Document:

plx_exhibit10-1.htm

Exhibit 10.1

 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of September [  ], 2011 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and PLX TECHNOLOGY, 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 Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

 

2.1.1 Revolving Advances.

 

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

 

Notwithstanding anything to the contrary contained in this Section 2.1.1(a), Advances may be made in excess of the Availability Amount (but not in excess of the Revolving Line then in effect) (such Advances referred to herein as “Nonformula Advances”) subject to the following terms and conditions:  (i) such Nonformula Advances may be made solely during the last five (5) Business Days of any fiscal month or quarter, as the case may be; (ii) prior to any Nonformula Advance, Borrower must (A) be in pro forma compliance in all respects with the financial covenants set forth in Section 6.7 of this Agreement and (B) provide a duly completed and executed Payment/Advance Form which requests such Nonformula Advance and directs the repayment of such Nonformula Advance within the time frame provided in clause (iv) herein, (iii) on the day of such Nonformula Advance, but no later than seven (7) Business Days thereafter, Borrower must provide a duly completed Borrowing Base Report and a duly completed and executed Borrowing Base Certificate; provided, however, that Borrower shall not be required to deliver the documentation required pursuant to this clause (iii) if Borrower has repaid such Nonformula Advance within the time frame provided in clause (iv) herein; and (iv) Borrower shall repay any and all Nonformula Advances on or before the fifth (5th) Business Day after the applicable fiscal month or quarter end immediately following such Nonformula Advance.  In the event that Borrower shall fail to repay the principal amount of any Nonformula Advance as provided in Section 2.1.1(a)(iv), such Nonformula Advance shall be deemed to constitute an Advance that is not a Nonformula Advance and shall be subject to the terms and conditions of this Agreement, including, without limitation, the Availability Amount and the provisions set forth in Section 2.2.

 

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

 

2.1.2 Letters of Credit Sublimit.

 

 

 

 

 

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit denominated in Dollars for Borrower’s account.  The aggregate Dollar Equivalent amount utilized for the issuance of Letters of Credit shall at all times reduce the amount otherwise available for Advances under the Revolving Line.  The Dollar Equivalent of the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) may not exceed the Availability Amount.

 

(b) If, on the Revolving Line Maturity Date (or the effective date of any termination of this Agreement), there are any outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.  All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”).  Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request.  Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.

 

(c) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.

 

2.2 Overadvances.  If, at any time, the sum of (a) the outstanding principal amount of any Advances (excluding Nonformula Advances), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.

 

2.3 Payment of Interest on the Credit Extensions.

 

(a) Interest Rate.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the WSJ Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(b) Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase.  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank 

 

(c) Adjustment to Interest Rate.  Changes to the interest rate of any Credit Extension based on changes to the WSJ Prime Rate shall be effective on the effective date of any change to the WSJ Prime Rate and to the extent of any such change.

 

(d) Computation; 360-Day Year.  In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in

 

 

 

 

 

computing interest on such Credit Extension.  Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

(e) Debit of Accounts.  Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due.  These debits shall not constitute a set-off.

 

(f) Interest Payment Date.  Unless otherwise provided, interest is payable monthly on the first calendar day of each month.

 

2.4 Fees.  Borrower shall pay to Bank:

 

(a) Commitment Fee.  A fully earned, non-refundable commitment fee of $5,000, on the Effective Date and on the first anniversary of the Effective Date;

 

(b) Letter of Credit Fee.  Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit;

 

(c) Unused Revolving Line Facility Fee.  A fee (the “Unused Revolving Line Facility Fee”), payable quarterly, in arrears, on a calendar year basis, in an amount equal to one quarter percent (0.25%) per annum of the average unused portion of the Revolving Line.  The unused portion of the Revolving Line, for purposes of this calculation, shall equal the difference between (x) the Revolving Line amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balance of the Revolving Line outstanding plus, without duplication, the sum of the aggregate amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit). Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee previously earned by Bank pursuant to this Section notwithstanding any termination of the Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder; and

 

(d) Bank Expenses.  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.

 

2.5 Payments; Application of Payments.

 

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

 

(b) Bank shall apply the whole or any part of collected funds against the Revolving Line or credit such collected funds to a depository account of Borrower with Bank (or an account maintained by an Affiliate of Bank or otherwise designated by Borrower), the order and method of such application to be in the sole discretion of Bank.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

3 CONDITIONS OF LOANS

 

3.1 Conditions Precedent to Initial Credit Extension.  Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and 

 

 

 

 

 

substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

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

 

(b) duly executed original signatures to Control Agreements with Borrower’s domestic deposit banks and money managers maintaining accounts for which Borrower is required to cause execution and delivery of a Control Agreement under Section 6.6(b);

 

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

 

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

 

(e) certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

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

 

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

 

(h) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

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

 

(a) except in respect of issuance of a Letter of Credit pursuant to Section 2.1.2 and as otherwise provided with respect to Nonformula Advances in Section 2.1.1(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 Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

 

(c) in Bank’s reasonable discretion, there has not been a Material Adverse Change.

