreign Account Tax Compliance Act.  “Tax” and “Indemnifiable Tax”, each as defined in Section 14 of the Agreement, shall not include any withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of the Agreement.

 

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(ii)                                  HIRE Act.  “Tax” and “Indemnifiable Tax”, each as defined in Section 14 of the Agreement, shall not include any tax imposed on payments treated as dividends from sources within the United States under Section 871(m) of the Code or any regulations issued thereunder.

 

(iii)                            Tax Documentation. Counterparty shall provide to Dealer a valid U.S. Internal Revenue Service Form W-9 or applicable W-8, or any successor thereto, (i) on or before the date of execution of this Confirmation, (ii) upon reasonable request of Dealer and (iii) promptly upon learning that any such tax form previously provided by Counterparty has become obsolete or incorrect.  Additionally, Counterparty shall, promptly upon request by Dealer, provide such other tax forms and documents reasonably requested by Dealer.  Dealer shall provide to Counterparty a valid U.S. Internal Revenue Service Form W-9, or any successor thereto, (i) on or before the date of execution of this Confirmation, (ii) upon reasonable request of Counterparty and (iii) promptly upon learning that any such tax form previously provided by Dealer has become obsolete or incorrect.  Additionally, Dealer shall, promptly upon request by Counterparty, provide such other tax forms and documents reasonably requested by Counterparty.

 

(s)           Amendments to Equity Definitions.  The following amendments shall be made to the Equity Definitions:

 

(i)                                     Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) at Dealer’s option, the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that Issuer.”;

 

(ii)                                  Solely in respect of adjustments to the Cap Price, and other than in respect of a Potential Adjustment Event resulting from any Share combination or consolidation, or subdivision, dividend or distribution of the relevant Shares, in each case, of the type described in Section 11.2(e)(i) of the Equity Definitions:  the first sentence of Section 11.2(c) of the Equity Definitions, prior to clause (A) thereof, is hereby amended to read as follows: ‘(c) If “Calculation Agent Adjustment” is specified as the Method of Adjustment in the related Confirmation of a Share Option Transaction, then following the announcement or occurrence of any Potential Adjustment Event, the Calculation Agent will determine whether such Potential Adjustment Event has a material effect on the theoretical value of the relevant Shares or options on the Shares and, if so, will (i) make appropriate adjustment(s), if any, to any one or more of:’ and, the portion of such sentence immediately preceding clause (ii) thereof is hereby amended by deleting the words “diluting or concentrative” and the words “(provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares)” and replacing such latter phrase with the words “(and, for the avoidance of doubt, adjustments may be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares)”;

 

(iii)                               solely in respect of adjustments to the Cap Price, Section 11.2(a) of the Equity Definitions is hereby amended by deleting the words “diluting or concentrative” and replacing them with “material” and adding the phrase “or options on the Shares” at the end of the sentence; and

 

(iv)                              solely in respect of adjustments to the Cap Price, Section 11.2(e)(vii) of the Equity Definitions is hereby amended by (x) deleting the words “that may have” and replacing them with “that is within the control of Issuer or its affiliates or agents and has”, (y) deleting the words “diluting or concentrative” and replacing them with “material” and (z) adding the phrase “or options on the Shares” at the end of the sentence.

 

(t)                                    Waiver of Trial by Jury. EACH OF COUNTERPARTY AND DEALER HEREBY IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN

 

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ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE TRANSACTION OR THE ACTIONS OF DEALER OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.

 

(u)                                 Jurisdiction.  THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN, AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

 

(v)                                 Non-US Merger Transactions.                             If (a) Issuer enters into or consummates any Non-US Merger Transaction pursuant to which Issuer following such Non-US Merger Transaction is organized under the laws of a jurisdiction other than the Islands of Bermuda, the Cayman Islands, Canada, Guernsey, Jersey, the Republic of Ireland, Luxembourg, the Netherlands, Switzerland, France, Germany or the United Kingdom or (b) immediately following entry into or consummation of any Non-US Merger Transaction, either the successor Issuer fails to assume from Counterparty all of the rights and obligations of Counterparty hereunder and/or the successor Counterparty following such Non-US Merger Transaction fails to either (1) repeat in writing to Dealer the representations and warranties set forth in Sections 3(a)(i), 3(a)(ii), 3(a)(iv) and 3(a)(v) of the Agreement and Sections 7(a)(vii) and 7(a)(xii) of this Confirmation (as if references to (i) “execute” and “deliver” were each replaced with “assume” and (ii) “execution, delivery” and “execution and delivery” were replaced with “assumption”) or (2) deliver the opinion required by the second sentence of Section 7(e) of this Confirmation in connection with such Non-US Merger Transaction, in each case, then such transaction or failure shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall promptly designate an Early Termination Date pursuant to Section 6(b) of the Agreement in respect of such Additional Termination Event. If, at any time following the occurrence of any Non-US Merger Transaction, Dealer reasonably determines in its good faith judgment that (x)(1) such Non-US Merger Transaction, (2) treating the relevant shares deliverable under such Non-US Merger Transaction as “Reference Property” (as defined in the Indenture) and/or (3) Cancellation and Payment not applying to the Transaction with respect to such Non-US Merger Transaction, in each case of clause (1), (2) or (3), has had an adverse effect on Dealer’s rights and obligations in respect of the Transaction and/or its hedging activities in respect of the Transaction or (y) Dealer would incur an increased (as compared with circumstances existing on the Trade Date) amount of tax, duty, expense or fee (other than brokerage commissions with respect to transactions effected on the Exchange and excluding (I) any de minimis (as determined by the Calculation Agent) increased amount of tax, duty, expense or fee (it being understood, for the avoidance of doubt, that any such increased amount that, in the aggregate with all such taxes, duties, expenses or fees that would be incurred by Dealer, is equal to or greater than USD50,000 shall not be considered to be de minimis) and (II) any such increased amount that is incurred solely due to the deterioration of the creditworthiness of Dealer), to (1) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the economic risk of entering into and performing its obligations with respect to the Transaction, or (2) realize, recover or remit the proceeds of any such transaction(s) or asset(s) (each of the events described in clause (x) and clause (y) above, a “Non-US Merger Event”), then, in either case, Dealer shall give prompt notice to Counterparty of such Non-US Merger Event. Concurrently with delivering such notice, Dealer shall give notice to Counterparty of a commercially reasonable Price Adjustment that Dealer determines, in its good faith, commercially reasonable judgment, appropriate to account for the economic effect on the Transaction of such Non-US Merger Event and provide Counterparty with supporting documentation for such Price Adjustment (for the avoidance of doubt, as if Dealer for such purpose were Hedging Party and such supporting documentation were subject to the provisions set forth under “Hedging Party” above) (unless Dealer determines in its good faith, commercially reasonable judgment that no Price Adjustment will produce a commercially reasonably result, in which case Dealer shall so notify Counterparty). Unless Dealer determines in its good faith, commercially reasonable judgment that no Price Adjustment will

 

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produce a commercially reasonably result, within five Scheduled Trading Days of receipt of such notice, Counterparty shall notify Dealer that it elects to (A) agree to otherwise amend the Transaction to take into account the economic effect of such Non-US Merger Event or (B) pay Dealer an amount determined by Dealer (and in respect of which Dealer has provided to Counterparty supporting documentation (for the avoidance of doubt, as if Dealer for such purpose were Hedging Party and such supporting documentation were subject to the provisions set forth under “Hedging Party” above)) that corresponds to such Price Adjustment (and, in each case, Issuer shall be deemed to have repeated the representation set forth in Section 7(a)(i)(A) of this Confirmation (as if the reference to “Trade Date” therein were replaced with a reference to the date of such election)). If Counterparty fails to give such notice to Dealer of its election by the end of that fifth Scheduled Trading Day, or if Dealer determines in its good faith, commercially reasonable judgment that no Price Adjustment will produce a commercially reasonably result, then such failure or such determination, as the case may be, shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (1) Counterparty shall be deemed to be the sole Affected Party, (2) the Transaction shall be the sole Affected Transaction and (3) Dealer shall promptly designate an Early Termination Date pursuant to Section 6(b) of the Agreement in respect of such Additional Termination Event. For the avoidance of doubt, the parties hereto agree and acknowledge that (I) the occurrence of a Non-US Merger Event shall not preclude the occurrence of one or more additional, subsequent Non-US Merger Events and (II) if a Non-US Merger Event occurs, Dealer will determine, in its sole discretion, whether to exercise its rights under the provisions of this Section 8(v) (which provisions, for the avoidance of doubt, will not limit the rights and remedies of Dealer and its affiliates under any other provision of this Confirmation, the Equity Definitions and the Agreement), it being understood and agreed that any Price Adjustment described in clause (A) above and/or any payment described in clause (B) above shall be calculated without duplication in respect of any prior such Price Adjustment and/or payment.

 

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Counterparty hereby agrees (a) to check this Confirmation carefully and immediately upon receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the agreement between Dealer and Counterparty with respect to the Transaction, by manually signing this Confirmation or this page hereof as evidence of agreement to such terms and providing the other information requested herein and immediately returning an executed copy to Dealer.

 

	
 
    	
Yours faithfully,
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
GOLDMAN, SACHS & CO.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Daniela A. Rouse
    
	
 
    	
 
    	
Name: Daniela A. Rouse
    
	
 
    	
 
    	
Title: Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
Agreed and Accepted By:
    	
 
    
	
 
    	
 
    
	
ANACOR   PHARMACEUTICALS, INC.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Graeme Bell
    	
 
    
	
 
    	
Name: Graeme Bell
    	
 
    
	
 
    	
Title: Executive Vice   President and Chief Financial OfficerExhibit 10.1

 

THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of April 5, 2016 (the “Effective Date”) is by and among (a) SILICON VALLEY BANK, a California corporation (“Bank”), and (b) (i) GIGOPTIX, INC., a Delaware corporation (“GigOptix”), CHIPX, INCORPORATED, a Delaware corporation (“ChipX”), ENDWAVE CORPORATION, a Delaware corporation (“Endwave”)  and MAGNUM SEMICONDUCTOR, INC., a Delaware corporation (“Magnum”) (GigOptix, ChipX, Endwave and Magnum are individually and collectively, jointly and severally, “Borrower”), and provides the terms on which Bank shall lend to Borrower, and Borrower shall repay Bank.  The parties agree as follows:

 

A.            Bank, GigOptix, ChipX and Endwave have previously entered into that certain Second Amended and Restated Loan and Security Agreement dated as of March 25, 2013, by and among Bank, GigOptix, ChipX and Endwave, as amended by a certain First Amendment to Second Amended and Restated Loan and Security Agreement dated as of March 9, 2015, and as further amended by a certain Second Amendment to Second Amended and Restated Loan and Security dated as of May 15, 2015 (as the same has been amended, modified, supplemented or restated, the “Prior Loan Agreement”).

