Document:

Exhibit 10.1

 

SECURITIES
PURCHASE AGREEMENT

 

This SECURITIES
PURCHASE AGREEMENT (the “Agreement”), dated as of May 29, 2018, by and between NanoFlex Power Corporation, a
Nevada corporation, with headquarters located at 17207 N. Perimeter Dr. Suite 210, Scottsdale, AZ 85255 (the “Company”),
and ADAR BAYS, LLC, a Florida limited liability company, with its address at 3411 Indian Creek Drive, Suite 403, Miami Beach,
FL 33140 (the “Buyer”).

 

WHEREAS:

 

A. The
Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under
the Securities Act of 1933, as amended (the “1933 Act”);

 

B. Buyer
desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement three
12% convertible notes of the Company, in the forms attached hereto as Exhibit A, B and C in the aggregate principal amount of $157,500.00
(comprised of the first note being in the amount of $52,500.00, and the remaining two notes in the amounts of $52,500.00 each,
each a “Back End Note”) (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, of the
Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note. The
first of the three notes (the “First Note”) shall be paid for by the Buyer as set forth herein. Each $52,500.00 Back
End Note shall initially be paid for by the issuance of an offsetting $52,500.00 secured note issued to the Company by the Buyer
(a “Buyer Note”), provided that prior to conversion of a particular Back End Note, the Buyer must have paid off that
particular Buyer Note in cash such that the particular Back End Note may not be converted until it has been paid for in cash by
Buyer.

 

C. The
Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth
immediately below its name on the signature pages hereto; and

 

NOW THEREFORE, the
Company and the Buyer severally (and not jointly) hereby agree as follows:

 

1. Purchase
and Sale of Note.

 

a. Purchase of
Note. On each Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to
purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature
pages hereto.

 

 

 

     

     

    

 

b.
Form of Payment. On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be
issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available
funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the
principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto,
and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase
Price.

 

c. Closing
Date. The date and time of the first issuance and sale of the Note pursuant to this Agreement (the “Closing Date”)
shall be on or about May 29, 2018, or such other mutually agreed upon time. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties. Subsequent
Closings shall occur when the Buyer Notes are repaid. The Closing of each of the following notes shall be on or before the dates
specified in the relevant Buyer Notes. The Company may reject the funding of the Back End Notes by ,Q-iying 30
day prior written notice. Such notice must be given 30 days prior to the 6 month anniversary of each of the Back End Notes. 

 

2. Buyer’s Representations and Warranties. The
Buyer represents and warrants to the Company that:

 

a. Investment
Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Note, such shares of Common Stock being collectively referred to herein as the “Conversion
Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards
the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act;
provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.

 

b. Accredited
Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D
(an “Accredited Investor”).

 

c. Reliance
on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Securities.

 

    2

     

    

 

d. Information.
The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished
with all materials relating to the business, finances and operations of the Company and materials relating to the offer
and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have
been, and for so long as the Note remain outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any
material nonpublic information and will not disclose such information unless such information is disclosed to the public
prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on
the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in
the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any
of the Company’s representations and warranties made herein.

 

e. Governmental Review. The Buyer
understands that no United States federal or state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.

 

f. Transfer
or Re-sale. The Buyer understands that (i) the sale or re- sale of the Securities has not been and is not being
registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a)
the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have
delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope
customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c)
the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or
a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e)
the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the
Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance
and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding
the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection
with a bona tide margin account or other lending arrangement.

 

    3

     

    

 

g. Legends. The Buyer understands that the
Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold,
the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):

 

“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set
forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under
an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions,
to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion
shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements,
if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, within 2 business days, it will be
considered an Event of Default under the Note.

 

h. Authorization.,
Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf
of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.

 

i. Residency.
The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.

 

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j. No Short
Sales. Buyer/Holder, its successors and assigns, agree that so long as the Note remains outstanding, the Buyer/Holder shall
not enter into or effect “short sales” of the Common Stock or hedging transaction which
establishes a short position with respect to the Common Stock of the Company. The Company acknowledges and agrees that upon delivery
of a Conversion Notice by the Buyer/Holder, the Buyer/Holder immediately owns the shares of Common Stock described in the Conversion
Notice and any sale of those shares issuable under such Conversion Notice would not be considered short sales.

 

3. Representations and Warranties of the
Company. The Company represents and warrants to the Buyer that:

 

a. Organization
and Qualification. The Company and each of its subsidiaries, if any, is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and
other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated
and conducted.

 

b. Authorization;
Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the
Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation
for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s
Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required,
(iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign this Agreement and the other documents executed
in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery
by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.

 

c. Issuance
of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance
with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder thereof.

 

d. Acknowledgment
of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance
of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

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e.
No Conflicts. The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of
Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default
(or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company
or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the
Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset
of the Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the aggregate, have a material adverse effect). All
consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements
of the OTC Marketplace (the “OTC Markets”) and does not reasonably anticipate that the Common Stock will be delisted
by the OTC MARKETS in the foreseeable future, nor are the Company’s securities “chilled” by FINRA. The Company
and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

 

f. Absence
of Litigation. Except as disclosed in the Company’s public filings, there is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries,
or their officers or directors in their capacity as such, that could have a material adverse effect. Schedule 3(f) contains a
complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting
the Company or any of its subsidiaries, without regard to whether it would have a material adverse effect. The Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

 

g. Acknowledgment
Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the
capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective
representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation
and is merely incidental to the Buyer’ purchase of the Securities. The Company further represents to the Buyer that the
Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its
representatives.

 

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h.
No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances
that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities
to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes
of any shareholder approval provisions applicable to the Company or its securities.

 

i. Title
to Property. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries,
in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(i) or such as would
not have a material adverse effect. Any real property and facilities held under lease by the Company and its subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions as would not have a material adverse effect.

 

j. Bad Actor.
No officer or director of the Company would be disqualified under Rule 506(d) of the Securities Act as amended on the basis of
being a “bad actor” as that term is established in the September 19, 2013 Small Entity Compliance Guide published
by the Securities and Exchange Commission.

 

k. Breach
of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth
in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered
an Event of default under the Note.

 

4. COVENANTS.

 

a. Expenses. At the Closing, the Company shall reimburse Buyer for expenses
incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the
other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’
and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions
of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents. When possible, the Company
must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and
expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer.

 

b. Listing.
The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of
issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company
will obtain and, so long as the Buyer owns any of the Securities, maintain the listing and
trading of its Common Stock on the OTC MARKETS or any equivalent replacement exchange, the Nasdaq National Market
(“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”) or the New York Stock Exchange
(“NYSE”), and will comply in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable.
The Company shall promptly provide to the Buyer copies of any notices it receives from the OTC MARKETS and any other
exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common
Stock for listing on such exchanges and quotation systems.

 

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c. Corporate
Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s
obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTC MARKETS, Nasdaq, Nasdaq SmallCap or NYSE.

 

d. No Integration.
The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be
integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable
to the Company or its securities.

 

e. Filings.
The Company shall include all of the Notes in its next scheduled SEC filing whether that shall be a 10Q or al OK.

 

f. Breach
of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies
available to the Buyer pursuant to this Agreement, it will be considered an event of default under the Note.