 

 

 

 

 

3.3 Post-Closing Conditions.  The following conditions shall occur after the Effective Date, in form and substance satisfactory to Bank:

 

(a) within sixty (60) days of the Effective Date, the completion of the Initial Audit with results satisfactory to Bank in its sole and absolute discretion; and

 

(b) within ninety (90) days of the Effective Date, (i) Borrower shall pledge to Bank its stock in PLX Technology Limited, a company organized under the laws of the United Kingdom or (ii) consummate the Planned Disposition.

 

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

 

3.5 Procedures for Borrowing.  Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement (including, without limitation, the conditions to the making of a Nonformula Advance set forth in Section 2.1.1(a)), to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance.  Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee.  Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.  Bank shall credit Advances to the Designated Deposit Account.  Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.

 

4 CREATION OF SECURITY INTEREST

 

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

 

4.2 Priority of Security Interest.  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.  Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank.  Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank’s Lien in this Agreement).  Borrower agrees that, unless otherwise agreed in writing signed by Bank and Borrower, the security interest granted herein by Borrower shall survive the termination of this Agreement and shall terminate only upon the termination of all Bank Services Agreements; provided, however, that such security interest shall not survive if this Agreement has been terminated and the only Bank Services being provided are deposit accounts and/or securities accounts of Borrower with Bank and/or Bank’s Affiliates and related on-line banking services).

 

 

 

 

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations and any Obligations in respect of Letters of Credit that are collateralized as provided in Section 2.1.2(b) and obligations in respect of deposit accounts and/or securities accounts of Borrower with Bank and/or Bank’s Affiliates and related on-line banking services) are repaid in full in cash.  Upon payment in full in cash of the Obligations (without regard to any Obligations in respect of Letters of Credit that are collateralized as provided in Section 2.1.2(b) and obligations in respect of deposit accounts and/or securities accounts of Borrower with Bank and/or Bank’s Affiliates and related on-line banking services) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower.

 

4.3 Authorization to File Financing Statements.  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.  Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

 

5 REPRESENTATIONS AND WARRANTIES

 

   Borrower represents and warrants as follows:

 

5.1 Due Organization, Authorization; Power and Authority.  Borrower is duly existing and in good standing in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate”.  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).  If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect or filings required in connection with perfection of the security interest in the Collateral in favor of Bank) or (v) constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default 

 

 

 

 

 

under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.2 Collateral.  Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein if such deposit accounts constitute Collateral Accounts for which Borrower is required to cause execution and delivery of a Control Agreement under Section 6.6(b).  The Accounts are bona fide, existing obligations of the Account Debtors.

 

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate.  None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) Intellectual Property comprised of rights that are licensed to Borrower, any such licensed rights that are material to Borrower’s business being 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 Accounts Receivable; Inventory.  For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower's Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such Eligible Account.  All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

5.4 Litigation.  Except for those described in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000).

 

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

 

 

 

 

 

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

 

5.7 Regulatory Compliance.  Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

 

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

 

5.9 Tax Returns and Payments; Pension Contributions.  Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except where failure to do so would not reasonably be expected to result in a Material Adverse Change.  Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.  Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not experienced a 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 material liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

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

 

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

 

 

 

 

 

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

 

6 AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1 Government Compliance.

 

(a) Maintain all its Subsidiaries’ legal existence except to the extent that failure to do so would not reasonably be expected to result in a Material Adverse Change.  Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations.  Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which would reasonably be expected to have a material adverse effect on Borrower’s business.  Notwithstanding any provision herein to the contrary, the foregoing provisions shall not restrict Borrower’s and its Subsidiaries’ ability to consummate the Planned Disposition.

 

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

 

6.2 Financial Statements, Reports, Certificates.  Deliver to Bank:

 

(a) Borrowing Base Reports.  Not later than thirty (30) days after the last day of each month in which there shall have been any occurrence of the Borrowing Threshold, aged listings of accounts receivable and accounts payable (by invoice date) (the “Borrowing Base Reports”);

 

(b) Borrowing Base Certificate.  Not later than thirty (30) days after the last day of each month in which there shall have been any occurrence of the Borrowing Threshold and together with the Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a Responsible Officer;

 

(c) Compliance Certificate.  Within fifty (50) days after the last day of each fiscal quarter of Borrower and ninety-five (95) days after Borrower’s fiscal year end, and together with the SEC Filings (as defined below), a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such fiscal quarter or year, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request;

 

(d) Cash Holdings Report.  Within thirty (30) days after the last day of each month, a cash holdings report, including account statements detailing cash management, types of investments held and maturity date;

 