 

B.            Borrower and Bank have agreed to amend and restate, and replace, the Prior Loan Agreement in its entirety.  Bank and Borrower hereby agree that the Prior Loan Agreement is amended and restated in its entirety as follows:

 

	 	
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ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following GAAP, unless otherwise specifically stated.  Calculations and determinations must be made following GAAP; provided that if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or Bank shall so request, Borrower and Bank shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided, further, that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.  Notwithstanding the foregoing, all financial calculations (whether for pricing covenants, or otherwise) shall be made with regard to Borrower only and not on a consolidated basis.  The term “financial statements” includes the notes and schedules.  Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13 of this Agreement.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code to the extent such terms are defined therein.

 

	 	
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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 together with any fees and Finance Charges as and when due in accordance with this Agreement.

 

2.1.1     Financing of Accounts

 

(a)           Availability.

 

(i)            Subject to the terms of this Agreement and provided that Borrower is not Streamline Facility Eligible, Borrower may request that Bank finance specific Eligible Accounts.  Bank may, in its good faith business discretion, finance such specific Eligible Accounts by extending credit to Borrower in an amount equal to the result of the Advance Rate multiplied by the face amount of the Eligible Account.  Bank may, in its sole discretion, change the percentage of the Advance Rate for a particular Eligible Account on a case by case basis.

 

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(ii)           Subject to the terms of this Agreement and provided that Borrower is Streamline Facility Eligible, Borrower may request that Bank finance Eligible Accounts on an aggregate basis (the “Aggregate Eligible Accounts”).  Bank may, in its good faith business discretion, finance Aggregate Eligible Accounts by extending credit to Borrower in an aggregate amount outstanding at any time of up to the Availability Amount.  Bank may, in its reasonable discretion, change the percentage of the Borrowing Base on a case by case basis.

 

(iii)         Any extension of credit made pursuant to the terms of subsections (i) or (ii) above shall hereinafter be referred to as an “Advance”, and, collectively, the “Advances”.  When Bank makes an Advance, the specific Eligible Account or the Aggregate Eligible Accounts each become a separate “Financed Receivable”.

 

(b)           Maximum Advances.

 

(i)            The aggregate face amount of all Financed Receivables outstanding at any time may not exceed the Facility Amount.  In addition and notwithstanding the foregoing, (A) the aggregate amount of Advances outstanding at any time may not exceed the Maximum Availability Amount and (B) while Borrower is Streamline Facility Eligible, the aggregate amount of Advances outstanding at any time may not exceed the Availability Amount.

 

(ii)           If, at any time, amounts outstanding exceed the amounts set forth in this Section 2.1.1(b), Borrower shall immediately pay to Bank in cash such excess amount, and Borrower hereby irrevocably authorizes Bank to debit any of its accounts maintained with Bank or any of Bank’s Affiliates in connection therewith.

 

(c)           Borrowing Procedure.  Borrower will deliver an Advance Request and Invoice Transmittal in the form attached hereto as Exhibit C signed by a Responsible Officer for each Advance it requests, accompanied by (i) an accounts receivable aging, an accounts payable aging and a Borrowing Base Certificate, with respect to requests for Advances based upon Aggregate Eligible Accounts, or (ii) invoices, an accounts receivable aging and an accounts payable aging with respect to requests for Advances based upon specific Eligible Accounts.  Bank may rely on information set forth in or provided with the Advance Request and Invoice Transmittal.  In addition, upon Bank’s request, Borrower shall deliver to Bank any contracts, purchase orders, shipping documents or other underlying supporting documentation with respect to any Eligible Account (including those Eligible Accounts comprising all or any portion of the Aggregate Eligible Accounts).

 

(d)           Credit Quality; Confirmations.  Bank may, at its option, conduct a credit check of the Account Debtor for each Account requested by Borrower for financing hereunder to approve any such Account Debtor’s credit before agreeing to finance such Account.  Bank may also verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts (including confirmations of Borrower’s representations in Section 5.3 of this Agreement) by means of mail, email, telephone or otherwise, either in the name of Borrower or Bank from time to time in its sole discretion.

 

(e)           Accounts Notification/Collection.  Bank may notify any Account Debtor of Bank’s security interest in Borrower’s Accounts and verify and/or collect them.

 

(f)            Early Termination.  This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three (3) Business Days after written notice of termination is given to Bank; or (ii) by Bank at any time after the occurrence of an Event of Default, without notice, effective immediately.  If this Agreement is terminated (A) by Bank in accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for any reason, Borrower shall pay to Bank a non-refundable termination fee in an amount equal to one-half of one percent of the Maximum Availability Amount (the “Early Termination Fee”).  The Early Termination Fee shall be due and payable on the effective date of such termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations.  Notwithstanding the foregoing, Bank agrees to waive the Early Termination Fee if Bank closes on the refinance and re-documentation of this Agreement under another division of Bank (in its sole and exclusive discretion) prior to the Maturity Date.

 

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(g)           Maturity.  All Obligations outstanding hereunder with respect to (i) Advances shall be immediately due and payable in full on the Maturity Date or the earlier termination of this Agreement and (ii) the Term Loan Advance shall be immediately due and payable in full on the Term Loan Maturity Date or the earlier termination of this Agreement.

 

(h)           End of Streamline Facility Eligible Status.  On any day that Borrower ceases to be Streamline Facility Eligible, all outstanding Advances made based on Aggregate Eligible Accounts shall be immediately due and payable, together with all Finance Charges accrued thereon.  Provided no Event of Default then exists hereunder and subject to the terms of this Agreement, Bank may, in its good faith business discretion, refinance the outstanding principal amount of such Advances with new Advances made based on specific Eligible Accounts (in accordance with this Agreement, including, without limitation, Section 2.1.1 hereof).  In connection with same, Borrower shall deliver to Bank an Advance Request and Invoice Transmittal in the form attached hereto as Exhibit C containing detailed invoice reporting, signed by a Responsible Officer, together with a current accounts receivable aging and a copy of each invoice, all in accordance with Section 6.2(h) hereof and Bank may, in its good faith business discretion, finance same (in accordance with this Agreement, including, without limitation, Section 2.1.1 hereof) and each Eligible Account financed shall thereafter be deemed to be a Financed Receivable for purposes of this Agreement.  If, following such determination, the outstanding principal amount of the Obligations in connection with Advances made pursuant to Section 2.1.1 exceeds the amount of Advances Bank has agreed to make based on specific Eligible Accounts, Borrower shall immediately pay to Bank the excess and, in connection with same, hereby irrevocably authorizes Bank to debit any account of Borrower maintained by Borrower with Bank or any of Bank’s Affiliates for the amount of such excess.

 

(i)            Commencement of Streamline Facility Eligible Status.  On any day that Borrower becomes Streamline Facility Eligible, all outstanding Advances made based on specific Eligible Accounts shall be immediately due and payable, together with all Finance Charges and Collateral Handling Fees accrued thereon.  Provided no Event of Default then exists hereunder and subject to the terms of this Agreement, Bank may, in its good faith business discretion, refinance such Advances with new Advances made based on Aggregate Eligible Accounts (in accordance with this Agreement, including, without limitation, Section 2.1.1 hereof).  In connection with such request, Borrower shall deliver to Bank (i) an Advance Request and Invoice Transmittal in the form attached hereto as Exhibit C containing a current accounts receivable aging, and (ii) a Borrowing Base Certificate, and Bank may, in its good faith business discretion, refinance the outstanding principal amount of such Advances with new Advances made based on Aggregate Eligible Accounts (in accordance with this Agreement, including, without limitation, Section 2.1.1 hereof) and the Aggregate Eligible Accounts financed shall thereafter be deemed to be a Financed Receivable for purposes of this Agreement.  If, following such determination, the outstanding principal amount of the Obligations in connection with Advances made pursuant to Section 2.1.1 exceeds the amount of Advances Bank has agreed to make based on Aggregate Eligible Accounts, Borrower shall immediately pay to Bank the excess and, in connection with same, hereby irrevocably authorizes Bank to debit any account of Borrower maintained by Borrower with Bank or any of Bank’s Affiliates for the amount of such excess.

 

2.1.2    Term Loan Advance

 

(a)            Availability.  Subject to the terms and conditions of this Agreement, upon Borrower’s request, Bank shall make one (1) term loan advance (the “Term Loan Advance”) available to Borrower on the Effective Date in an original principal amount of up to Fifteen Million Dollars ($15,000.000.00).  After repayment, the Term Loan Advance (or any portion thereof) may not be reborrowed.

 

(b)            Repayment.  Commencing on May 2, 2016, and continuing on each Payment Date thereafter, Borrower shall repay the Term Loan Advance in (i) sixty (60) equal monthly installments of principal, plus (ii) monthly payments of accrued interest at the rate set forth in Section 2.1.2(e)(i).  All outstanding principal and accrued and unpaid interest under the Term Loan Advance, and all other outstanding Obligations with respect to the Term Loan Advance, are due and payable in full on the Term Loan Maturity Date.

 

(c)            Permitted Prepayment.  Borrower shall have the option to prepay all, or any portion, of the Term Loan Advance, provided Borrower (i) delivers written notice to Bank of its election to prepay the Term Loan Advances at least ten (10) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued and unpaid interest with respect to the portion of the Term Loan Advance being prepaid, (B) the Term Loan Prepayment Premium with respect to the portion of the Term Loan Advance being prepaid and (C) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advance, including interest at the Default Rate with respect to any past due amounts.

 

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(d)            Mandatory Prepayment Upon an Acceleration.  If the Term Loan Advance is accelerated by Bank following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advance, (ii) the Term Loan Prepayment Premium and (iii) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advance, including interest at the Default Rate with respect to any past due amounts.

 

(e)           Interest.

 

(i)          Interest Rate.  Subject to Section 2.1.2(e)(ii), the principal amount of the Term Loan Advance outstanding shall accrue interest at a floating per annum rate equal to the Prime Rate plus one and one-quarter of one percent (1.25%), which interest shall be payable monthly in accordance with Section 2.1.2(e)(v) below.

 

(ii)         Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations in connection with the Term Loan Advance shall bear interest at the Default Rate.  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.1.2(e)(ii) 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.