 

5. Governing
Law; Miscellaneous.

 

a. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in
the state courts of New York or in the federal courts located in the state and county of New York. The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Buyer waive trial by jury. The
prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event
that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith
and shall be deemed modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any
agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit,
action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

b. Counterparts;
Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

 

c. Headings.
The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation
of, this Agreement.

 

d. Severability.
In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.

 

e. Entire
Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein,
neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in
interest of the Buyer.

 

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f. Notices.
All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, (iv) via electronic mail or (v) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below
or to such other address as such party shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where such notice is to be received) or delivery via
electronic mail, or the first business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications shall be:

 

If to the Company, to: 

NanoFlex Power Corporation 

17207 N. Perimeter Dr. Suite 210 

Scottsdale, AZ 85255

Attn: Dean L.
Ledger

 

If to the Buyer: 

ADAR BAYS, LLC 

3411 Indian Creek Drive, Suite 403, 

Miami Beach, FL 33140 

Attn: Samuel Eisenberg

 

Each party shall provide notice to the other party
of any change in address.

 

g. Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, the Buyer may assign its rights hereunder to any person that purchases Securities
in a private transaction from the Buyer or to any of its “affiliates,” as that tenn is defined under the 1934 Act,
without the consent of the Company.

 

h. Third
Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

i. Survival.
The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to
indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a
result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set
forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they
are incurred.

 

j. Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

k. No
Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.

 

1. Remedies.
The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies
at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing
or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing
economic loss and without any bond or other security being required.

 

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IN WITNESS WHEREOF, the undersigned Buyer and the Company have
caused this Agreement to be duly executed as of the date first above written.

 

	NanoFlex Power Corporation	 
	 	 	 
	By:	/s/ Dean L. Ledger	 
	Name:	Dean L. Ledger	 
	Title:	CEO	 
	 	 	 
	ADAR BAYS, LLC.	 
	 	 	 
	By:	/s/ Samuel Eisenberg	 
	Name:	Samuel Eisenberg	 
	Title:	Manager	 

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

	Aggregate Principal Amount of Note:	 	$	157,500.00	 

 

Aggregate Purchase Price:

 

Note 1: $52,500.00 less $2,500.00 in legal fees

 

Back End Note 1: $52,500.00 less $2,500.00 in legal fees

 

Back End Note 2: $52,500.00 less $2,500.00 in legal fees

 

    10

     

    

 

EXHIBIT A 

144 NOTE - $52,500.00

 

EXHIBIT B 

BACK END NOTE 1 

$52,500.00

 

EXHIBIT C 

BACK END NOTE 2 

$52,500.00

 

 

 

 

 

 

    11ex_115798.htm

Exhibit 10.1

 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 30, 2018 (the “Effective Date”) among WELLS FARGO BANK, NATIONAL ASSOCIATION, a California corporation (“Bank”), CUTERA, INC., a Delaware corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

 

1           ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

 

2           LOAN AND TERMS OF PAYMENT

 

2.1      Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Advances and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

 

2.1.1     Revolving Advances.

 

(a)     Availability. Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Advances may be repaid and, prior to the Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein. The Revolving Line terminates on the Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

(b)     Procedure for Advances. (a) Requests for Borrowing. Borrower must give Bank irrevocable prior written notice substantially in the form of Exhibit B (a “Notice of Borrowing”) not later than 12:00 p.m. at least three (3) Business Days before each Advance, of its intention to borrow, specifying (A) the date of such borrowing, which shall be a Business Day, (A) the amount of the Advance, which shall be, in an aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof, and (B) the duration of the Interest Period applicable thereto; provided that if Borrower wishes to request an Advance having an Interest Period of twelve months in duration, such notice must be received by Bank not later than 12:00 p.m. four (4) Business Days prior to the requested date of such borrowing. If the Borrower fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. A Notice of Borrowing received after 12:00 p.m. shall be deemed received on the next Business Day.

 

(c)     Disbursement of Advances. Borrower irrevocably authorizes Bank to disburse the proceeds of each Advance in immediately available funds by crediting or wiring such proceeds to the deposit account of Borrower maintained with Bank or as may be otherwise agreed upon by Borrower and Bank from time to time.

 

2.2          Payment of Interest on the Advances. 

 

(a)     Interest Rate. Subject to Section 2.2(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, which interest shall be payable monthly in accordance with Section 2.2(d) below.

 

(b)     Payment; Interest Computation. Interest is payable monthly on the first calendar day of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Pacific Time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Advance shall be included and the date of payment shall be excluded; provided, however, that if any Advance is repaid on the same day on which it is made, such day shall be included in computing interest on such Advance.

 

(c)     Computation of Interest. Any interest hereunder will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days. In computing interest on any Advance, the date of the making of such Advance shall be included and the date of payment shall be excluded; provided, however, that if any Advance is repaid on the same day on which it is made, such day shall be included in computing interest on such Advance.

 

 

 

 

(d)     Default Rate. Upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate that would otherwise be applicable thereto.

 

2.3         Fees. Borrower shall pay to Bank:

 

(a)     Unused Commitment Fee. Borrower shall pay to Bank a fee equal to (a) 0.25% per annum if the Leverage Ratio is less than 1.00 to 1.00, (b) 0.30% per annum if the Leverage Ratio is equal to or greater than 1.00 to 1.00, but less than 2.00 to 1.00, and (c) 0.35% per annum if the Leverage Ratio is equal to or greater than 2.00 to 1.00, in each case computed on the basis of a 360-day year, actual days elapsed, on the daily unused amount of the Revolving Line, which fee shall be due and payable by Borrower in arrears on the first day of each calendar quarter, beginning June 1, 2018.

 

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

 

2.4         Payments; Application of Payments; Debit of Accounts.

 

(a)     All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid. Bank may debit any of Borrower’s deposit accounts for principal and interest payments or any other amounts Borrower owes Bank when due.

 

2.5         Withholding. Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any Governmental Authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority. Borrower will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.5 shall survive the termination of this Agreement.

 

2.6          Continuation Elections.

 

(a)     So long as (i) no Event of Default exists; (ii) Borrower shall not have sent any notice of termination of this Agreement; and (iii) Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower’s requests for Advances, Borrower may, upon irrevocable written notice to Bank elect to continue on any Interest Payment Date any Advances maturing on such Interest Payment Date.

 

(b)     Borrower shall deliver a Notice of Continuation by electronic mail to be received by Bank prior to 12:00 p.m. Pacific Time (i) at least three (3) Business Days in advance of the Continuation Date, if any Advances are to be continued as Advances:

 

(1)     proposed Continuation Date;

 

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(2)     aggregate amount of the Advances to be converted or continued;

 

(3)     nature of the proposed continuation; and

 

(4)     the duration of the requested Interest Period.

 

(c)     If upon the expiration of any Interest Period applicable to any Advances, Borrower shall have timely failed to select a new Interest Period to be applicable to such Advances, Borrower shall be deemed to have elected to continue the Interest Period for one month.

 

(d)     Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase Dollar deposits in the London interbank market or other applicable LIBOR market to fund any Advances, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the Advances.

 

2.7         Special Provisions Governing LIBOR. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern as to the matters covered:

 

(a)     Determination of Applicable Interest Rate. As soon as practicable on each Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Advances for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower.