(e) SEC Filings.  As soon as available, but in no event later than (i) fifty (50) days after the last day of each fiscal quarter of Borrower, the Company’s report on Form 10-Q and (ii) ninety-five (95) days after Borrower’s fiscal year end, the Company’s report on Form 10-K (collectively, the “SEC Filings”); provided, that, Borrower’s reports on Forms 10-K and 10-Q required to be delivered pursuant to this Section 6.2(d) shall be deemed to have been delivered on the date on which Borrower 

 

 

 

 

 

posts such report or provides a link thereto on Borrower’s or another website on the Internet; provided, that the foregoing does not relieve Borrower from providing paper copies of the Compliance Certificates required by Section 6.2(c) hereof; 

 

(f) Board Projections.  Within forty-five (45) days after the last day of Borrower’s fiscal year, annual financial projections (consolidated quarterly balance sheet, income statement and cash flow reports) for the following fiscal year;

 

(g) Other Statements.  Within five (5) days of delivery, copies of all statements, reports and notices made available to any holders of Subordinated Debt;

 

(h) Legal Action Notice.  A prompt report of any legal actions (excluding those described in the Perfection Certificate) pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000) or more;

 

(i) Intellectual Property Notice.  Prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark not previously disclosed in writing to Bank, and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property; and

 

(j) Other Financial Information.  Other financial 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 relating to Inventory (excluding any returns under distributor stock retention arrangements in the ordinary course of business) that involve more than Two Hundred Thousand Dollars ($200,000).

 

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.  Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Bank.  All property policies shall have a lender’s loss payable endorsement showing Bank as a lender loss payee and waive subrogation against Bank.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  All policies (or their respective endorsements) shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy.  At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6 Operating Accounts.

 

 

 

 

 

(a) Within ninety (90) days of the Effective Date, maintain all (with the exception of Borrower’s investment account with Royal Bank of Canada) of its domestic day-to-day operating and other deposit accounts and securities accounts with Bank and Bank’s Affiliates; and in any event not less than $5,000,000 at all times in such accounts with Bank and Bank’s Affiliates. 

 

(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.  The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

 

6.7 Financial Covenants.  Maintain as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

 

(a) Consolidated Quick Ratio.  A ratio of Consolidated Quick Assets to Consolidated Current Liabilities of at least the following:

 

	
Quarter End

	
Minimum Consolidated Quick Ratio

	
September 30, 2011

	
1.00 to 1.00

	
December 31, 2011 and each fiscal quarter end thereafter

	
1.25 to 1.00

 

(b) Consolidated EBITDA.  Maintain, Consolidated EBITDA of at least (i) ($2,620,000) for the fiscal quarter ended September 30, 2011 and (ii) the following, measured on a rolling two fiscal quarter basis:

 

	
Quarter End

	
Minimum Consolidated EBITDA

	
December 31, 2011

	
($100,000)

	
March 31, 2012

	
$2,400,000

	
June 30, 2012

	
$1

	
September 30, 2012

	
$900,000

	
December 31, 2012

	
$2,000,000

	
March 31, 2013 and each fiscal quarter end thereafter

	
$2,500,000

 

6.8 Protection of Intellectual Property Rights.  (i) Protect, defend and maintain the validity and enforceability of its Intellectual Property material to Borrower’s business; (ii) promptly advise Bank in writing of material infringements of its Intellectual Property material to Borrower’s business; 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. 

 

6.9 Litigation Cooperation.  From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

 

6.10 Access to Collateral; Books and Records.  Allow Bank, or its agents, at reasonable times, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books.  Such inspections or audits shall be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing.  The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses.  In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

 

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 that have a material impact regarding compliance with or maintenance of Governmental Approvals or Requirements of Law  that must be complied with or maintained to avoid a material adverse effect on Borrower’s business.

 

7 NEGATIVE COVENANTS

 

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

 

7.1 Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) from a Subsidiary to one or more other Subsidiaries or to Borrower, (b) of Inventory in the ordinary course of business; (c) of worn-out or obsolete Equipment; (d) in connection with Permitted Liens and Permitted Investments; and (e) 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.  Notwithstanding any provision herein to the contrary, the foregoing provisions shall not restrict Borrower’s and its Subsidiaries’ ability to consummate the Planned Disposition.

 

7.2 Changes in Business, Management, Ownership, Control, or Business Locations.  (a) Engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto; (b) liquidate or dissolve; or (c) permit or suffer any Change in Control.

 

                       Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in Borrower’s assets or property (excluding vendor managed inventory)) or deliver any portion (excluding vendor managed inventory) of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars 

 

 

 

 

 

($100,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion (excluding vendor managed inventory) of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

 

7.3 Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower or into another Person if such merger or consolidation would not reasonably be expected to result in a Material Adverse Change.  Notwithstanding any provision herein to the contrary, the foregoing provisions shall not restrict Borrower’s and its Subsidiaries’ ability to consummate the Planned Disposition.