 

(iii)        Adjustment to Interest Rate.  Changes to the interest rate of the Term Loan Advance based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

 

(iv)        Computation; 360-Day Year.  In computing interest with respect to the Term Loan Advance, the date of the making of the Term Loan Advance shall be included and the date of payment shall be excluded; provided, however, that if the Term Loan Advance is repaid on the same day on which it is made, such day shall be included in computing interest on the Term Loan Advance.  Interest with respect to the Term Loan Advance shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

(v)         Interest Payment Date.  Unless otherwise provided, interest with respect to the Term Loan Advance is payable monthly on the Payment Date (provided that the first such payment shall not be payable until May 2, 2016).

 

(f)            Borrowing Procedure.  Subject to the prior satisfaction of all other applicable conditions to the making of the Term Loan Advance set forth in this Agreement, to obtain the Term Loan Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time two (2) Business Days prior to the requested Funding Date of the Term Loan Advance.  Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee.  Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.  Bank shall credit the Term Loan Advance to a deposit account of Borrower maintained with Bank.  Bank may make the Term Loan Advance under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Term Loan Advance is necessary to meet Obligations which have become due.

 

(g)           Application of Payments.  All payments to be made by Borrower under any Loan Document in respect of the Term Loan Advance shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 3:00 p.m. Pacific time on the date when due.  Payments of principal and/or interest received after 3:00 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.  Notwithstanding any terms in this Agreement to the contrary, any payments of principal with respect to the Term Loan Advance (including, without limitation, any prepayments), other than regularly scheduled payments set forth in Section 2.1.2(b), will be applied to the principal balance of the Term Loan Advance in the inverse order of maturity.

 

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2.2         Collections, Finance Charges, Remittances and Fees.  The Obligations shall be subject to the following fees and Finance Charges.  Unpaid fees and Finance Charges may, in Bank’s discretion, accrue interest at the then highest rate applicable to the Obligations.

 

2.3          Collections. Collections will be credited to the Financed Receivable Balance for such Financed Receivable, but if there is an Event of Default, Bank may apply Collections to the Obligations in any order it chooses.  If Bank receives a payment for both a Financed Receivable and a non-Financed Receivable, the funds will first be applied to the Financed Receivable and, if there is no Event of Default then existing, the excess will be remitted to Borrower, subject to Section 2.9 of this Agreement.

 

2.4         Loan Fees.

 

(a)            A fully-earned, non-refundable working capital facility fee of Forty Two Thousand Dollars ($42,000.00) shall be earned, due and payable upon the Effective Date (the “Working Capital Facility Fee”).

 

(b)            A fully earned, non-refundable anniversary fee of Twenty One Thousand Dollars ($21,000.00) in connection with the working capital facility (the “Anniversary Fee”) shall be earned as of the Effective Date, and shall be due and payable on the earliest to occur of (i) the date that is one (1) year from the Effective Date, (ii) the occurrence of an Event of Default, or (iii) the termination of this Agreement.

 

(c)            A fully-earned, non-refundable term loan commitment fee of One Hundred Twelve Thousand Five Hundred Dollars ($112,500.00) shall be earned, due and payable on the Effective Date (the “Term Loan Commitment Fee”).

 

The Working Capital Facility Fee and the Term Loan Commitment Fee are hereinafter collectively referred to as the “Loan Fees”.

 

2.5         Finance Charges. In computing Finance Charges on the Obligations under this Agreement, all Collections received by Bank shall be deemed applied by Bank on account of the Obligations on the day of receipt of such Collections.  Borrower will pay a finance charge (the “Finance Charge”) on the Financed Receivable Balance or Account Balance (as applicable) which is equal to the Applicable Rate divided by 360 multiplied by the number of days each such Financed Receivable is outstanding multiplied by (a) with respect to Financed Receivables based on specific Eligible Accounts, the outstanding Financed Receivable Balance, and (b) with respect to Financed Receivables based on Aggregate Eligible Accounts, the outstanding Account Balance.  Except as otherwise provided in Section 2.1.1(h), Section 2.1.1(i) and/or Section 2.11.1(b)(i), the Finance Charge is payable when the Advance made based on such Financed Receivable is due and payable in accordance with Section 2.11 of this Agreement.  Immediately upon the occurrence of an Event of Default, the Applicable Rate will increase to the Default Rate.

 

2.6         Collateral Handling Fee.  With respect to Financed Receivables based upon specific Eligible Accounts, financed at such time as when Borrower is not Streamline Facility Eligible, Borrower will pay to Bank a collateral handling fee equal to 0.15% per Reconciliation Period of the Financed Receivable Balance for each such Financed Receivable outstanding based upon a 360 day year (the “Collateral Handling Fee”).  The Collateral Handling Fee is charged on a daily basis and is equal to the Collateral Handling Fee divided by 30, multiplied by the number of days each such Financed Receivable is outstanding, multiplied by the outstanding Financed Receivable Balance with respect to such Financed Receivables.  Except as otherwise provided in Section 2.1.1(i), the Collateral Handling Fee is payable when the Advance made based on such Financed Receivable is payable in accordance with Section 2.11 of this Agreement.  In computing Collateral Handling Fees under this Agreement, all Collections received by Bank shall be deemed applied by Bank on account of Obligations on the day of receipt of such Collections.  Immediately upon the occurrence of an Event of Default, the Collateral Handling Fee will increase an additional 0.50%.

 

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2.7         Accounting.  After each Reconciliation Period, Bank will provide Borrower with an accounting of the transactions for that Reconciliation Period, including the amount of all Financed Receivables, all Collections, Adjustments, Finance Charges and Collateral Handling Fees.  If Borrower does not object to the accounting in writing within thirty (30) days it shall be considered accurate absent manifest error by Bank.  All Finance Charges and other interest and fees are calculated on the basis of a 360 day year and actual days elapsed.

 

2.8         Deductions.  Bank may deduct fees, Bank Expenses, interest, Finance Charges, Collateral Handling Fees, the Loan Fees, Credit Extensions which become due, and other amounts due pursuant to this Agreement from any Credit Extensions made or Collections received by Bank.  Bank shall notify Borrower when it debits Borrower’s accounts for any payments other than payments on account of principal, interest, Finance Charges or Collateral Handling Fees.

 

2.9          Lockbox; Account Collection Services

 

(a)           Borrower shall direct each Account Debtor (and each depository institution where proceeds of Accounts are on deposit) to remit payments with respect to the Accounts to a lockbox account established with Bank or to wire transfer payments to a cash collateral account that Bank controls (collectively, the “Lockbox”).  It will be considered an immediate Event of Default if the Lockbox is not established and operational on the Effective Date and at all times thereafter.

 

(b)           Upon receipt by Borrower of any proceeds of Accounts, Borrower shall immediately transfer and deliver same to Bank, along with a detailed cash receipts journal.

 

(c)           Provided no Event of Default exists or an event that with notice or lapse of time will be an Event of Default, within three (3) days of receipt of any proceeds of the Accounts by Bank (whether received by Bank in the Lockbox, directly from Borrower, or otherwise), Bank will turn over to Borrower such proceeds other than (i) Collections applied by Bank pursuant to Section 2.3 of this Agreement in respect of Financed Receivables based upon specific Eligible Accounts, and (ii) such proceeds which shall be used by Bank to repay any other amounts due to Bank in respect of Financed Receivables based upon specific Eligible Accounts, such as the Finance Charge, Collateral Handling Fees, the Loan Fees, and Bank Expenses; provided, however, Bank may hold any proceeds of the Accounts (whether received by Bank in the Lockbox, directly from Borrower, or otherwise and whether or not in respect of Financed Receivables) as a reserve until the end of the applicable Reconciliation Period if Bank, in its discretion, determines that other Financed Receivable(s) may no longer qualify as an Eligible Account or Aggregate Eligible Accounts at any time prior to the end of the subject Reconciliation Period.

 

(d)          This Section 2.9 does not impose any affirmative duty on Bank to perform any act other than as specifically set forth herein.  All Accounts and the proceeds thereof are Collateral, and if an Event of Default occurs, Bank may, without notice, apply the proceeds of such Accounts to the Obligations.

 

2.10      Bank Expenses.  Borrower shall pay all Bank Expenses (including reasonable attorneys’ fees and expenses, plus expenses, for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due, provided that, prior to the occurrence and continuance of an Event of Default, Bank will endeavor to provide notice to Borrower of Bank Expenses when incurred (it being understood and recognized by Borrower that Bank’s failure to provide such notice shall not result in any liability of the Bank and shall in no way limit this Agreement or Borrower’s obligations hereunder to pay Bank Expenses).

 

2.11      Repayment of Obligations; Adjustments

 

2.11.1 Repayment.

 

(a)            Borrower will repay each Advance made based upon a specific Eligible Account on the earliest of: (i) the date on which payment is received of the Financed Receivable with respect to which the Advance was made, (ii) the date on which the Financed Receivable is no longer an Eligible Account, (iii) the date on which any Adjustment is asserted to the Financed Receivable (but only to the extent of the Adjustment if the Financed Receivable otherwise remains an Eligible Account), (iv) the date on which there is a breach of any representation or warranty in Section 5.3 of this Agreement or of any covenant in the Loan Documents, (v) as required pursuant to Section 2.1.1(i), or (vi) the Maturity Date (including any early termination).  Each payment shall also include all accrued Finance Charges and Collateral Handling Fees with respect to such Advance and all other amounts then due and payable hereunder.

 

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(b)            With respect to each Advance made based upon Aggregate Eligible Accounts:

 

(i)            Borrower shall pay to Bank, on the first day of each Reconciliation Period, all Finance Charges accrued thereon; and

 

(ii)           Borrower will pay the principal amount of such Advances on the earliest of: (A) the date on which the aggregate amount of outstanding Advances made based upon Aggregate Eligible Accounts exceeds the Availability Amount (but only up to the amount exceeding the Availability Amount), (B) the Maturity Date (including any early termination), or (C) as required pursuant to Section 2.1.1(h).  Any payment made pursuant to (B) or (C) shall also include all accrued Finance Charges with respect to the Advances based upon Aggregate Eligible Accounts and all other amounts then due and payable hereunder.

 

2.11.2 Repayment on Event of Default.  When there is an Event of Default, Borrower will, if Bank demands (or, upon the occurrence of an Event of Default under Section 8.5 of this Agreement, immediately without notice or demand from Bank) repay all of the Obligations.  The demand may, at Bank’s option, include all Credit Extensions then outstanding and all accrued interest, Finance Charges, Collateral Handling Fees, the Early Termination Fee, the Term Loan Prepayment Premium, the Loan Fees, attorneys’ and professional fees, court costs and expenses, Bank Expenses and any other Obligations.