 

(b)     Inability to Determine Applicable Interest Rate. In the event that Bank shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Advance, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Advance on the basis provided for in the definition of LIBOR, Bank shall on such date give notice to Borrower of such determination, whereupon (i) no Advances may be made as until such time as Bank notifies Borrower that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Borrowing or Notice of Continuation given by Borrower with respect to Advances in respect of which such determination was made shall be deemed to be rescinded by Borrower.

 

(c)     Compensation for Breakage or Non-Commencement of Interest Periods. If (i) for any reason, other than a default by Bank or any failure of Bank to fund Advances due to impracticability or illegality, a borrowing or continuation of any Advance does not occur on a date specified in a Notice of Borrowing or a Notice of Continuation, as the case may be, or (ii) any complete or partial principal payment or reduction of an Advance, occurs on a date prior to the last day of an Interest Period applicable to that Advance, including due to voluntary or mandatory prepayment or acceleration, then, in each case, Borrower shall compensate Bank, upon written request by Bank, for all losses and expenses incurred by Bank in an amount equal to the excess, if any, of:

 

(A)     the amount of interest that would have accrued on the amount (1) not borrowed or continued as provided in clause (i) above, or (2) paid, reduced as provided in clause (ii) above, for the period from (y) the date of such failure to borrow or continue as provided in clause (i) above, or the date of such payment, or reduction as provided in clause (ii) above, as the case may be, to (z) in the case of a failure to borrow, convert or continue as provided in clause (i) above, the last day of the Interest Period that would have commenced on the date of such borrowing or continuing but for such failure, and in the case of a payment or reduction prior to the last day of an Interest Period applicable to an Advance as provided in clause (ii) above, the last day of such Interest Period, in each case at the applicable rate of interest or other return for such Advance(s) provided for herein (excluding, however, the LIBOR Rate Margin included therein, if any), over

 

(B)     the interest which would have accrued to Bank on the applicable amount provided in clause (A) above through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate on the date of such failure to borrow, convert or continue as provided in clause (i) above, or the date of such payment or reduction as provided in clause (ii) above, as the case may be, for a period equal to the remaining period of such applicable Interest Period provided in clause (A) above.

 

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Bank’s request shall set forth the manner and method of computing such compensation and such determination as to such compensation shall be conclusive absent manifest error.

 

(d)     Assumptions Concerning Funding of Advances. Calculation of all amounts payable to Bank under this Section 2.7 and under Section 2.8 shall be made as though Bank had actually funded each relevant Advance through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate in an amount equal to the amount of such Advance and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund each of its Advances in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.7 and under Section 2.8.

 

2.8         Additional Requirements/Provisions Regarding Advances.

 

(a)     Borrower shall pay Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Advances relating thereto (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), in each case resulting from any Regulatory Change that:

 

(i)       changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any Advances (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which Bank has its principal office);

 

(ii)     imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with, or other liabilities of Bank (including any Advances or any deposits referred to in the definition of LIBOR); or

 

(iii)     imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities).

 

Bank will notify Borrower of any event occurring after the Effective Date which will entitle Bank to compensation pursuant to this Section 2.8(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 2.8(a). Determinations and allocations by Bank for purposes of this Section 2.8(a) of the effect of any Regulatory Change on its costs of maintaining its obligations to make Advances, of making or maintaining Advances, or on amounts receivable by it in respect of Advances, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.

 

(b)     If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation, or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a “Parent”) as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change, or compliance (taking into consideration policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within five (5) days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section 2.8(b) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.

 

Notwithstanding anything to the contrary in this Section 2.8, Borrower shall not be required to compensate Bank pursuant to this Section 2.8(b) for any amounts incurred more than nine (9) months prior to the date that Bank notifies Borrower of Bank’s intention to claim compensation therefor; provided that if the circumstances giving rise to such claim have a retroactive effect, then such nine-month period shall be extended to include the period of such retroactive effect. The obligations of the Borrower arising pursuant to this Section 2.8(b) shall survive the Maturity Date, the termination of this Agreement and the repayment of all Obligations.

 

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(c)     If, at any time, Bank, in its sole and absolute discretion, determines that (i) the amount of Advances for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) LIBOR does not accurately reflect the cost to Bank of lending the Advances, then Bank shall promptly give notice thereof to Borrower. Upon the giving of such notice, Bank’s obligation to make the Advances shall terminate; provided, however, Advances shall not terminate if Bank and Borrower agree in writing to a different interest rate applicable to Advances.

 

(d)     If it shall become unlawful for Bank to continue to fund or maintain any Advances, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the Advances in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 2.7(c)(ii)). Notwithstanding the foregoing, to the extent a determination by Bank as described above relates to an Advance then being requested by Borrower pursuant to a Notice of Borrowing or a Notice of Continuation, Borrower shall have the option, subject to the provisions of Section 2.7(c)(ii), to (i) rescind such Notice of Borrowing or Notice of Continuation by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such rescission on the date on which Bank gives notice of its determination as described above.

 

3             CONDITIONS OF LOANS

 

3.1       Conditions Precedent to Initial Advance. Bank’s obligation to make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

(a)     duly executed original signatures to the Loan Documents;

 

(b)     the Operating Documents and good standing certificate of Borrower;

 

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

 

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

 

(e)     the certificate(s) for the Shares, together with Assignment(s) Separate from Certificate, duly executed in blank, of any Material Subsidiaries;

 

(f)     evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank; and

 

(g)     payment of the fees and Bank Expenses then due as specified in Section 2.3 hereof.

 

3.2         Conditions Precedent to all Advances. Bank’s obligations to make each Advance, including the initial Advance, is subject to the following conditions precedent:

 

(a)     timely receipt of an executed Payment/Advance Form;

 

(b)     the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each 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, and no Event of Default shall have occurred and be continuing or result from the Advance. Each Advance is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

 

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(c)     Bank determines to its satisfaction that there has not been a Material Adverse Change.

 

3.3       Covenant to Deliver. Within sixty (60) days after the Effective Date, Borrower shall deliver to Bank the following, in each case in form reasonably acceptable to Bank: (a) a Control Agreement with Silicon Valley Bank and (b) a Wells Asset Management Securities Account Control Agreement.

 

4            CREATION OF SECURITY INTEREST

 

4.1      Grant of Security Interest. Borrower grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

 

4.2        Priority of Security Interest. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank. Borrower authorizes Bank to file financing statements with all appropriate jurisdictions to perfect Bank’s security interest in the Collateral.

 

4.3        Pledge of Collateral. Borrower pledges, assigns and grants to Bank a security interest in all the Shares of each Material Subsidiary, if any, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. Within ten (10) days of the certification of any Shares of a Material Subsidiary, Borrower shall deliver to Bank the certificate or certificates for such Shares, accompanied by an instrument of assignment duly executed in blank by Borrower; provided that, in the event Borrower demonstrates to Bank’s reasonable satisfaction, that a pledge of more than sixty five percent (65%) of such Shares of a Foreign Subsidiary creates a material adverse tax consequence to Borrower under the U.S. Internal Revenue Code, “Shares” shall mean sixty five percent (65%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by Borrower or its Subsidiary in such Foreign Subsidiary. To the extent required by the terms and conditions governing the Shares, Borrower shall cause the books of each Material Subsidiary and any transfer agent to reflect the pledge of such Shares. Upon the occurrence and during the continuance of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new (as applicable) certificates representing such securities to be issued in the name of Bank or its transferee. Borrower will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, Borrower shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.