 

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 (subject to Permitted Liens that are senior in priority to such security interest), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

7.6 Maintenance of Collateral Accounts.  Maintain any Collateral Account except in compliance with 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 provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of Five Hundred Thousand Dollars ($500,000) per fiscal year; or (b) directly or indirectly make any Investment 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 (except with respect to the Planned Disposition), 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 and transactions permitted pursuant to the terms of Sections 7.2 and 7.7 hereof.

 

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 or adversely affect the subordination thereof to Obligations owed to Bank.

 

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

 

8 EVENTS OF DEFAULT

 

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

 

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

 

8.2 Covenant Default.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.10, 6.11, 6.12 or violates any covenant in Section 7; or

 

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured with further 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 10 day and additional period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period);

 

8.3 Material Adverse Change.  A Material Adverse Change occurs;

 

8.4 Attachment; Levy; Restraint on Business.

 

(a) (i) The attachment of any funds of Borrower or of any entity under the control of Borrower on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether 

 

 

 

 

 

through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

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

 

8.5 Insolvency.  (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of 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 Five Hundred Thousand Dollars ($500,000), excluding any default resulting from non-payment under the Excluded Instrument for so long as resolution is pending of any Pending Claims (as defined in the Teranetics Merger Agreement) in accordance with applicable procedures in Section 2.7 and Article 9 of the Teranetics Merger Agreement; or (b) any default by Borrower, the result of which could have a material adverse effect on Borrower’s business;

 

8.7 Judgments.  One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

 

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 Subordination.  The Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement;

 

9 BANK’S RIGHTS AND REMEDIES

 

9.1 Rights and Remedies.  While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

 

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

 

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

 

(c) demand that Borrower (i) deposit cash with Bank in an amount equal to 105% of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral 

 

 

 

 

 

security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d) terminate any FX Contracts;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

 

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

 

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

 

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

 

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

 

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

 

10 NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Bank or Borrower may change 

 

 

 

 

 

its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

	
If to Borrower:

	
PLX Technology, Inc.

	
  

	
870 W. Maude Avenue

	 	
Sunnyvale, CA 94085

	
  

	
Attn: Arthur O. Whipple

	
  

	
Fax: (408) 774-2169

	
  

	
Email:  awhipple@plxtech.com

 

	
If to Bank:

	
Silicon Valley Bank

	
  

	
2400 Hanover St.

	 	
Palo Alto, CA 94304

	
  

	
Attn: Ray Aguilar

	
  

	
Fax: (650) 320-0016

	
  

	
Email:  raguilar@svb.com

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

 

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

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive.  

 

 

 

 

 

The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.  The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

 

12 GENERAL PROVISIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

 

whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

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

 

12.8 Survival.  All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations, any obligations in respect of deposit accounts and/or securities accounts of Borrower with Bank and/or Bank’s Affiliates and related on-line banking services and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  The grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements (except where the only Bank Services being provided are deposit accounts and/or securities accounts of Borrower with Bank and Bank’s Affiliates and related on-line banking services), and the obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.  For purposes of references in this Agreement to termination of this Agreement, termination of this Agreement shall occur when the principal of all Advances and all interest accrued under this Agreement shall have been paid in full in cash, all fees and Bank Expenses payable under Section 2.4 shall have been paid in full in cash and Bank has no further obligation to make any Credit Extension.

 

12.9 Confidentiality.  In handling any confidential information relating to Borrower or its Subsidiaries, 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 providing services to Borrower or its Subsidiaries (such Subsidiaries and Affiliates, together with Bank, collectively, “Bank Entities”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall 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 reasonably 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 after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.

 

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

 

12.10 Attorneys’ Fees, Costs and Expenses.  In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

 

12.11 Electronic Execution of Documents.  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the 

 

 

 

 

 

case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

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

 

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

 

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

 

12.15 Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

13 DEFINITIONS

 

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

 

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

 

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

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

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

 

“Agreement” is defined in the preamble hereof.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), and minus (c) 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.

 

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

“Borrower” is defined in the preamble hereof.

 

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

 

“Borrowing Base” is (a) $5,000,000 plus (b) 80% of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing amount and percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

 

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

 

“Borrowing Base Report” is defined in Section 6.2(a).

 

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

 

“Borrowing Threshold” is outstanding Credit Extensions in an amount greater than $3,000,000 for a continuous period in excess of three (3) Business Days.

 

“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; and (d) investments otherwise made through Borrower’s investment account with Royal Bank of Canada.

 

“Change in Control” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing twenty-five percent (25%) or more of the combined voting power of Borrower’s then outstanding securities; or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose election by the Board of Directors of Borrower was approved by a vote of not less than two-thirds of the directors then still in office who either were directions at the beginning of such period  or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.