 

2.11.3 Debit of Accounts.  Bank may debit any of Borrower’s deposit accounts for payments or any amounts Borrower owes Bank hereunder.  These debits shall not constitute a set-off.

 

2.12      Power of Attorney.  Borrower irrevocably appoints Bank and its successors and assigns as attorney-in-fact and authorizes Bank and its successors and assigns, to: (a) following the occurrence of an Event of Default, (i) sell, assign, transfer, pledge, compromise, or discharge all or any part of the Financed Receivables; (ii) demand, collect, sue, and give releases to any Account Debtor for monies due and compromise, prosecute, or defend any action, claim, case or proceeding about the Financed Receivables, including filing a claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as Bank chooses; and (iii) prepare, file and sign Borrower’s name on any notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics’ lien or similar document; and (b) regardless of whether an Event of Default has occurred and is continuing, (i) notify all Account Debtors to pay Bank directly; (ii) receive, open, and dispose of mail addressed to Borrower; (iii) endorse Borrower’s name on checks or other instruments (to the extent necessary to pay amounts owed pursuant to any of the Loan Documents); and (iv) execute on Borrower’s behalf any instruments, documents, financing statements to perfect Bank’s interests in the Financed Receivables and Collateral and do all acts and things necessary or prudent, as determined solely and exclusively by Bank, to protect or  preserve Bank’s rights and remedies under the Loan Documents, as directed by Bank.

 

	 	
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)           the Loan Documents;

 

(b)           the Warrant;

 

(c)           the SVB Control Agreement any Control Agreement(s) required by Bank;

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(d)           Borrower’s Operating Documents and a long form good standing certificate of each Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(e)           GigOptix Guarantor’s Operating Documents and a long form good standing certificate of GigOptix Guarantor certified by the Secretary of State of the State of Idaho, as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(f)             the completed and executed Borrowing Resolutions for each Borrower and GigOptix Guarantor;

 

(g)           a payoff letter from Capital IP;

 

(h)           evidence that (i) the Liens securing Indebtedness owed by Borrower to Capital IP will be terminated and (ii) the documents and/or filings evidencing the perfection of such Liens, including without limitation any financing statements and/or control agreements, have or will, concurrently with the initial Credit Extension, be terminated;

 

(i)             completed exhibits to the IP Agreement and copies of searches with the United States Patent and Trademark Office and the United States Copyright Office for each Borrower;

 

(j)             completed exhibits to the IP Agreement (as defined in the GigOptix Security Agreement) and copies of searches with the United States Patent and Trademark Office and the United States Copyright Office for GigOptix Guarantor;

 

(k)            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;

 

(l)             the Perfection Certificates of Borrower and GigOptix Guarantor, together with the duly executed original signatures thereto;

 

(m)            a legal opinion of Borrower’s and GigOptix Guarantor’s counsel (authority and enforceability) dated as of the Effective Date together with the duly executed original signature thereto;

 

(n)          evidence satisfactory to Bank that the insurance policies required by Section 6.4 of this Agreement are in full force and effect, together with appropriate evidence showing lender loss payable and additional insured clauses and cancellation notice to Bank (including certificates on Acord 25 and Acord 28 forms and endorsements to the policies reflecting the same);

 

(o)           evidence satisfactory to Bank that the insurance policies required by Section 3.4 of the GigOptix Security Agreement are in full force and effect, together with appropriate evidence showing lender loss payable and additional insured clauses and cancellation notice to Bank (including certificates on Acord 25 and Acord 28 forms reflecting the same);

 

(p)           payment of the fees and Bank Expenses then due as specified in Section 2.10 of this Agreement, to the extent not already paid;

 

(q)           Certificates of Good Standing/Foreign Qualification for each Borrower and GigOptix Guarantor (from each state in which each entity is qualified to transact business);

 

(r)             a current quality of earnings report for Magnum;

 

(s)            copies of all transaction documents in connection with the Magnum Acquisition; and

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(t)            evidence that all conditions precedent to the closing of the Magnum Acquisition have been satisfied and all funds for the purchase price have been paid (other than funds from the Term Loan Advance).

 

3.2            Conditions Precedent to all Credit Extensions.  Bank’s agreement to make each Credit Extension, including the initial Credit Extension, is subject to the following:

 

(a)            receipt of (i) with respect to requests for Advances, the Advance Request and Invoice Transmittal and the documents required by Section 2.1.1(c) of this Agreement, and (ii) with respect to the request for the Term Loan Advance, an executed Payment/Advance Form;

 

(b)            Bank shall have (at its option) conducted the confirmations and verifications as described in Section 2.1.1(d) of this Agreement; and

 

(c)            each of the representations and warranties in Section 5.3 of this Agreement shall be true, accurate, and complete on the date of the Advance Request and Invoice Transmittal and/or the Payment/Advance Form, as applicable, and on the effective date of each Credit Extension 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 in Section 5.3 of this Agreement remain true, accurate, and complete; and

 

(d)            each of the representations and warranties in this Agreement (other than those in Section 5.3) shall be true, accurate, and complete in all material respects on the date of the Advance Request and Invoice Transmittal and/or the Payment/Advance Form, as applicable, and on the effective date of each Credit Extension and no Event of Default shall have occurred and be continuing, or result from the 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).  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement (other than those in Section 5.3) 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).

 

3.3         Suspension of Credit Extensions.  Borrower’s ability to request that Bank make Credit Extensions hereunder will terminate if, in Bank’s reasonable discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations, or there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank prior to the Effective Date.

 

3.4         Covenant to Deliver.  Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

 

	 	
4

	
CREATION OF SECURITY INTEREST

 

4.1            Grant of Security Interest.  Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.  Borrower represents, warrants, and covenants that the security interest granted herein shall be and shall at all times continue to be a first priority perfected security interest in the Collateral subject only to Permitted Liens that are permitted to have priority over Bank’s Liens hereunder.  If Borrower shall at any time 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 satisfactory to Bank.

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

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, Bank shall, at Borrower’s sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower. In the event (a) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (b) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to one hundred two percent (102.0%) for Letters of Credit denominated in Dollars and one hundred five percent (105.0%) for Letters of Credit denominated in a currency other than Dollars, in each case 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.

 

4.2         Authorization to File Financing Statements.  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.  Any 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.

 

	 	
5

	
REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1            Due Organization and Authorization.  Borrower and each of its Subsidiaries are duly existing and in good standing as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any other jurisdiction in which the conduct of their respective business or ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled Perfection Certificate (the “Perfection Certificate”).  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, corporate structure, organizational 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.

 

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5.2         Collateral.  Borrower has good title to, has rights in, and the power to transfer, each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existing obligations of the Account Debtors.  All Inventory is in all material respects of good and marketable quality, free from material defects.

 

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 are currently being maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2 of this Agreement.

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate.  Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.  To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.  Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3         Financed Receivables.  Borrower represents and warrants for each Financed Receivable:

 

(a)            Such Financed Receivable is an Eligible Account;

 

(b)            Borrower is the owner of and has the legal right to sell, transfer, assign and encumber such Financed Receivable;

 

(c)            The correct amount is on the Advance Request and Invoice Transmittal and is not disputed;

 

(d)            Payment is not contingent on any obligation or contract and Borrower has fulfilled all its obligations as of the Advance Request and Invoice Transmittal date;

 

(e)            Such Financed Receivable is based on an actual sale and delivery of goods and/or services rendered, is due to Borrower, is not past due or in default, has not been previously sold, assigned, transferred, or pledged and is free of any liens, security interests and encumbrances other than Permitted Liens;

 

(f)            There are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim any deduction or discount;

 

(g)            Borrower reasonably believes no Account Debtor is insolvent or subject to any Insolvency Proceedings;

 

(h)            Borrower has not filed or had filed against it Insolvency Proceedings and does not anticipate any filing;

 

(i)            Bank has the right to endorse and/ or require Borrower to endorse all payments received on Financed Receivables and all proceeds of Collateral; and

 

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(j)            No representation, warranty or other statement of Borrower in any certificate or written statement given to Bank contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in the certificates or statement not misleading.

 

5.4          Litigation.  There are no actions or proceedings pending or, to the knowledge of Borrower’s Responsible Officers, threatened in writing by or against Borrower or any Subsidiary in which an adverse decision could reasonably be expected to cause a Material Adverse Change.

 

5.5         No Material Deviation in Financial Statements and Deterioration in Financial Condition.  All consolidated financial statements for Borrower and any Subsidiary delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.  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.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change.  None of Borrower’s or any Subsidiary’s properties or assets have 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 Governmental Authorities that are necessary to continue their respective businesses as currently conducted.

 

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

 

5.9         Tax Returns and Payments; Pension Contributions.  Except with respect to tax liabilities not exceeding Fifty Thousand Dollars ($50,000.00) in the aggregate, Borrower and each Subsidiary have timely filed all required tax returns and reports, and Borrower and each Subsidiary have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each Subsidiary.  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 and (c) posts bonds or takes any other steps required to prevent the Governmental Authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.  Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to 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      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 any 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).

 

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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.

 

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

 

6.2         Financial Statements, Reports, Certificates

 

(a)            Deliver to Bank: (i) as soon as available, but no later than thirty (30) days after the last day of each Reconciliation Period, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower’s and its Subsidiaries consolidated and consolidating operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) within five (5) days of filing, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8‐K filed with the SEC; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Three Hundred Fifty Thousand Dollars ($350,000.00) or more; (v) as soon as available, but no later than thirty (30) days after the last day of Borrower’s fiscal year, and contemporaneously with any updates or amendments thereto, annual financial projections approved by Borrower’s board of directors, together with any related business forecasts used in the preparation of such annual financial plans and projections; and (vii) budgets, sales projections, operating plans or other financial information reasonably requested by Bank.

 

(b)            Within thirty (30) days after the last day of each Reconciliation Period, deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit B.