 

5            REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1        Due Organization, Authorization; Power and Authority. Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. 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) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

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5.2       Collateral. Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank’s Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank prior to the Effective Date in connection herewith (the “Perfection Certificate”) and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the term of Section 6.6(b). The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2. All Inventory is in all material respects of good and marketable quality, free from material defects. Borrower is the sole owner of the Intellectual Property that 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.

 

5.3       Litigation. Except as set forth on the Litigation Schedule, there are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Million Dollars ($1,000,000). The “Litigation Schedule” means a schedule delivered by Borrower to Bank that has been approved by Bank.

 

5.4       Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

 

5.5       Solvency. The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

 

5.6       Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained, in all material respects, 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.

 

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

 

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5.8       Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Ten Thousand Dollars ($10,000). To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.” Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower in excess of Ten Thousand Dollars ($10,000). 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.

 

5.9     Use of Proceeds. Borrower shall use the proceeds of the Advances solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

 

5.10     Anti-Corruption Laws; Anti-Money Laundering Laws and Sanctions. None of (i) the Borrower or any Subsidiary or, to the knowledge of the Borrower, any of their respective directors, officers, or (ii) to the knowledge of the Borrower, any agent or representative of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the Revolving Line, (A) is a Sanctioned Person or currently the subject or target of any Sanctions, (B) is controlled by or is acting on behalf of a Sanctioned Person, (C) has its assets located in a Sanctioned Country, or (D) directly or indirectly derives revenues from investments in, or transactions with, Sanctioned Persons. Each of the Borrower and its Subsidiaries has implemented and maintains in effect policies and procedures designed to ensure material compliance by the Borrower and its Subsidiaries and their respective directors, officers, employees, agents and Affiliates with all Anti-Corruption Laws, Anti-Money Laundering Laws and applicable Sanctions applicable to the Borrower and/or its Subsidiaries. Each of the Borrower and its Subsidiaries, and to the knowledge of the Borrower, each director, officer, or employee of Borrower and each such Subsidiary, is in compliance with all Anti-Corruption Laws, Anti-Money Laundering Laws in all material respects and applicable Sanctions. No proceeds of any Extension of Credit have been used, directly or indirectly, by the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, any of its or their respective directors, officers, employees and agents in violation of any applicable laws.

 

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5.11     Health Care Matters. Borrower and each Subsidiary is in compliance with all Health Care Laws applicable to it and its assets, business or operations, except to the extent that any noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary holds in full force and effect all Health Care Permits necessary for it to own, lease, sublease or operate its assets under applicable Health Care Laws or to conduct its business and operations as presently conducted except where the failure to hold such Health Care Permits would not reasonably be expected to have a Material Adverse Effect. There exist no required plans of correction or other such remedial measures with respect to (i) any Health Care Permit of Borrower or any Subsidiary that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. No circumstance exists or event has occurred which could reasonably be expected to result in the suspension, revocation, termination or non-renewal of any material Health Care Permit held by Borrower or any Subsidiary. Neither Borrower nor any Subsidiary, nor any officer, affiliate, employee or agent of them, has made an untrue statement of a material fact or fraudulent statement to any Governmental Authority, failed to disclose a material fact that must be disclosed to any Governmental Authority, or committed an act, made a statement or failed to make a statement that, at the time such statement, disclosure or failure to disclose occurred, would constitute a violation of any Health Care Law that could reasonably be expected to have a Material Adverse Effect. Neither Borrower nor any Subsidiary nor, to the knowledge of Borrowers, any officer, affiliate or managing employee of Borrower or any Subsidiary has (i) offered or paid or solicited or received any remuneration, in cash or in kind, or made any financial arrangements, in material violation of any applicable Health Care Law; (ii) given any gift or gratuitous payment of any kind, nature or description (whether in money, property or services) in material violation of any applicable Health Care Law; (iii) made any contribution, payment or gift of funds or property to, or for the private use of, any governmental official, employee or agent where either the contribution, payment or gift or the purpose of such contribution, payment or gift was illegal in any material respect under the applicable laws of any Governmental Authority having jurisdiction over such payment, contribution or gift; (iv) established or maintained any unrecorded fund or asset or made any misleading, false or artificial entries on any of its books or records in material violation of applicable Health Care Laws; or (v) made any payment to any person with the intention that any part of such payment would be in violation of any applicable Health Care Law. No Person has filed or has threatened in writing to file against Borrower or any Subsidiary an action under any federal or state whistleblower statute related to alleged noncompliance with applicable Health Care Laws, including under the False Claims Act of 1863 (31 U.S.C. § 3729 et seq.). Neither Borrower nor any Subsidiary, nor, to the knowledge of Borrower or any Subsidiary, any owner, officer, director, partner, agent or managing employee or Person with a “direct or indirect ownership interest” (as that phrase is defined in 42 C.F.R. § 420.201) in Borrower or any Subsidiary, has (i) had a civil monetary penalty assessed pursuant to 42 U.S.C. § 1320a-7; (ii) been convicted (as that term is defined in 42 C.F.R. §1001.2) of any of those offenses described in 42 U.S.C. §1320a-7b or 18 U.S.C. §§669, 1035, 1347 or 1518, including any of the following categories of offenses: (A) criminal offenses relating to the delivery of an item or service under any federal health care program (as that term is defined in 42 U.S.C. §1320a-7b) or healthcare benefit program (as that term is defined in 18 U.S.C. §24b), (B) criminal offenses under federal or state law relating to patient neglect or abuse in connection with the delivery of a healthcare item or service, (C) criminal offenses under laws relating to fraud and abuse, theft, embezzlement, false statements to third parties, money laundering, kickbacks, breach of fiduciary responsibility or other financial misconduct in connection with the delivery of a healthcare item or service or with respect to any act or omission in a program operated by or financed in whole or in part by any federal, state or local governmental agency, (D) laws relating to the interference with or obstruction of any investigations into any criminal offenses described in this clause (d), or (E) criminal offenses under laws relating to the unlawful manufacturing, distribution, prescription or dispensing of a controlled substance; or (iii) been involved or named in a U.S. Attorney complaint made or any other action taken pursuant to the False Claims Act under 31 U.S.C. §§3729-3731 or qui tam action brought pursuant to 31 U.S.C. §3729 et seq. Borrower and each Subsidiary is in compliance in all material respects with HIPAA and Other Privacy Laws. Neither Borrower nor any Subsidiary has, to the knowledge of Borrower, within the past three (3) years, suffered any breach of Regulated Information requiring any notification to any individual, entity, the media or any Governmental Authority, received any written notice from the Office for Civil Rights for the U.S. Department of Health and Human Services or any other Governmental Authority regarding any allegation regarding its failure to comply with HIPAA and Other Privacy Laws, nor made any notification of such a breach or failure to any individual or entity, the media, the Secretary of the U.S. Department of Health and Human Services or any other Governmental Authority pursuant to HIPAA and Other Privacy Laws. Borrower and each Subsidiary has entered into business associate agreements and other contractual commitments with third parties when required to do so by HIPAA or Other Privacy Laws and is in material compliance with all such contractual commitments. Neither Borrower nor any Subsidiary, nor, to the knowledge of Borrower, any owner, officer, director, partner, agent or managing employee of Borrower, is a party to or bound by any individual integrity agreement, corporate integrity agreement, corporate compliance agreement, deferred prosecution agreement, or other formal agreement with any Governmental Authority concerning compliance with Health Care Laws, any Government Reimbursement Programs or the requirements of any Health Care Permit.