 

 

 

 

 

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

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

 

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

 

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

 

“Consolidated Current Liabilities” are, at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of Borrower and its consolidated Subsidiaries at such date.

 

“Consolidated EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income: (1) depreciation expense and amortization expense, plus (2) income tax expense, plus (3) stock compensation expense, plus (4) not more than $4,200,000 in the aggregate of expenses related to the Planned Disposition in the fiscal quarters ending September 30, 2011 and December 31, 2011.

 

“Consolidated Quick Assets” is, on any date, Borrower’s consolidated, unrestricted cash and Cash Equivalents, short- and long- term marketable securities, and accounts receivable, in each case, to the extent appearing on a consolidated balance sheet of Borrower and its consolidated Subsidiaries at such date.

 

“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 or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

 

“Credit Extension” is any Advance, Letter of Credit or any other extension of credit by Bank for Borrower’s benefit pursuant to this Agreement.

 

“Default Rate” is defined in Section 2.3(b).

 

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

 

“Designated Deposit Account” is Borrower’s deposit account, account number 3300935929, maintained with Bank.

 

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

 

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

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3.  Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

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

 

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

 

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

 

(d) Accounts owing from an Account Debtor, in which fifty percent (50%) or more of the Accounts have not been paid within ninety (90) days of invoice date;

 

(e) Accounts owing from an Account Debtor which does not have its principal place of business in the United States or Canada (excluding Quebec) unless such Accounts are otherwise Eligible Accounts and (i) covered in full by credit insurance satisfactory to Bank, less any deductible, (ii) supported by letter(s) of credit acceptable to Bank, (iii) supported by a guaranty from the Export-Import Bank of the United States, or (iv) that Bank otherwise approves of in writing; provided, that, the Accounts of Eligible Foreign Debtors shall be Eligible Accounts subject to a 50% advance rate, provided however, that Bank may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks, which, as determined by Bank, may adversely affect the Collateral, or in accordance with the results of the Initial Audit and on-going periodic exams;

 

 

 

 

 

(f) Accounts billed and/or payable outside of the United States unless Bank has a first priority, perfected security interest or other enforceable Lien in such Accounts under all applicable laws, including foreign laws (sometimes called foreign invoiced accounts);

 

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

 

(h) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, except for Eligible Concentration Debtors, for which such percentage is 40%, for the amounts that exceed those percentages, unless Bank approves in writing;

 

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

 

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

 

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

 

(l) Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

 

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

 

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

 

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

 

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

 

(q) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90 days;

 

 

 

 

 

(r) Accounts arising from chargebacks, debit memos or other payment deductions taken by an Account Debtor (but only to the extent the chargeback is determined invalid and subsequently collected by Borrower);

 

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

 

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

 

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

 

“Eligible Concentration Debtors” are Avnet Inc. and its wholly-owned subsidiaries, Dell Computer Corporation,  Hewlett Packard Finance, Intel Corporation and its wholly-owned subsidiaries, Jabil Circuit, Inc. and its wholly owned subsidiaries and Super Micro Computer.

 

“Eligible Foreign Debtors” are Excelpoint Systems Pte., Flextronics Technology, Huawei Technologies, Promate Electronics Co., Tomen Electronics Corp., Answer Technology Co. Ltd., Avnet MEMC and Avnet EMG GmbH.

 

“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.

 

“Event of Default” is defined in Section 8.

 

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

 

“Excluded Instrument” is Note B, as such term is defined in the Teranetics Merger Agreement.

 

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

 

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

 

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

 

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

 

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

 

 

 

 

 

without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

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

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

 

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

 

“Indemnified Person” is defined in Section 12.2.

 

“Initial Audit” is Bank’s inspection in connection with entry into this Agreement of Borrower’s Accounts, the Collateral, and Borrower’s Books.

 

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

 

“Intellectual Property” means all of Borrower’s right, title, and interest in and to the following:

(a) its Copyrights, Trademarks and Patents;

 

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

 

(c) any and all source code;

 

(d) any and all design rights which may be available to a Borrower;

 

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

 

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

 

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

 

 

 

 

 

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

 

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

 

“Letter of Credit” means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.

 

“Letter of Credit Application” is defined in Section 2.1.2(b).

 

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

 

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

 

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

 

“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.

 

“Nonformula Advances” is defined in Section 2.1.1(a).

 

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

 

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

 

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

 

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

 

 

 

 

 

“Perfection Certificate” is defined in Section 5.1.