 

(c)            Allow Bank to inspect the Collateral and audit and copy Borrower’s Books, including, but not limited to, Borrower’s Accounts, upon reasonable notice to Borrower.  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.  In addition, so long as no Event of Default has occurred, Bank agrees that it shall not conduct the first such inspection or audit until after Borrower makes its first annual 10-K filing after the Effective Date.  The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be (i) on or prior to the date that is two (2) years from the Effective Date, Eight Hundred Fifty Dollars ($850.00) per person per day, plus reasonable out-of-pocket expenses, and (ii) after the date that is two (2) years from the Effective Date, One Thousand Dollars ($1,000.00) per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses.  In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to 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 One Thousand Dollars ($1,000.00) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.  After the occurrence of an Event of Default, Bank may audit Borrower’s Collateral at Borrower’s expense, including, but not limited to, Borrower’s Accounts as frequently as Bank deems necessary at Borrower’s expense and at Bank’s sole and exclusive discretion, without notification to and authorization from Borrower.

 

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(d)            Upon Bank’s request, provide a written report on any Financed Receivable, where payment of such Financed Receivable does not occur by its due date and include the reasons for the delay.

 

(e)            Provide Bank with, (i) as soon as available, but no later than thirty (30) days following each Reconciliation Period, and (ii) together with each request for an Advance, an aged listing of accounts receivable and accounts payable by invoice date, in form and detail acceptable to Bank.

 

(f)            Provide Bank with, as soon as available, but no later than thirty (30) days following each Reconciliation Period, a Deferred Revenue report, in form and detail acceptable to Bank.

 

(g)            Immediately upon Borrower becoming Streamline Facility Eligible, and thereafter until Borrower is no longer Streamline Facility Eligible, provide Bank with (i) as soon as available, but no later than thirty (30) days following each Reconciliation Period, (ii) together with each request for an Advance based upon Aggregate Eligible Accounts, and (iii) as required by Section 2.1.1(i), a duly completed Borrowing Base Certificate signed by a Responsible Officer.

 

(h)            Immediately upon Borrower ceasing to be Streamline Facility Eligible, provide Bank with a current aging of Accounts in form and detail acceptable to Bank and, to the extent not previously delivered to Bank, a copy of the invoice for each Eligible Account and an Advance Request and Invoice Transmittal with respect to each such Account.

 

(i)            Provide Bank 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 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.

 

(j)            Provide Bank with, within one (1) Business Day of filing, a copy of any certificate of amendment or equivalent document filed with Borrower’s or any Subsidiary’s jurisdiction of formation in connection with any Excepted Name Change.

 

6.3         Taxes.  Make, and cause each Subsidiary to make, timely payment of all foreign, federal, state, and local taxes or assessments in excess of Fifty Thousand Dollars ($50,000.00) in the aggregate (other than taxes and assessments which Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Bank, on demand, appropriate certificates attesting to such payments.

 

6.4         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 the sole lender loss payee and waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured.  All policies (or the lender loss payable and additional insured endorsements) shall provide that the insurer must give Bank at least thirty (30) days notice before canceling, amending, or declining to renew its policy.  At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance as required under this Section 6.4 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 6.4, and take any action under the policies Bank deems prudent.

 

6.5         Accounts

 

(a)            To permit Bank to monitor Borrower’s financial performance and condition, maintain all of Borrower’s and its Subsidiaries’ depository and operating accounts and securities/investment accounts with Bank and Bank’s Affiliates; provided that, (i) until the date that is thirty (30) days following the Effective Date, Magnum shall be permitted to maintain its existing account no. ending 709 with East West Bank provided that all funds in such account must be transferred to an account of Borrower maintained with Bank on a weekly basis (the “East West Payroll Account”), (ii) until the date that is ninety (90) days following the Effective Date, Magnum shall be permitted to maintain its existing accounts nos. ending 626 and 717 with East West Bank provided that all funds in such accounts must be transferred to an account of Borrower maintained with Bank on a weekly basis (collectively, the “East West Deposit Accounts”), (iii) Borrower shall be permitted to maintain its payment processing account with PayPal existing on the Effective Date that is disclosed on the Perfection Certificate containing an aggregate amount not to exceed Twenty Thousand Dollars ($20,000.00) and (iv) Borrower’s Foreign Subsidiaries may maintain accounts with financial institutions other than Bank located outside of the United States so long as the aggregate amount contained in such accounts (for all such accounts together) does not represent more than ten percent (10.0%) of the dollar value of such Subsidiaries’ accounts at all financial institutions at any time (the accounts in subsections (iii) and (iv) are hereinafter collectively referred to as the “Permitted Accounts”).  Any Guarantor shall maintain all depository and operating accounts with Bank, and, with respect to securities accounts, with an affiliate of Bank.  In addition to the foregoing, Borrower and its Subsidiaries shall conduct all letters of credit and foreign exchange banking with Bank and Bank’s Affiliates.

 

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(b)            For any domestic Collateral Account that Bank in its sole discretion permits Borrower at any time to open or maintain, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any domestic Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to (i) 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, (ii) for a period that is ninety (90) days from the Effective Date, the East West Deposit Accounts and (iii) the East West Payroll Account and the Permitted Accounts.

 

6.6         Inventory; Returns; Notices of Adjustments.  Keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date.  If, at any time during the term of this Agreement, any Account Debtor asserts an Adjustment in excess of One Hundred Thousand Dollars ($100,000.00), Borrower issues a credit memorandum, or any representation, warranty or covenant set forth in this Agreement or the other Loan Documents is no longer true in all material respects, Borrower will promptly advise Bank.

 

6.7         Financial Covenants.  Maintain at all times:

 

(a)            Liquidity Ratio.  To be tested as of the last day of each month, a Liquidity Ratio of at least 1.25 to 1.0.

 

(b)            Fixed Charge Coverage Ratio.  To be tested as of the last day of each calendar quarter commencing with the calendar quarter ending March 31, 2016, a Fixed Charge Coverage Ratio of at least 1.25 to 1.0.

 

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.

 

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(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).  Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

6.9         Litigation Cooperation.  From the Effective Date 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, 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      Post-Closing Requirements. Deliver to Bank, each in form and substance satisfactory to Bank, (a) within one (1) day of the Effective Date, a copy of the filed certificate of merger filed with the Delaware Secretary of State of the State of Delaware in connection with the Magnum Acquisition and (b) within forty-five (45) days of the Effective Date, (i) evidence that (A) all Indebtedness owed by Borrower to Brian Eliot Peierls, E. Jeffrey Peierls, Excess Venture Fund I, LLC, Global Alliance Inc., Gold Hill Venture Lending 03, LP, Hatteras VC Co-Investment Fund II, LLC, Najeti Capital, S.A., Ell & Co., The Peierls Foundation, Inc., UD Ethel F. Peierls Charitable Lead Trust has been paid in full, (B) the Liens securing Indebtedness owed by Borrower to such creditors has been terminated and (C) the documents and/or filings evidencing the perfection of such Liens, including without limitation any financing statements and/or control agreements, have been terminated and (ii) endorsements to Borrower’s general liability and property policies that comply with the requirements of Section 6.4.

 

6.11     Further Assurances.  Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

 

	 	
7

	
NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1         Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; and (c) in connection with Permitted Liens and Permitted Investments.

 

7.2         Changes in Business, Management, Control, or Business Locations.  (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; (c) have a change in management; or (d) permit or suffer any Change in Control.

 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Fifty Thousand Dollars ($50,000.00) in Borrower’s assets or property), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, except that, so long as Borrower complies with Section 6.2(j), no such notice is required for a change of legal name from GigOptix, Inc. to GigPeak, Inc. within thirty (30) days of the Effective Date and to any changes to the legal name of any Subsidiary within such time (each, an “Excepted Name Change”), (5) change any organizational number (if any) assigned by its jurisdiction of organization, or (6) deliver any portion of the Collateral to a bailee, unless (i) such bailee location contains less than Fifty Thousand Dollars ($50,000.00) in Borrower’s assets or property and (ii) Bank and such bailee are parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral.

 

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Borrower hereby agrees upon Borrower adding any new office or business location, including any warehouse, Borrower will cause its landlord to enter into a landlord consent in favor of Bank prior to such new office or business location containing Fifty Thousand Dollars ($50,000.00) of Collateral.

 

Borrower hereby agrees that prior to Borrower delivering any Collateral to a bailee, Borrower shall cause such bailee to execute and deliver a bailee agreement in form and substance satisfactory to Bank.

 

7.3         Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

7.4         Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

 

7.5         Encumbrance.  Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 of this Agreement and the definition of “Permitted Liens” herein.

 

7.6         Maintenance of Collateral Accounts.  Maintain any Collateral Account except pursuant to the terms of Section 6.5 of this Agreement.

 

7.7         Distributions; Investments.  (a) 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; or (b) pay any dividends or make any distribution, or payment or redeem, retire or purchase any capital stock.

 

7.8         Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

 

7.9         Subordinated Debt.  (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount owed by Borrower thereof, shorten the maturity thereof, increase the rate of interest applicable thereto or adversely affect the subordination thereof to Obligations owed to Bank.

 

7.10     Compliance.  Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, each 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.

 

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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 pay any of the Obligations when due;

 

8.2         Covenant Default.  Borrower fails or neglects to perform any obligation in Section 2.9 or Section 6 of this Agreement or violates any covenant in Section 7 of this Agreement or 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 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, grace and cure periods provided under this Section 8.2 shall not apply to financial covenants or any other covenants that are required to be satisfied, completed or tested by a date certain;

 

8.3         Material Adverse Change.  A Material Adverse Change occurs;

 

8.4         Attachment; Levy; Restraint on Business

 

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) 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 forty-five (45) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6        Other Agreements.  There is, under any agreement to which Borrower or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Three Hundred Fifty Thousand Dollars ($350,000.00); or (b) any default by Borrower or Guarantor, the result of which could result in a Material Adverse Change to Borrower’s or any Guarantor’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 Two Hundred Fifty Thousand Dollars ($250,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower 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);

 

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;

 

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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 the applicable subordination agreement;

 

8.10     Guaranty.  (a) Any guaranty of any Obligations (including, without limitation, the GigOptix Guaranty) 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 of this Agreement occurs with respect to any Guarantor; (d) the death, 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;

 

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

 

8.12      Lumera Corporation.  Lumera Corporation acquires, owns, or holds any assets or property or has any operations.

 

	 	
9

	
BANK’S RIGHTS AND REMEDIES

 

9.1         Rights and Remedies.  When an Event of Default occurs and continues beyond any applicable grace period 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 of this Agreement occurs, all Obligations are immediately due and payable without any action by Bank);

 

(b)            stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

 

(c)            demand that Borrower (i) deposit cash with Bank in an amount equal to one hundred two percent (102.0%) for Letters of Credit denominated in Dollars and one hundred five percent (105.0%) for Letters of Credit denominated in a currency other than Dollars, in each case of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters 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 and notify any Person owing Borrower money of Bank’s security interest in such funds and verify the amount of such account.  Borrower shall collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the Account Debtor, with proper endorsements for deposit;

 

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(e)            make any payments and do any acts it considers necessary or reasonable to protect 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) 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 9.1, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

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

 

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

 

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

 

9.2         Protective Payments.  If Borrower fails to obtain the insurance called for by Section 6.4 of this Agreement 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.