 

5.12      Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

 

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, in all material respects, with all material laws, ordinances and regulations to which it is subject.

 

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

 

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

 

(a)     Quarterly Financial Statements. As soon as available, but no later than forty five (45) days after the last day of each fiscal quarter, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “Quarterly Financial Statements”), together with a Compliance Certificate;

 

(b)     Annual Operating Budget and Financial Projections. Within sixty (60) days after the end of each fiscal year of Borrower, (i) annual operating budgets (including income statements, balance sheets and cash flow statements, by quarter) for the upcoming fiscal year of Borrower, and (ii) annual financial projections for the following fiscal year (on a quarterly basis) as approved by Borrower’s board of directors, together with any related business forecasts used in the preparation of such annual financial projections;

 

(c)     Annual Audited Financial Statements. As soon as available, but no later than 90 days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank and a Compliance Certificate;

 

(d)     Other Statements. Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

 

(e)     SEC Filings. In the event that Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies (subject to the second sentence of this clause (e)) of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address;

 

(f)     Legal Action Notice. A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that in Borrower’s sole judgment is more likely than not to result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Million Dollars ($1,000,000) or more. Borrower will promptly notify Bank in writing (which may be by electronic mail) in the event Borrower files with the SEC, or otherwise publicly discloses, any legal actions; and

 

(g)     Other Information. Other information reasonably requested by Bank.

 

6.3        Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Five Hundred Thousand Dollars ($500,000).

 

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

 

6.5         Insurance.

 

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

 

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(b)        At Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments. Each provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice before any such policy or policies shall be materially altered or canceled. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6         Operating Accounts.

 

(a)     Maintain an operating account with Bank.  

 

(b)     Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.

 

6.7         Financial Covenants. Borrower shall maintain the following:

 

(a)         Maximum Funded Debt to TTM Adjusted EBITDA. At all times, a maximum ratio of Funded Debt to TTM Adjusted EBITDA of 2.50 to 1.00.

 

(b)         Minimum TTM ADJUSTED EBITDA. As of the last day of each fiscal quarter, TTM Adjusted EBITDA not less than Ten Million Dollars ($10,000,000).

 

6.8         Protection of Intellectual Property Rights.

 

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

 

(b)     Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

6.9         Access to Collateral; Books and Records. Allow Bank, or its agents, to inspect the Collateral and audit and copy Borrower’s Books. Such inspections or audits shall be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary.

 

6.10         Material Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or indirect Material Subsidiary or acquires any direct or indirect Material Subsidiary after the Effective Date, or any Subsidiary becomes a Material Subsidiary after the Effective Date, Borrower shall (a) cause such Material Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such Material Subsidiary to become a co-borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such Material Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such Material Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section shall be a Loan Document.

 

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

 

7          NEGATIVE COVENANTS

 

Borrower shall not do any of the following:

 

7.1      Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any stock of Borrower permitted under Section 7.2 of this Agreement; (e) consisting of Borrower’s use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; and (f) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States.

 

7.2       Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person ceasing to be employed by Borrower within five (5) days after his or her departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent 40% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions. Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Ten Thousand Dollars ($10,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, or (4) change its legal name.

 

7.3       Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (including, without limitation, by the formation of any Subsidiary), provided, however, that this section shall not restrict a merger with another Person or acquisition of stock or assets of another Person so long as Borrower is the surviving entity and all of the following conditions are satisfied: (A) such Person is in the same line of business as the Borrower or a business reasonably related thereto, (B) the aggregate consideration in each calendar year (including assumption of any liabilities), other than consideration consisting solely of Borrower’s common stock, does not exceed the sum of $10,000,000.00 and during the term of this Agreement does not exceed the sum of $20,000,000, (C) no Event of Default shall exist either immediately before or immediately following consummation of such transaction, (D) Borrower’s board of directors has approved such transaction, and (E) Borrower has provided to Bank a reasonable set of pro forma financial statements covering the nine month period following the consummation of such transaction. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

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

 

7.5      Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement or other arrangement (except with or in favor of Bank) with any Person that directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property.

 

7.6        Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.

 

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

 

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

 

7.9     Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.

 

7.10      Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Advance for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction, as defined in ERISA, from occurring, or (c) comply in all material respects with any Health Care Laws; or violate any Health Care Laws or any other material law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8             EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

 

8.1        Payment Default. Borrower fails to (a) make any payment of principal or interest on any Advance when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Maturity Date. During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Advance will be made during the cure period);

 

8.2          Covenant Default.

 

(a) Borrower fails or neglects to perform any obligation in Section 6 or violates any covenant in Section 7; or

 

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(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Advances shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

 

8.3         Material Adverse Change. A Material Adverse Change occurs;

 

8.4         Attachment; Levy; Restraint on Business.

 

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

 

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

 

8.5        Insolvency. (a) Borrower or any of its Subsidiaries is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and is not dismissed or stayed within thirty (30) days (but no Advances 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 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 One Million Dollars ($1,000,000); or (b) any breach or default by Borrower, the result of which could have a material adverse effect on Borrower’s business;

 

8.7         Judgments; Penalties. One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Million Dollars ($1,000,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Advances will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

 

8.8         Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

 

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

 

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

 

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9            BANK’S RIGHTS AND REMEDIES

 

9.1         Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:

 

(a)     declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

 

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

 

(c)     terminate any FX Contracts;

 

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

 

(e)     make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

 

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

 

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

 

(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).

 

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9.2        Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Advances hereunder. Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Advances terminates.

 

9.3        Right of Setoff. Upon and after the occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at any time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Bank shall have declared any credit subject hereto to be due and payable in accordance with the terms hereof, to set off against, and to appropriate and apply to the payment of, Borrower's Obligations and liabilities under the Loan Documents (whether matured or unmatured, fixed or contingent, liquidated or unliquidated), any and all amounts owing by Bank to Borrower (whether payable in U.S. dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow accounts), time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such Obligations and liabilities and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as Bank, in its sole discretion, may elect. Bank may exercise this remedy regardless of the adequacy of any collateral for the Obligations of Borrower to Bank and whether or not the Bank is otherwise fully secured. Borrower hereby grants to Bank a security interest in all deposits and accounts maintained with Bank to secure the payment of all Obligations and liabilities of Borrower to Bank under the Loan Documents.

 

9.4        Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

 

9.5        Application of Payments and Proceeds Upon Default. If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

9.6        Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

 

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

 

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

 

10           NOTICES

 

All notices, consents, requests, approvals, demands, or other communication 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:

				
			CUTERA, INC.

			3240 Bayshore Boulevard

			Brisbane, CA 94005

			Attn: Sandra A. Gardiner, Chief Financial Officer

			Fax: (415) 715-3507

			Email: sgardiner@cutera.com

			
	 	 	 
	 	 	 
	 	If to Bank:	
			WELLS FARGO BANK, NATIONAL ASSOCIATION

			2030 Main Street, 8th Floor

			Irvine, CA 92614 MAC E2231-081

			Attention: Monique Dubisky, Senior Portfolio Manager

			Email: Monique.Dubisky@wellsfargo.com

			

                 

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

 

(a)         California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

Arbitration.