 

“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;

 

(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 otherwise permitted by Section 7.4 not exceeding $500,000 in the aggregate outstanding at any time; and

 

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

 

“Permitted Investments” are:

 

(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date 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 any deposit or securities account, subject to the Bank having a perfected security interest in such deposit or securities account if it constitutes a Collateral Account for which Borrower is required to cause execution and delivery of a Control Agreement under Section 6.6(b);

 

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

 

(f) Investments (i) by Borrower in Subsidiaries not to exceed Seven Hundred and Fifty Thousand Dollars ($750,000) in the aggregate in any fiscal year and (ii) by Subsidiaries in other Subsidiaries not to exceed Seven Hundred and Fifty Thousand Dollars ($750,000) in the aggregate in any fiscal year or in Borrower;

 

(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 or committees thereof responsible for administration of such plans or agreements;

 

 

 

 

 

(h) 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;

 

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

 

(j) other Investments not otherwise permitted by Section 7.7 not exceeding Two Hundred and Fifty Thousand Dollars ($250,000) in the aggregate outstanding at any time.

 

“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;

 

(c) purchase money Liens and Liens under leases (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 One Hundred Thousand Dollars ($100,000) 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 if it constitutes a Collateral Account for which Borrower is required to cause execution and delivery of a Control Agreement under Section 6.6(b).

 

“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.

 

“Planned Disposition” means the sale of Borrower’s storage division with net proceeds of not less than $1,000,000.

 

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

 

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

 

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

 

“Revolving Line” is an Advance or Advances in an amount equal to Ten Million Dollars ($10,000,000).

 

“Revolving Line Maturity Date” is September [  ], 2013

 

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

 

“SEC Filings” is defined in Section 6.2(d).

 

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

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank under this Agreement (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.

 

 

 

 

 

“Teranetics Merger Agreement” is that certain Agreement and Plan of Merger, dated as of September 23, 2010, by and among Borrower, Tunisia Acquisition Sub, Inc., Teranetics, Inc., and Nersi Nazari, as representative of the Securityholders.

 

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

 

 “Transfer” is defined in Section 7.1.

 

“Unused Revolving Line Facility Fee” is defined in Section 2.4(d).

 

 “WSJ Prime Rate” is the rate most recently announced as the “prime rate” in the Money Rates section of The Wall Street Journal, or if such rate is not published, as determined by Bank.

 

[Signature page follows.]

 

 

 

 

 

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

 

BORROWER:

 

PLX TECHNOLOGY, INC.

 

	By:	
/s/ Arthur O. Whipple

	 
	Name:	Arthur O. Whipple 	 
	Title:	CFO	 

 

BANK:

 

SILICON VALLEY BANK

 

	By:	
/s/ Ray Aguilar

	 
	Name:	Ray Aguilar	 
	Title:	RM	 

 

 

 

 

 

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, letter-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 (1) the stock or other interests in any Subsidiary (except stock of PLX Technology Limited subject to and upon pledge thereof pursuant to Section 3.3(b) of the Agreement), (2) any rights under any contract, license or agreement if the assignment of or grant of a Lien on such rights requires the consent of a party (other than Borrower); provided, however, that upon termination of such restriction, such interest shall immediately become Collateral without any action by Borrower or Bank or (3) 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.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.dex103.htm

                                      

 

EXHIBIT 10.3

 

 

ALLERGAN, INC.

 

SUPPLEMENTAL EXECUTIVE BENEFIT PLAN

 

 

and

 

 

SUPPLEMENTAL RETIREMENT INCOME PLAN

 

 

Effective as of March 1, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTATED 2011

 

 

  

 

  

 

ARTICLE I

INTRODUCTION

 

1.1. Plans.  Allergan, Inc., a Delaware corporation (the “Sponsor”), currently sponsors the Allergan, Inc. Supplemental Retirement Income Plan (“SRIP”) and the Allergan, Inc. Supplemental Executive Benefit Plan (“SEBP”) (collectively, the “Plans”).  Unless otherwise specified, a reference to the “Plan” shall refer to both Plans.

 

1.2. Amendment and Restatement of the Plan.  This document, made and entered into by the Sponsor, evidences the terms of both the SRIP and the SEBP, effective as of March 1, 2011, unless otherwise stated in the Plan.

 

1.3. Applicability of Code Section 409A.  With respect to benefits accruing or vesting under the Plan after December 31, 2004 (the “Section 409A Benefits”), it is intended that the provisions of the Plan be construed in accordance with Code Section 409A, the Treasury regulations, and other guidance issued thereunder.  With respect to benefits accrued and vested under the Plan on or before December 31, 2004 (the “Grandfathered Benefits”), it is intended that the general terms of the Plan in effect on October 3, 2004 shall govern such benefits, provided that such terms may be amended by this document to the extent that such amendment does not constitute a material modification under Code Section 409A.  Unless otherwise specified, all provisions of the Plan shall apply to both Section 409A Benefits and Grandfathered Benefits.

 

1.4. Purpose of Plan.  The purpose of the Plan is to provide certain supplemental retirement benefits to a select group of officers, management, and other highly compensated employees of the Sponsor and its Affiliated Companies as more fully provided herein.