 

9.3         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.

 

9.4         No Waiver; Remedies Cumulative.  Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Bank has all rights and remedies provided under the Code, by law, or in equity.  Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

 

9.5         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.

 

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9.6         Borrower Liability.  Any Borrower may, acting singly, request Credit Extensions hereunder.  Each Borrower hereby appoints the other as agent for itself for all purposes hereunder, including with respect to requesting Credit Extensions hereunder.  Each Borrower hereunder shall be jointly and severally obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives said Credit Extensions, as if each Borrower hereunder directly received all Credit Extensions.  Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy.  Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. 

 

Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise.  Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 9.6 shall be null and void.  If any payment is made to a Borrower in contravention of this Section 9.6, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

 

	 	
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:	GigOptix, Inc.

ChipX, Incorporated

Endwave Corporation

Magnum Semiconductor, Inc.

130 Baytech Drive

San Jose, CA 95134

		Attn:	Dr. Avi Katz

		Fax:	(408) 522-3102

		Email:	akatz@gigoptix.com

		with a copy to:	Crowell & Moring LLP

275 Battery Street, 23rd Floor

San Francisco, CA 94111

Attention: Jeffrey Selman

Fax No.: (415) 986-2827

		If to Bank:	Silicon Valley Bank

2400 Hanover Street

Palo Alto, California 95134

Attn: Ms. Janice Ahn

Fax:  (650) 320-0016

		Email:	JAhn@svb.com

 

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		with a copy to:	Riemer & Braunstein LLP

Three Center Plaza

Boston, Massachusetts  02108

		Attn:	David A. Ephraim, Esquire

		Fax:	(617) 880-3456

		Email:	DEphraim@riemerlaw.com

 

11          CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 

Except as otherwise expressly provided in any of the Loan Documents, 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 to 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.

 

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.

 

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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 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 (other than the Warrant, as to which assignment, transfer and other such actions are governed by the terms of the Warrant), provided that, prior to the occurrence and continuance of an Event of Default, Bank will provide notice to Borrower prior to or contemporaneously with any such sale, transfer, assignment, negotiation or any grant of participation.

 

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, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

12.3      Right of Set-Off.  Borrower hereby grants to Bank, a lien, security interest and right of setoff as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them.  At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

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

 

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.

 

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

 

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

 

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12.8     Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

 

12.9     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.  Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of a security interest by Borrower in Section 4.1 shall survive until the termination of this Agreement and all Bank Services Agreements.  The obligation of Borrower in Section 12.2 of this Agreement to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.10  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, each a “Bank Entity” and collectively, the “Bank Entities”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this Section 12.10); (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: (i) either in the public domain other than as a result of Bank’s breach of this Section 12.10 or is in Bank’s possession when disclosed to Bank; or (ii) disclosed to Bank by a third party on a nonconfidential basis 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.

12.11  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.

 

12.12  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.

 

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

 

12.14 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.

 

12.15  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.

 

12.16  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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12.17  Amended and Restated Agreement.  This Agreement amends and restates, in its entirety, and replaces, the Prior Loan Agreement.

 

	 	
13

	
DEFINITIONS

 

13.1     Definitions.  As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, 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 Balance” is, on any date, the aggregate outstanding amount of all Advances made based upon Aggregate Eligible Accounts.

 

“Account Debtor” is as defined in the Code and shall include, without limitation, any person liable on any Financed Receivable, such as, a guarantor of the Financed Receivable and any issuer of a letter of credit or banker’s acceptance.

 

“Adjusted EBITDA” means EBITDA excluding to the extent otherwise included in the calculation of EBITDA (a) non-cash stock compensation expenses, (b) one-time expenses reflected in reports filed by Borrower with the SEC, and as is reflected in the reconciliation tables filed with the SEC, provided that such expenses have been approved by Bank in writing on a case-by-case basis in Bank’s sole discretion, (c) one-time cost cuts realized in the 2015 calendar year related to Magnum’s shut down of operations in China in an aggregate amount not to exceed Four Million Two Hundred Thousand Dollars ($4,200,000.00), (d) one-time costs realized in the 2015 calendar year and the first quarter of the 2016 calendar year related to Magnum’s restructuring in an aggregate amount not to exceed One Million Six Hundred Thousand Dollars ($1,600,000.00) and (e) one-time cost cuts realized in the twelve (12) month period commencing on the Effective Date related the Magnum Acquisition in an aggregate amount not to exceed Two Million Three Hundred Thousand Dollars ($2,300,000.00).

 

“Adjustments” are all discounts allowances, returns, recoveries, disputes, claims of any kind (including, without limitation, counterclaims or warranty claims), offsets, defenses, rights of recoupment, rights of return, or short payments, asserted by or on behalf of any Account Debtor for any Financed Receivable.

 

“Advance” is defined in Section 2.1.1 of this Agreement.

 

“Advance Rate” is eighty percent (80.0%), net of any offsets related to each specific Account Debtor, including, without limitation, Deferred Revenue, or such other percentage as Bank establishes under Section 2.1.1 of this Agreement.

 

“Advance Request and Invoice Transmittal” shows specific Eligible Accounts and/or Aggregate Eligible Accounts, which Bank may finance, and (a) with respect to requests for Advances based upon specific Eligible Accounts, includes the Account Debtor’s name, address, invoice amount, invoice date and invoice number, and (b) with respect to requests for Advances based upon Aggregate Eligible Accounts, includes (i) the Account Debtor’s name, address, invoice amount, invoice date and invoice number, (ii) the current outstanding amount of Advances made based upon Aggregate Eligible Accounts and (iii) the Availability Amount.

 

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

 

“Aggregate Eligible Accounts” is defined in Section 2.1.1.

 

“Agreement” is defined in the preamble of this Agreement.

 

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“Anniversary Fee” is defined in Section 2.4 of this Agreement.

 

“Applicable Rate” is a per annum rate equal to the Prime Rate plus four-tenths of one percent (0.40%).

 

“Availability Amount” is the lesser of (a) the Maximum Availability Amount and (b) the Borrowing Base.

 

“Bank” is defined in the preamble of this Agreement.

 

“Bank Entities” is defined in Section 12.10.

 

“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 Borrower or any Guarantor.

 

“Bank Services” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).

 

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

 

“Borrower” is defined in the preamble of this Agreement.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

 

“Borrowing Base” is eighty percent (80.0%) (or such other percentage as Bank establishes under Section 2.1.1) multiplied by Borrower’s Aggregate Eligible Accounts (net of any offsets related to each specific Account Debtor, including, without limitation, Deferred Revenue).

 

“Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit D.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s board of directors (or the limited liability equivalent and, if required under the terms of such Person’s Operating Documents, stockholders, members or managers (as applicable) and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary, members or managers (as applicable) on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

 

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

 

“Capital IP” means, collectively, Capital IP Investment Partners LLC and any other parties for which such entity is serving as administrative agent.

 

“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.; and (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue.

 

26

“Change in Control” means (a) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)‐5 under the Exchange Act), directly or indirectly, of twenty-five percent (25.0%) or more of the ordinary voting power for the election of directors of Borrower (determined on a fully diluted basis) other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction; (b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors or other equivalent governing body of Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or (c) at any time, Borrower shall cease to own and control, of record and beneficially, directly or indirectly, one hundred percent (100.0%) of each class of outstanding capital stock or other equity securities of each subsidiary of Borrower free and clear of all Liens (except Liens created by this Agreement).

 

“ChipX” is defined in the preamble of this Agreement.

 

“Claims” is defined in Section 12.2 of this Agreement.

 

“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.

 

“Collateral Handling Fee” is defined in Section 2.6 of this Agreement.

 

“Collections” are all funds received by Bank from or on behalf of an Account Debtor for Financed Receivables.

 

“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 attached as Exhibit B.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation 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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“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 Collateral Account.

 

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

 

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

 

“Default Rate” is a per annum rate of interest which is three percent (3.0%) above the rate that is then in effect.

 

“Deferred Revenue” is all amounts received or invoiced, as appropriate, 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.

 

“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.

 

“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.

 

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

 

“Early Termination Fee” is defined in Section 2.1.1(f) of this Agreement.

 

“East West Deposit Accounts” is defined in Section 6.5(a).

 

“East West Payroll Account” is defined in Section 6.5(a).

 

“EBITDA” means earnings before interest, taxes, depreciation and amortization in accordance with GAAP.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” are billed Accounts in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3 of this Agreement, have been, at the option of Bank, confirmed in accordance with Section 2.1.1(d) of this Agreement, and are due and owing from Account Debtors deemed creditworthy by Bank in its sole discretion.  Without limiting the fact that the determination of which Accounts are eligible hereunder is a matter of Bank discretion in each instance, Eligible Accounts shall not include the following Accounts (which listing may be amended or changed in Bank’s discretion with notice to Borrower):

 

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

 

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(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 which does not have its principal place of business in the United States or Canada, unless such Accounts are otherwise (i) Eligible Accounts and are owing from Permitted Foreign Account Debtors or (ii) approved by Bank in writing on a case-by-case basis in its sole discretion;

 

(e)          Accounts billed and/or payable outside of the United States, unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;

 

(f)            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), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business;

 

(g)            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, except for accounts for which Borrower has not assigned its payment rights to Bank or not acknowledged under the Federal Assignment of Claims Act of 1940 in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000.00) at any time;

 

(h)          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;

 

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

 

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

 

(k)          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 or retention billings);

 

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

 

(m)         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);

 

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

 

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

 

(p)          Accounts with a due date that is more than ninety (90) days from invoice date;

 

(q)          Accounts subject to chargebacks, debit memos, or other payment deductions taken by an Account Debtor;

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

 

(s)           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;

 

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

 

(u)          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; and

 

(u)            Accounts owing from an Account Debtor, fifty percent (50.0%) or more of whose Accounts have not been paid within ninety (90) days of invoice date.

 

“Endwave” is defined in the preamble of this Agreement.

 

“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.

 

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

 

“Events of Default” are set forth in Section 8 of this Agreement.

 

“Excepted Name Change” is defined in Section 7.2.