 

(b)        The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. In the event of a court ordered arbitration, the party requesting arbitration shall be responsible for timely filing the demand for arbitration and paying the appropriate filing fee within 30 days of the abatement order or the time specified by the court. Failure to timely file the demand for arbitration as ordered by the court will result in that party’s right to demand arbitration being automatically terminated.

 

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(c)        Governing Rules. Any arbitration proceeding will (i) proceed in a location in the State selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

 

(d)        No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

 

(e)        Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State or a neutral retired judge of the state or federal judiciary of the State, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of the State and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the corresponding rules of civil practice and procedure applicable in the State or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief

 

(f)         Discovery. In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.

 

(g)          Class Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.

 

(h)         Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

 

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(i)          Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

 

(j)         Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties

 

This Section 11 shall survive the termination of this Agreement.

 

12          GENERAL PROVISIONS

 

12.1     Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

 

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

 

This Section 12.2 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.

 

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

 

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

 

12.5     Amendments in Writing; 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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12.6     Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

 

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

 

12.8     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.

 

12.9     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.

 

12.10     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.

 

12.11     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.

 

12.12     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.

 

13          DEFINITIONS

 

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

 

“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

 

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

 

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

 

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

 

“Agreement” is defined in the preamble hereof.

 

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption, including, without limitation, the United States Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder and the U.K. Bribery Act 2010 and the rules and regulations thereunder.

 

“Anti-Money Laundering Laws” means any and all laws, statutes, regulations or obligatory government orders, decrees, ordinances or rules applicable to a Borrower, guarantor or other credit party or its Subsidiaries related to terrorism financing or money laundering, including any applicable provision of the Patriot Act and The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act,” 31 U.S.C. §§ 5311-5330 and 12U.S.C. §§ 1818(s), 1820(b) and 1951-1959).

 

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

 

“Availability Amount” is (a) the Revolving Line minus (b) the outstanding principal balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

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

 

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

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions substantially in the form attached hereto as Exhibit B.

 

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

 

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.

 

“CHAMPVA” means, collectively, the Civilian Health and Medical Program of the Department of Veterans Affairs, and all laws, rules, regulations, manuals, orders, guidelines or requirements (whether or not having the force of law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

 

“Claims” is defined in Section 12.3.

 

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“CMS” means The Centers for Medicare and Medicaid Services of the United States Department of Health and Human Services, and any Governmental Authority successor thereto.

 

“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.

 

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

 

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

 

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

 

“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

 

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

 

“Daily One Month LIBOR” means, for any day, the rate of interest equal to LIBOR then in effect for delivery for a one (1) month period.

 

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

 

“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.

 

“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.

 

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“Event of Default” is defined in Section 8.

 

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

 

“Foreign Subsidiary” is a Subsidiary that is not an entity organized under the laws of the United States or any state thereof.

 

“Funded Debt” means (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.

 

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

 

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

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

 

“Governmental Authority” is any nation or government, the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government (including any supra-national bodies such as the European Union or the European Central Bank), any securities exchange and any self-regulatory organization. The Term “Governmental Authority” shall further include any institutional review board, ethics committee, data monitoring committee, or other committee or entity with defined authority to oversee Regulatory Matters, including CMS and any Medicare or Medicaid administrative contractors, intermediaries or carriers.

 

“Government Reimbursement Program” means (a) Medicare, (b) Medicaid, (c) the Federal Employees Health Benefit Program under 5 U.S.C. §§ 8902 et seq., (d) TRICARE, (e) CHAMPVA, or (f) if applicable within the context of this Agreement, any agent, administrator, administrative contractor, intermediary or carrier for any of the foregoing.

 

“Health Care Laws” means, collectively, any and all material laws relating to any of the following: (a) fraud and abuse (including the following statutes, as amended, modified or supplemented from time to time and any successor statutes thereto and regulations promulgated from time to time thereunder: the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the Stark Law (42 U.S.C. § 1395nn and §1395(q)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the federal health care program exclusion provisions (42 U.S.C. § 1320a-7), the Civil Monetary Penalties Act (42 U.S.C. § 1320a-7a), and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173)); (b) any Government Reimbursement Program; (c) HIPAA and Other Privacy Laws; and (d) any other material laws regulating the health care industry.

 

“Health Care Permits” means any and all permits, licenses, authorizations, certificates, certificates of need, accreditations and plans of third-party accreditation agencies (such as The Joint Commission) that are (a) necessary to enable any Borrower, guarantor or other credit party to continue to conduct its business as it is conducted on the Closing Date, or (b) required under any Health Care Law.

 

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“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, Title II, Subtitle F, as the same may be amended, modified or supplemented from time to time, and any and all rules or regulations promulgated from time to time thereunder.

 

“HIPAA and Other Privacy Laws” means (a) HIPAA; (b) the Health Information Technology for Economic and Clinical Health Act (Title XIII of the American Recovery and Reinvestment Act of 2009), as the same may be amended, modified or supplemented from time to time; (c) any successor statute thereto; and (d) any applicable state and local laws regulating the privacy and/or security of patient protected health or personally identifiable information, in each case as the same may be amended, modified or supplemented from time to time, any successor statutes thereto, and any and all rules or regulations promulgated from time to time thereunder.

 

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

 

“Indemnified Person” is defined in Section 12.3.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property” means, with respect to any Person, all of such Person’s right, title, and interest in and to its Copyrights, Trademarks and Patents.

 

“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Advances and other Indebtedness of Borrower and its Subsidiaries, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types 

 

“Interest Payment Date” means the date that an interest payment is due.

 

“Interest Period” means, as to each Advance, the period commencing on the date such Advance is disbursed or continued as an Advance and ending on the date one (1), two (2), three (3), or six (6) months or, if agreed by Bank, twelve (12) months thereafter, in each case as selected by Borrower in its Notice of Borrowing or Notice of Continuation and subject to availability; provided that: (a) the Interest Period shall commence on the date of advance of or continuation of any Advance and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the immediately preceding Interest Period expires; (b) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day; (c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period; (d) no Interest Period shall extend beyond the Maturity Date; and (e) there shall be no more than ten (10) Interest Periods in effect at any time.

 

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

 

-24-

 

 

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

 

“Key Person” is each of Borrower’s (a) Chief Executive Officer and (b) Chief Financial Officer.

 

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

 

“Leverage Ratio” a ratio of Funded Debt to TTM Adjusted EBITDA.