 

1.5. Effective Date and Term.  The Plan was established by the Board of Directors of the Sponsor effective as of July 27, 1989 and shall continue in effect until terminated by the Board of Directors.

 

1.6. Participation.  Participation in the Plan shall be open to all Eligible Employees.

 

(a)           For purposes of the SRIP, “Eligible Employees” means employees of the Sponsor or any Affiliated Company whose benefits under the Pension Plan are limited by reason of Code Section 415 and who (i) are not classified or paid as independent contractors (regardless of their classification for federal tax or other legal purposes) by the Sponsor or an Affiliated Company, and (ii) do not perform services for the Sponsor or an Affiliated Company pursuant to an agreement between the Sponsor or an Affiliated Company and any other person including a leasing organization.

 

(b)           For purposes of the SEBP, “Eligible Employees” means employees of the Sponsor or any Affiliated Company whose benefits under the Pension Plan are limited by reason of the includible compensation limitation of Code Section 401(a)(17) and who (i) are not classified or paid as independent contractors (regardless of their classification for federal tax or other legal purposes) by the Sponsor or an Affiliated Company, and (ii) 

 

  

1

  

do not perform services for the Sponsor or an Affiliated Company pursuant to an agreement between the Sponsor or an Affiliated Company and any other person including a leasing organization.

 

1.7. Applicability of ERISA.

 

(a)           The SRIP is intended to be an unfunded “excess benefit plan” within the meaning of Section 4(b)(5) of ERISA.

 

(b)           The SEBP is intended to be a “top-hat” plan -- that is, an unfunded plan maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees -- within the meaning of ERISA.

 

1.8. Spin-Off of Advanced Medical Optics, Inc.  In connection with the distribution of the stock of Advanced Medical Optics, Inc. (“AMO”) by the Sponsor to its stockholders (the “AMO Spin-Off”) and, effective as of the AMO Spin-Off Date:  (i) AMO Employees shall cease to be eligible to participate in the Plan and shall cease to accrue benefits under the Plan, and (ii) the assets attributable to, and the liabilities relating to, arising out of, or resulting from the benefits of AMO Employees shall remain with the Plan and shall be payable from the Plan to AMO Employees at such times and in such forms as permitted under the Plan.  The “AMO Spin-Off Date” shall be June 29, 2002 and “AMO Employees” shall be those individuals whose employment is transferred from the Sponsor to AMO in connection with the AMO Spin-Off, as reflected in the payroll records of the Sponsor or in the Employee Matters Agreement entered into between the Sponsor and AMO.

 

 

ARTICLE II

DEFINITIONS

 

2.1. Actuarial Equivalent and Actuarially Equivalent.  “Actuarial Equivalent” or “Actuarially Equivalent” means a benefit that is of equal actuarial value to another benefit under the assumptions set forth in Appendix A of the Pension Plan or, to the extent necessary to ensure that a benefit is actuarially equivalent to another benefit within the meaning of Treasury Regulation section 1.409A-2(b)(2)(ii), such other assumptions as may be designated by the Committee.

 

2.2. Affiliated Company.  “Affiliated Company” means any affiliate of the Sponsor which has adopted the Pension Plan as provided therein.

 

2.3. Beneficiary.  “Beneficiary” has the meaning set forth in Section 6.1 hereof.

 

2.4. Board; Board of Directors.  “Board” and “Board of Directors” each mean the board of directors of the Sponsor.

 

2.5. Code.  “Code” means the Internal Revenue Code of 1986, as amended.

 

  

2

  

 

2.6. Committee.  “Committee” means the committee authorized to administer the Plan as set forth in Section 3.1 hereof.

 

2.7. Effective Date.  “Effective Date” means July 27, 1989.

 

2.8. ERISA.  “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

2.9. Grandfathered Benefits.  “Grandfathered Benefits” means those benefits accrued and vested under the Plan on or before December 31, 2004, as provided in Section 1.3 hereof.

 

2.10. Key Employee.  “Key Employee” means any Participant who is an officer or a Grade 11E Vice President of the Sponsor or any Affiliated Company.

 

2.11. Participant.  “Participant” means any Eligible Employee of the Sponsor or any Affiliated Company as defined under Section 1.6 hereof.

 

2.12. Pension Plan.  “Pension Plan” means the Allergan, Inc. Pension Plan as it may be amended from time to time.

 

2.13. Plan.  “Plan” means both the Allergan, Inc. Supplemental Retirement Income Plan and the Allergan, Inc. Supplemental Executive Benefit Plan as each is amended and restated herein and and as each may be amended from time to time, unless otherwise specified herein to mean only one or the other.