 

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

 

“Facility Amount” is Seventeen Million Five Hundred Thousand Dollars ($17,500,000.00).

 

“Finance Charges” is defined in Section 2.5 of this Agreement.

 

“Financed Receivables” are all those specific Eligible Accounts and Aggregate Eligible Accounts, including their proceeds which Bank finances and makes an Advance, as set forth in Section 2.1.1 of this Agreement.  A Financed Receivable stops being a Financed Receivable (but remains Collateral) when the Advance made for the Financed Receivable has been fully paid.

 

“Financed Receivable Balance” is the total outstanding gross face amount, at any time, of any Financed Receivable.

 

“Fixed Charge Coverage Ratio” shall mean, at any date of determination, with respect to the twelve-month period ending on such date of determination, the ratio of (a) (i) Adjusted EBITDA minus (ii) unfunded capital expenditures minus (iii) dividends paid in cash minus (iv) taxes paid in cash divided by (b) principal and interest payments made on account of Total Liabilities (provided, however, with respect to principal and interest payments on account of the Indebtedness in favor of Bank, until there are four (4) full quarters of such payments to be included in such calculation, the amount of payments (as calculated commencing on the Effective Date) with respect to such Indebtedness shall, for purposes of this calculation, be annualized).

                                    

“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 the date on which the Term Loan Advance is made to or for the account of Borrower, which shall be a Business Day.

 

30

“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.

 

“GigOptix” is defined in the preamble of this Agreement.

 

“GigOptix Guarantor” is GigOptix LLC, an Idaho limited liability company.

 

“GigOptix Guaranty” is that certain Amended and Restated Unconditional Guaranty dated as of the Effective Date, executed by GigOptix Guarantor in favor of Bank, as amended, modified or restated from time to time.

 

“GigOptix Security Agreement” is that certain Amended and Restated Security Agreement dated as of the Effective Date, by and between GigOptix Guarantor and Bank, as amended, modified or restated from time to time.

 

“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.

 

“Guarantor” is any present or future guarantor of the Obligations, including, without limitation, GigOptix Guarantor.

 

“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 of this Agreement.

 

“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 Borrower’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 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.

31

“Inventory” is all “inventory” as defined in the Code in effect on the Effective Date 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 of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

 

“IP Agreement” is, collectively, (a) that certain Amended and Restated Intellectual Property Security Agreement dated as of the Effective Date between GigOptix and Bank, (b) that certain Amended and Restated Intellectual Property Security Agreement dated as of the Effective Date between ChipX and Bank, (c) that certain Amended and Restated Intellectual Property Security Agreement dated as of the Effective Date between Endwave and Bank and (d) that certain Intellectual Property Security Agreement dated as of the Effective Date between Magnum and Bank, in each case as amended, modified or restated from time to time.

 

“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.

 

“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.

 

“Liquidity Ratio” means a ratio of (a) Borrower’s (i) unrestricted cash maintained with Bank or Bank’s Affiliates, plus (ii) net billed accounts receivable to (b) the aggregate amount of all outstanding obligations and liabilities of Borrower and each Guarantor to Bank, including, without limitation, the Obligations.

 

“Loan Documents” are, collectively, this Agreement, the Warrant, the Perfection Certificate, the IP Agreement, the Loan Documents (as defined in the GigOptix Security Agreement), any subordination agreements, the SVB Control Agreement, any Bank Services Agreement, the Borrowing Resolutions, any note, or notes or guaranties executed by Borrower and/or any Guarantor, and any other present or future agreement between Borrower and/or any Guarantor and/or for the benefit of Bank, all as amended, restated, or otherwise modified.

 

“Loan Fees” is defined in Section 2.4 of this Agreement.

 

“Lockbox” is defined in Section 2.9 of this Agreement.

 

“Magnum” is defined in the preamble of this Agreement.

 

“Magnum Acquisition” means the acquisition by GigOptix of one hundred percent (100.0%) of the outstanding capital stock of Magnum pursuant to a certain Agreement and Plan of Merger dated as of April 1, 2016.

 

“Material Adverse Change” is: (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 of this Agreement during the next succeeding financial reporting period.

 

“Maturity Date” is two (2) years from the Effective Date. 

 

“Maximum Availability Amount” is Fourteen Million Dollars ($14,000,000.00).

 

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

 

32

 “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 thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

 

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

 

“Payment/Advance Form” is that certain form attached hereto as Exhibit E.

 

“Payment Date” is the first (1st) Business Day of each month.

“Perfection Certificate” is defined in Section 5.1 of this Agreement.

 

“Permitted Accounts” is defined in Section 6.5(a).

 

“Permitted Foreign Account Debtors” means Cisco, Huawei, ZTE, OpNext, Oclaro, Alcatel-Lucent, Barco Silex, Fujitsu, Mitsubishi, Sumitomo, Sony, NTT, FUJIFILM SonoSite, Inc., Northrop Grumman (cx), Pangaea (H.K.) Limited, Avnet, Nokia Siemens Networks GmbH & Co. KG., Thomson, Appear TV, Arris, Sencore and Sumavision.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)            Subordinated Debt;

 

(d)            unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

 

(e)            Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(f)            Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder; and

 

(g)            extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

“Permitted Investments” are:

 

(a)            Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate (but specifically excluding any future Investments un any Subsidiaries unless otherwise permitted hereunder);

 

(b)            Investments consisting of Cash Equivalents;

 

(c)            Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;

 

(d)            Investments accepted in connection with Transfers permitted by Section 7.1 of this Agreement;

33

(e)            Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s board of directors;

 

(f)            Investments (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; and

 

(g)            Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (g) shall not apply to Investments of Borrower in any Subsidiary.

 

“Permitted Liens” are:

 

(a)            Liens existing on the Effective Date which are shown on the Perfection Certificate or 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 Borrower’s Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)            purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000.00)  in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

(d)            Liens 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 Hundred Thousand Dollars ($100,000.00) 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;

 

(e)            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);

 

(f)              Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

 

(g)            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 licenses of Intellectual Property granted to third parties in the ordinary course of business; and

 

(i)            Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7 of this Agreement.

 

“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.

 

34

“Prime Rate” is, with respect to any day, the “Prime Rate” as quoted in the Wall Street Journal print edition on such day (or, if such day is not a day on which the Wall Street Journal is published, the immediately preceding day on which the Wall Street Journal was published).

 

“Prior Loan Agreement” is defined in Recital A of this Agreement.

 

“Reconciliation Period” is each calendar month.

 

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

 

“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 Bank’s right to sell any Collateral.

“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.

 

“Streamline Facility Eligible” means, as of any day during any Subject Month, Borrower has provided evidence to Bank that Borrower (a) had an Liquidity Ratio of greater than 1.35 to 1.0 at all times during the applicable Testing Month, and (b) has an Liquidity Ratio of greater than 1.35 to 1.0 on such day.

 

“Subject Month” is the month which is two (2) calendar months after any Testing Month.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

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

 

“SVB Control Agreement” is, collectively, (a) that certain Securities Account Control Agreement by and among SVB Securities, Apex Clearing Corporation, GigOptix and Bank, (b) that certain Securities Account Control Agreement by and among SVB Securities, Apex Clearing Corporation, ChipX and Bank, (c) that certain Securities Account Control Agreement by and among SVB Securities, Apex Clearing Corporation, Magnum and Bank, (d) that certain Securities Account Control Agreement by and among SVB Securities, Apex Clearing Corporation, GigOptix Guarantor and Bank and (e) that certain Securities Account Control Agreement by and among SVB Asset Management, U.S. Bank, N.A., Endwave and Bank.

 

“Term Loan Advance” are each defined in Section 2.1.2(a).

35

 “Term Loan Commitment Fee” is defined in Section 2.4 of this Agreement.

 

“Term Loan Maturity Date” is April 1, 2021.

 

“Term Loan Prepayment Premium” shall be an additional fee payable to Bank in an amount equal to (a) for a prepayment of the Term Loan Advance made on or prior to the first (1st) anniversary of the Funding Date of the Term Loan Advance, two percent (2.0%) of the amount prepaid and (b) for a prepayment of the Term Loan Advance made after the first (1st) anniversary of the Funding Date of the Term Loan Advance but on or prior to the second (2nd) anniversary of the Funding Date of the Term Loan Advance, one percent (1.0%) of the amount prepaid and (iii) after the second (2nd) anniversary of the Funding Date of the Term Loan Advance, one-half of one percent (0.50%) of the amount prepaid.

 

“Testing Month” is any month with respect to which Bank has tested Borrower’s Liquidity Ratio to determine whether Borrower is Streamline Facility Eligible.

“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 of this Agreement.

 

“Warrant” is, collectively, (a) that certain Amended and Restated Warrant to Purchase Stock for 4,125 shares of Borrower’s common stock dated as of the Effective Date between GigOptix and Bank and (b) that certain Amended and Restated Warrant to Purchase Stock for 125,000 shares of Borrower’s common stock dated as of the Effective Date between GigOptix and Bank, in each case as amended, modified or restated from time to time.

 

“Working Capital Facility Fee” is defined in Section 2.4 of this Agreement.

[Signature page follows.]

 

36

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

 

BORROWER

GIGOPTIX, INC.

 By: /s/ Avi Katz

Name: Avi Katz

Title: Chief Executive Officer

 

CHIPX, INCORPORATED

 By: /s/ Avi Katz

Name: Avi Katz

Title: President

 

ENDWAVE CORPORATION

 By: /s/ Avi Katz

Name: Avi Katz

Title: President

 

MAGNUM SEMICONDUCTOR, INC.