 

“LIBOR” means, subject to the implementation of a Replacement Rate, (a) for the purpose of calculating effective rates of interest for loans making reference to Daily One Month LIBOR, the rate of interest per annum determined by Bank based on the rate for United States dollar deposits for delivery of funds for one (1) month as published by the ICE Benchmark Administration Limited, a United Kingdom company, at approximately 11:00 a.m., London time, or, for any day not a London Business Day, the immediately preceding London Business Day (or if not so published, then as determined by Bank from another recognized source or interbank quotation), or (b) for any interest rate calculation with respect to a LIBOR Rate Loan (other than loans making reference to Daily One Month LIBOR), the rate of interest per annum determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quoting service approved by the Lender, at approximately 11:00 a.m. (London time) two (2) London Banking Days prior to the first day of the applicable Interest Period. If, for any reason, such rate is not so published then “LIBOR” shall be determined by the Lender to be the arithmetic average of the rate per annum at which deposits in Dollars would be offered by first class banks in the London interbank market to the Lender at approximately 11:00 a.m. (London time) two (2) London Banking Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period, and (b) for any interest rate calculation with respect to a Base Rate Loan, the rate of interest per annum determined on the basis of the rate for deposits in Dollars for an Interest Period equal to one month (commencing on the date of determination of such interest rate) as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quoting service approved by the Lender, at approximately 11:00 a.m. (London time) on such date of determination, or, if such date is not a Business Day, then the immediately preceding Business Day. If, for any reason, such rate is not so published then “LIBOR” for such Base Rate Loan shall be determined by the Lender to be the arithmetic average of the rate per annum at which deposits in Dollars would be offered by first class banks in the London interbank market to the Lender at approximately 11:00 a.m. (London time) on such date of determination for a period equal to one month commencing on such date of determination. Each calculation by the Lender of LIBOR shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding the foregoing, (x) in no event shall LIBOR (including, without limitation, any Replacement Rate with respect thereto) be less than 0% and (y) unless otherwise specified in any amendment to this Agreement entered into in accordance with Section 5.8(c), in the event that a Replacement Rate with respect to LIBOR is implemented then all references herein to LIBOR shall be deemed references to such Replacement Rate.

 

“LIBOR Rate” means, for each Interest Period in respect of Advances comprising part of the same Advances, an interest rate per annum (rounded upward, if necessary, to the nearest 0.0001%) equal to LIBOR for such Interest Period divided by one (1) minus the Reserve Requirement for such Interest Period.

 

“LIBOR Rate Margin” is (a) one and one half percent (1.5%) if the Leverage Ratio is less than 1.00 to 1.00, (b) two percent (2.0%) if the Leverage Ratio is equal to or greater than 1.00 to 1.00, but less than 2.00 to 1.00, and (c) and two and one half percent (2.5%) if the Leverage Ratio is equal to or greater than 2.00 to 1.00.

 

“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.

 

“Litigation Schedule” has the meaning assigned in Section 5.3.

 

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

 

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“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

“Material Subsidiary” is a Subsidiary with assets having a fair market value, including cash, of at least One Million Dollars ($1,000,000).

 

“Maturity Date” means May 30, 2021.

 

“Medicaid” means, collectively, the healthcare assistance program established by Title XIX of the Social Security Act (42 U.S.C. §§ 1396 et seq.) and any statutes succeeding thereto, and all laws, rules and regulations pertaining to such program, including all state statutes and plans for medical assistance enacted in connection with such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

 

“Medicare” means, collectively, the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. §§ 1395 et seq.) and any statutes succeeding thereto, and all laws, rules and regulations pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

 

“Quarterly Financial Statements” is defined in Section 6.2(a).

 

“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period 

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents.

 

“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

 

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

 

“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 D.

 

“Perfection Certificate” is defined in Section 5.2.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)     Subordinated Debt;

 

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

 

-26-

 

 

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

 

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

 

(g)     Other Indebtedness not to exceed Two Million Dollars ($2,000,000) in the aggregate; and

 

(h)     extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (c) 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;

 

(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 consisting of deposit accounts in which Bank has a perfected security interest;

 

(e)     Investments accepted in connection with Transfers permitted by Section 7.1;

 

(f)     Investments consisting of the creation of a Subsidiary for the purpose of consummating a merger transaction permitted by Section 7.3 of this Agreement, which is otherwise a Permitted Investment;

 

(g)     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;

 

(h)     Investments consisting of the repurchase of Borrower’s equity securities in an aggregate sum not to exceed $10,000,000 in each calendar year and $20,000,000 during the term of this Agreement;

 

(i)     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;

 

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

 

(k)     Other Investments in an aggregate amount not to exceed $5,000,000 during the term of this Agreement.

 

“Permitted Liens” are:

 

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

 

-27-

 

 

(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 Million Dollars ($1,000,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

(d)     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 Five Hundred Thousand Dollars ($500,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(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 license of Intellectual Property granted to third parties in the ordinary course of business, and licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States;

 

(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; and

 

(j)     Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts.

 

“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.

 

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

 

“Regulated Information” means information regulated under HIPAA or Other Privacy Laws.

 

“Regulatory Change” means, with respect to Bank, any change on or after the date of this Agreement in United States federal, state, or foreign laws or regulations, including Regulation D, or the adoption or making on or after such date of any interpretations, directives, or requests applying to a class of lenders including Bank, of or under any United States federal or state, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

 

“Replacement Rate” means the rate selected by Bank to replace LIBOR Rate if and when Bank determines that the LIBOR Rate is no longer practicable or available to determine the rate of interest applicable to Advances.

 

“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.

 

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“Reserve Requirement” means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained during such Interest Period under Regulation D against “Eurocurrency liabilities” (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of LIBOR or (b) any category of extensions of credit or other assets which include Advances.

 

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

 

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

 

“Revolving Line” is an aggregate principal amount equal to Twenty Five Million Dollars ($25,000,000).

 

“Sanctions” means any and all applicable economic or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes and anti-terrorism laws, including but not limited to those imposed, administered or enforced from time to time by the U.S. government (including those administered by OFAC or the U.S. Department of State), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority with jurisdiction over the Lender, the Borrower or any of its Subsidiaries or Affiliates.

 

“Sanctioned Country” means at any time, a country or territory which is itself the subject or target of any Sanctions (including, as of the Closing Date, Cuba, Iran, North Korea, Sudan, Syria and Crimea).

 

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC (including, without limitation, OFAC’s Specially Designated Nationals and Blocked Persons List and OFAC’s Consolidated Non-SDN List), the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in clauses (a) and (b), including a Person that is deemed by OFAC to be a Sanctions target based on the ownership of such legal entity by Sanctioned Person(s).

 

“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.

 

“Shares” is one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by Borrower or Borrower’s Subsidiary, in any Subsidiary.

 

“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.

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness.

 

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“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.

 

“TTM Adjusted EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income tax expense, plus (e) non-cash stock compensation expenses less (f) one-time income, determined on a trailing 12-month basis.

 

“ Transfer” is defined in Section 7.1.

 

“TRICARE” means, collectively, the program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Department of Defense, Health and Human Services and Transportation, and all laws, rules and regulations pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

 

[Signature page follows]

 

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

 

BORROWER:

 

CUTERA, INC.

 

By                      /s/                                                            

Name: Sandra A. Gardiner

Title: Chief Financial Officer

 

BANK:

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

By                      /s/                                                            

Name: Monique Dubisky

Title: Director, Wells Fargo Bank, N.A.

 

 

 

[Signature page to Loan and Security Agreement]

 

 

EXHIBIT A – COLLATERAL DESCRIPTION

 

 

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

 

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.

 

 

 

 

EXHIBIT B

 

[FORM OF]

NOTICE OF BORROWING

 

TO:     Wells Fargo Bank, National Association

 

RE:     Loan and Security Agreement, dated as of May 30, 2018, by and between Cutera, Inc., a Delaware corporation (the “Borrower”), and Wells Fargo Bank, National Association, as Bank (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “Loan Agreement”; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)

 

DATE:     [Date]

 

Pursuant to Section 2.3(a) of the Loan Agreement, Borrower requests the following (the “Advance”):

 

Advances to be made as follows:

 

	
			Date

				
			Amount

				
			Interest Rate

				
			Interest Period (one, two,

			three, six or twelve months)

			
	 	 	 	 
	 	 	 	 
	 	 	 	 

 

 

NOTE: ADVANCES THAT ARE MUST BE IN A MINIMUM AGGREGATE AMOUNT OF $5,000,000 AND IN INTEGRAL MULTIPLES OF $1,000,000 IN EXCESS THEREOF.