 

By: /s/ Avi Katz

Name: Avi Katz

Title: President

BANK

 

SILICON VALLEY BANK

 

By: /s/ Janice Ahn

Name: Janice Ahn

Title: Vice President

EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following:

All goods, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, general intangibles (including payment intangibles), accounts (including health-care receivables), documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, now owned or later acquired; any patents, trademarks, service marks and applications therefor; trade styles, trade names, any trade secret rights, including any rights to unpatented inventions, know‐how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damages by way of any past, present and future infringement of any of the foregoing; and

 

All Borrower’s books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

EXHIBIT B

SPECIALTY FINANCE DIVISION

Compliance Certificate

I, an authorized officer of GIGOPTIX, INC., CHIPX, INCORPORATED, ENDWAVE CORPORATION and MAGNUM SEMICONDUCTOR, INC. (jointly and severally, individually and collectively, “Borrower”) certify under the Third Amended and Restated Loan and Security Agreement (as amended, the “Agreement”) between Borrower and Silicon Valley Bank (“Bank”) as follows for the period ending ____________________ (all capitalized terms used herein shall have the meaning set forth in the Agreement):

Borrower represents and warrants for each Financed Receivable:

Each Financed Receivable is an Eligible Account;

Borrower is the owner with legal right to sell, transfer, assign and encumber such Financed Receivable;

The correct amount is on the Advance Request and Invoice Transmittal and is not disputed;

Payment is not contingent on any obligation or contract and Borrower has fulfilled all its obligations as of the Advance Request and Invoice Transmittal date;

Each Financed Receivable is based on an actual sale and delivery of goods and/or services rendered, is due to Borrower, is not past due or in default, has not been previously sold, assigned, transferred, or pledged and is free of any liens, security interests and encumbrances other than Permitted Liens;

There are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim any deduction or discount;

Borrower reasonably believes no Account Debtor is insolvent or subject to any Insolvency Proceedings;

Borrower has not filed or had filed against it Insolvency Proceedings and does not anticipate any filing;

Bank has the right to endorse and/or require Borrower to endorse all payments received on Financed Receivables and all proceeds of Collateral; and

No representation, warranty or other statement of Borrower in any certificate or written statement given to Bank contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in the certificates or statement not misleading.

Additionally, Borrower represents and warrants as follows:

Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to cause a Material Adverse Change.  The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational documents, nor constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change.

 

Borrower has good title to the Collateral, free of Liens except Permitted Liens.  All inventory is in all material respects of good and marketable quality, free from material defects.

 

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.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change.  None of Borrower’s or any Subsidiary’s properties or assets have been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP.  Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted except where the failure to obtain or make such consents, declarations, notices or filings would not reasonably be expected to cause a Material Adverse Change.

Borrower is in compliance with the financial covenants set forth in Section 6.7 of the Agreement.  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.

	
Financial Covenants

	 	 	
Required

	
         Actual

	
Compliance

	 
	 	 	 	 	 
	
Liquidity Ratio (tested monthly)

	 	
> 1.25:1.0

	
          ______:1.0

	
Yes   No

	 	 	 	 	 
	
Fixed Charge Coverage

	 	 	 	 
	
Ratio (twelve-month) (tested quarterly 

commencing with the quarter ending 

March 31, 2016)

	 	
> 1.25:1.0

	
          ______:1.0

	
Yes   No   N/A

	 	 	 	 	 
	
Streamline Facility Eligibility

	 	 	 	 	 
	 	 	
Required

	
         Actual

	
Eligible

	 
	 	 	 	 	 
	
Liquidity Ratio

	 	
 > 1.35:1.0

	
         ___:1.0

	
Yes   No

All other representations and warranties in the Agreement are true and correct in all material respects on this date, and Borrower represents that there is no existing Event of Default.

[Continued on following page.]

 

Sincerely,

GIGOPTIX, INC.

CHIPX, INCORPORATED

ENDWAVE CORPORATION

MAGNUM SEMICONDUCTOR, INC.

	                          	 
	
Signature

	 
	                             	 
	
Title

	 
	                               	 
	
Date

	 

 

EXHIBIT C

[To be provided by Bank]

 

EXHIBIT D

BORROWING BASE CERTIFICATE

	Borrower:	GIGOPTIX, INC., CHIPX, INCORPORATED, ENDWAVE CORPORATION and MAGNUM SEMICONDUCTOR, INC.

	Lender:	Silicon Valley Bank

	Commitment Amount:	$14,000,000.00

	
ACCOUNTS RECEIVABLE

	 	 	 	 
	
1.

	
Accounts Receivable (invoiced) Book Value as of ____________________

	 	$	 	 
	
2.

	
Additions (please explain on next page)

	 	
$

	
 

	 
	
3.

	
Less: Intercompany / Employee / Non-Trade Accounts

	 	
$

	 	 
	
4.

	
NET TRADE ACCOUNTS RECEIVABLE

	 	
$

	
 

	 
	 	 	 	 	 	 
	
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

	 	 	 	 
	
5.

	
Affiliate/Subsidiary/Intercompany/Employee Accounts/invoices

	 	
$

	
 

	 
	
6.

	
90 Days Past Invoice Date

	 	
$

	
 

	 
	
7.

	
Credit Balances over 90 days

	 	
$

	
 

	 
	
8.

	
Foreign Account Debtors (non-U.S./Canada other than accounts owing from Permitted Foreign Account Debtors)

	 	
$

	
 

	 
	
9.

	
Accounts billed and/or payable outside the United States

	 	
$

	
 

	 
	
10.

	
Contra/Customer Deposit Accounts

	 	
$

	
 

	 
	
11

	
U.S. Government Accounts w/o assignment of claims (exclusion only applies to accounts w/o assignment of claims in excess of $500,000 in the aggregate)

	 	
$

	
 

	 
	
12.

	
Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts

	 	
$

	
 

	 
	
13.

	
Accounts with Memo or Pre-Billings

	 	
$

	 	 
	
14.

	
Contract Accounts; Accounts with Progress/Milestone Billings

	 	
$

	
 

	 
	
15.

	
Accounts for Retainage or Retention Billings

	 	
$

	
 

	 
	
16.

	
Trust / Bonded Accounts

	 	
$

	
 

	 
	
17.

	
Bill and Hold Accounts

	 	
$

	
 

	 
	
18.

	
Unbilled Accounts

	 	
$

	
 

	 
	
19.

	
Non-Trade Accounts (if not already deducted above)

	 	
$

	
 

	 
	
20.

	
Payment Terms over 90 Days

	 	
$

	
 

	 
	
21.

	
Chargebacks Accounts / Debit Memos

	 	
$

	
 

	 
	
22.

	
Product Returns/Exchanges

	 	
$

	
 

	 
	
23.

	
Disputed Accounts; Insolvent Account Debtor Accounts

	 	
$

	 	 
	
24.

	
Deferred Revenue

	 	
$

	
 

	 
	
25.

	
Balance of 50% over 90 Days Accounts (cross-age or current affected)

	 	
$

	
 

	 
	
26.

	
Doubtful / Refreshed / Recycled Accounts

	 	
$

	
 

	 
	
27.

	
Other (please explain on next page)

	 	
$

	
 

	 
	
28.

	
TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

	 	
$

	
 

	 
	
29.

	
Eligible Accounts (#4 minus #28)

	 	
$

	
 

	 
	
30.

	
ELIGIBLE AMOUNT OF ACCOUNTS (80.0% of #29)

	 	
$

	
 

	 
	 	 	 	 	 	 
	
BALANCES

	 	 	 	 
	
31.

	
Maximum Loan Amount

	 	
$

	
14,000,000.00

	 
	
32.

	
Total Funds Available (lesser of #30 or #31)

	 	
$

	
 

	 
	
33.

	
Present balance of Advances

	 	
$

	
 

	 
	
34.

	
RESERVE POSITION (#32 minus #33)

	 	
$

	
 

	 

[Continued on following page.]

 

Explanatory comments from previous page:

	                              
	                                     
	                                         
	                                      

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 Third Amended and Restated Loan and Security Agreement between the undersigned and Silicon Valley Bank.

 

	 	 	 	
BANK USE ONLY

	 
	
COMMENTS:

	 	 	
Received by: 

	 	 
	 	 	 	
authorized signer

	 
	
GIGOPTIX, INC.

	 	 	
Date:   

	 	 	 
	
CHIPX, INCORPORATED

	 	 	
Verified: 

	 	 
	
ENDWAVE CORPORATION

	 	 	
authorized signer

	 
	
MAGNUM SEMICONDUCTOR, INC.

	 	 	
Date: 

	 	 	 
	 	 	 	
Compliance Status:                     Yes            No

	 
	
By: 

	                       	 	 	 	 
	
Authorized Signer

	 	 	 	 
	
Date:

	                                	 	 	 	 

 

EXHIBIT E

LOAN PAYMENT/ADVANCE REQUEST FORM

Deadline for same day processing is Noon Pacific Time

	
Fax To:

	
Date: 

	 	 

 

	
Loan Payment:

	 	 	 
	 	 	 	 
	
GIGOPTIX, INC., CHIPX, INCORPORATED, ENDWAVE CORPORATION and MAGNUM SEMICONDUCTOR, INC.

	 
	 	 	 	 
	
From Account #

	 	 	 	
To Account #

	 	 
	
(Deposit Account #)

	 	
(Loan Account #)

	
	
Principal $

	 	 	 	 	
and/or Interest $

	 	 
	 	 	 	 
	
Authorized Signature:

	 	 	 	
Phone Number:

	 	 	
	
Print Name/Title:

	 	 	 	 	 	 
	 	 	 	 	 	 

 

	
Loan Advance:

	 	 	 	 
	 	 	 	 	 
	
Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

	 
	 	 	 	 	 
	
From Account # 

		 	 	 	 	 	 	
To Account #

	 	 
	
(Loan Account #)

	 	
(Deposit Account #)

	 
	 	 	 	 	 
	
Amount of Term Loan Advance $

	 	 	 	 	 	 
	 	 	 	 	 
	
All Borrower’s representations and warranties in the Third Amended and Restated Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

	 
	 	 	 	 	 
	
Authorized Signature:

	 	 	 	 	
Phone Number:

	 	 	 
	
Print Name/Title:

		 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 

 

	
Outgoing Wire Request:

	 	 	 
	
Complete only if all or a portion of funds from the loan advance above is to be wired.

	 
	
Deadline for same day processing is noon, Pacific Time

	 	 	 
	 	 	 	 
	
Beneficiary Name: 

	 	 	 	
Amount of Wire: $

	 	 	 	 
	
Beneficiary Bank: 

	 	 	 	
Account Number:

	 	 	 	 
	
City and State:

		 	 	 	 	 	 
	 	 	 	 
	
Beneficiary Bank Transit (ABA) #:

	 	 	 	
Beneficiary Bank Code (Swift, Sort, Chip, etc.):

	 	 
	
(For International Wire Only)

	 	 	 
	 	 	 	 
	
Intermediary Bank:

	 	 	 	
Transit (ABA) #:

	 	 	 	 
	
For Further Credit to:

	 	 	 
	 	 	 	 
	
Special Instruction:

		 	 
	 	 	 	 
	
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

	 
	 	 	 	 
	
Authorized Signature: 

		 	 	
2nd Signature (if required): 

	 	 	 
	
Print Name/Title: 

	 	 	 	
Print Name/Title: 

	 	 	 	 
	
Telephone #:

	 	 	 	
Telephone #:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00256-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00256-of-00352.parquet"}]]