 

The undersigned certifies that the following statements are true on the date hereof and will be true on the date of the Advance:

 

(a) The representations and warranties made by Borrower in the Loan Agreement and the other Loan Documents or that are contained in any certificate furnished at any time under or in connection with the Loan Agreement shall be true and correct in all material respects, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects, on and as of such borrowing, issuance or extension date with the same effect as if made on and as of such date (except for any such representation and warranty that by its terms is made only as of an earlier date, which representation and warranty shall remain true and correct in all material respects as of such earlier date, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects as of such earlier date).

 

(b) No Event of Default shall have occurred and be continuing on the date of the proposed Advance or after giving effect to the proposed Advance.

 

This Notice of Borrowing may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.

 

CUTERA, INC.

 

By:                                                                       

Title:                                                                     

 

 

 

 

EXHIBIT C

 

CORPORATE BORROWING certificatE

 

	Borrower:      Cutera, Inc.  	Date:    May 30, 2018
	Bank:                  Wells Fargo Bank, National Association	 

          

I hereby certify as follows, as of the date set forth above:

 

1. I am the Secretary, Assistant Secretary or other officer of Borrower.

 

2. Borrower’s exact legal name is set forth above. Borrower is a corporation existing under the laws of the State of Delaware.

 

3. Attached hereto are true, correct and complete copies of Borrower’s Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth above. Such Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

4. The following resolutions were duly and validly adopted by Borrower’s Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate action). Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Wells Fargo Bank, National Association (“Bank”) may rely on them until Bank receives written notice of revocation from Borrower.

 

Resolved, that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act on behalf of Borrower:

 

	
			

			

			Name

				 	
			

			

			Title

				 	
			

			

			Signature

				
			Authorized to

			Add or Remove

			Signatories

			
	 	 	 	 	 	 
	 	 	 	 	 	
			□

			
	 	 	 	 	 	
			 

			
	 	 	 	 	 	
			□

			
	 	 	 	 	 	
			 

			
	 	 	 	 	 	□
	 	 	 	 	 	 
	 	 	 	 	 	□

 

Resolved Further, that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf of Borrower.

 

Resolved Further, that such individuals may, on behalf of Borrower:

 

Borrow Money. Borrow money from Bank.

Execute Loan Documents. Execute any loan documents Bank requires.

Grant Security. Grant Bank a security interest in any of Borrower’s assets.

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.

Apply for Letters of Credit. Apply for letters of credit from Bank.

Enter Derivative Transactions. Execute spot or forward foreign exchange contracts, interest rate swap agreements, or other derivative transactions.

Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrower’s right to a jury trial) they believe to be necessary to effect these resolutions.

 

 

 

 

Resolved Further, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.

 

5. The persons listed above are Borrower's officers or employees with their titles and signatures shown next to their names.

 

	
			 

				
			 

				
			 

			
	
			 

				
			By:

				
			 

				
			 

			
	
			 

				
			Name:

				
			 

				
			 

			
	
			 

				
			Title:

				
			 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			

 

 

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

 

 

I, the __________________________ of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

 

	
			 

				
			 

				
			 

			
	
			 

				
			By:

				
			 

				
			 

			
	
			 

				
			Name:

				
			 

				
			 

			
	
			 

				
			Title:

				
			 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			

 

 

 

 

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

	TO:     WELLS FARGO BANK, NATIONAL ASSOCIATION 	Date:                                             
	FROM: CUTERA, INC.	 

               

The undersigned authorized officer of Cutera, Inc. (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

	
			Please indicate compliance status by circling Yes/No under “Complies” column.

			

	 
	
			Reporting and Financial Covenants

				
			Required

				
			Complies

			
	 	 	 
	
			Quarterly Financial Statements with

			Compliance Certificate

				
			Quarterly within 45 days

				
			Yes    No

			
	
			Public disclosure of legal actions

				
			Promptly

				
			Yes    No

			
	
			Annual financial statement (CPA Audited) + CC

				
			FYE within 90 days

				
			Yes    No

			
	
			Maximum Funded Debt to TTM Adjusted EBITDA

				
			2.5:1.0

				
			Yes    No

			
	
			Minimum TTM Adjusted EBITDA

			 

				
			$10,000,000

				
			Yes    No

			

 

 

 

[Continued on Next Page]

 

 

 

 

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

 

	 
	 

 

 

	
			CUTERA, INC.

			 

			 

			By:                                                                            

			Name:                                                                       

			Title:                                                                         

			 

				
			BANK USE ONLY

			 

			Received by: ______________________

			authorized signer

			Date: ____________________________

			 

			Verified: _________________________

			authorized signer

			Date: ____________________________

			 

			Compliance Status:           Yes   No

			
	 	 

 

 

 

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

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

 

Dated:     ____________________

 

I.     Maximum Funded Debt to TTM Adjusted EBITDA* (Section 6.7(a))

 

Required:     2.50:1.00

 

Actual:           ___:___

 

	
			A.

				
			Aggregate value of 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.

				
			Aggregate value of obligations evidenced by notes, bonds, debentures or similar instruments

				 	$ _________
	 	 	 	 
	
			C.

				
			Aggregate value of capital lease obligations

				 	
			$ _________

			
	 	 	 	 
	D.	Aggregate value of Contingent Obligations	 	$ _________
	 	 	 	 
	E.	Funded Debt (the sum of lines A through D)	 	$ _________
	 	 	 	 
	F.	Net Income	 	$ _________
	 	 	 	 
	
			G.

				
			Interest Expense

				 	
			$ _________

			
	 	 	 	 
	
			H.

				
			To the extent deducted in the calculation of Net Income:

				 	
			 

			

 

	 	1.	
			Depreciation expense

				 	
			$ _________

			
	 	 	 	 	 
	 	2.	
			Amortization expense

				 	
			$ _________

			
	 	 	 	 	 
	 	3.	
			The sum of lines 1 and 2

				 	
			$ _________

			

 

	I.	income tax expense	 	$ _________
	 	 	 	 
	J.	non-cash stock compensation expenses	 	$ _________
	 	 	 	 
	K.	one time income	 	$ _________
	 	 	 	 
	L.	TTM Adjusted EBITDA* (sum of line F, line G, line H3, line I and line J) minus line K	 	$ _________
	 	 	 	 
	
			M.

				
			Line E divided by Line L

				 	
			$ _________

			

 

Is line M equal to or greater than 2.50:1.00?

 

	                NOT in compliance	 	                 IN compliance

                              

*determined on a trailing 12 month basis

 

 

 

 

II.     TTM Adjusted EBITDA* (Section 6.7(b))

 

Required:     $10,000,000

 

Actual:          $________

 

	
			A.

				
			TTM Adjusted EBITDA [Line II L]

				 	
			$ _________

			

 

Is line A equal to or greater than $10,000,000

 

	                No, not in compliance	 	                 Yes, in compliance

  

*determined on a trailing 12 month basis

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