 

2.14. Section 409A Benefits.  “Section 409A Benefits” means those benefits accruing and/or vesting under the Plan after December 31, 2004, as provided in Section 1.3 hereof, and thus subject to Code Section 409A.

 

2.15. Single Life Annuity.  “Single Life Annuity” means a series of substantially equal monthly payments for the life of a Participant, beginning on the date provided in Article IV and continuing until the last day of the month in which the Participant’s death occurs.

 

2.16. Sponsor. “Sponsor” means Allergan, Inc., a Delaware corporation.

 

2.17. Termination. “Termination” means the termination of a Participant’s employment with the Sponsor and any Affiliated Company (as applicable) for any reason whatsoever, whether voluntary or involuntary.

 

2.18. Termination Date. “Termination Date” means, with respect to any Participant, the effective date of such Participant’s Termination.

 

2.19. 50% Joint and Survivor Annuity.  “50% Joint and Survivor Annuity” means a series of substantially equal monthly payments for the life of a Participant, beginning on the date provided in Article IV and continuing until the last day of the month in which the Participant’s death occurs, followed upon the death of the Participant by a series of substantially 

 

  

3

  

equal monthly payments, in an amount equal to 50% of the monthly payment to the Participant. The payments to the surviving spouse shall end on the last day of the month in which the spouse’s death occurs.  The 50% Joint and Survivor Annuity shall be Actuarially Equivalent to the Single Life Annuity.

 

2.20. 100% Joint and Survivor Annuity.  “100% Joint and Survivor Annuity” means a series of substantially equal monthly payments for the life of a Participant, beginning on the date provided in Article IV and continuing until the last day of the month in which the Participant’s death occurs, followed upon the death of the Participant by a series of substantially equal monthly payments, in an amount equal to 100% of the monthly payment to the Participant, to the Participant’s surviving spouse. The payments to the surviving spouse shall end on the last day of the month in which the spouse’s death occurs.  The 100% Joint and Survivor Annuity shall be Actuarially Equivalent to the Single Life Annuity.

 

 

ARTICLE III

ADMINISTRATION OF THE PLAN

 

3.1. Administration By Committee.  The Plan shall be administered by the same committee (the “Committee”) which is appointed to administer the Pension Plan.  A member of the Committee may be a Participant in the Plan, provided, however, that any action to be taken by the Committee, solely with respect to the particular interest in the Plan of a Committee member who is also a Participant in the Plan, shall be taken by the remaining members of the Committee.

 

3.2. Committee Authority, Rules and Regulations.  The Committee shall have discretionary authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan, (ii) decide or resolve any and all questions, including interpretations of the Plan, as may arise in connection with the Plan, and (iii) take or approve all such other actions relating to the Plan (other than amending the Plan, except as provided in Section 6.8, or terminating the Plan); provided, however, that the Board may, by written notice to the Committee, withdraw all or any part of the Committee’s authority at any time, in which case such withdrawn authority shall immediately revest in the Board.  The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.

 

3.3. Appointment of Agents. In the administration of the Plan, the Board and/or the Committee may from time to time employ agents (which may include officers and/or employees of the Sponsor or any Affiliated Company) and delegate to them such administrative duties as it sees fit and may from time to time consult with counsel who may be counsel to the Sponsor or any Affiliated Company.

 

3.4. Application For Benefits. The Committee may require any person claiming benefits under the Plan to submit an application therefor, together with such documents and information as the Committee may require. In the case of any person suffering from a 

 

  

4

  

disability which prevents such person from making personal application for benefits, the Committee may, in its discretion, permit application to be made by another person acting on his or her behalf. Notwithstanding the foregoing, if the Committee shall have all information necessary to determine the amount and form of Plan benefits payable to a Participant or Beneficiary who is entitled to benefit payments under the Plan (including, to the extent applicable and without limiting the generality of the foregoing, the name, age, sex and proper mailing address of all parties entitled to benefit payments), then the failure of a Participant or Beneficiary to file an application for benefits shall not cause the Committee to defer the commencement of benefit payments beyond the benefit commencement date required under the Plan.

 

3.5. Claims Procedures.  If a person is required by the Committee to submit an application for benefits under Section 3.4 or if a Participant or her Beneficiary believes that he or she is being denied any rights or benefits under the Plan, the Participant, Beneficiary, or in either case, his or her authorized representative (the “Claimant”) shall follow the administrative procedures for filing a claim for benefits as set forth in this Section.  An application for benefits or a claim for benefits shall be in writing and shall be reviewed by the Committee or a claims official designated by the Committee.  The Committee or claims official shall review a claim for benefits in accordance with the procedures established by the Committee subject to the following administrative procedures set forth in this Section.

 

(a)           The Committee shall furnish the Claimant with written or electronic notice of the decision rendered with respect to a claim for benefits within 90 days following receipt by the Committee (or its delegate) of the claim unless the Committee determines that special circumstances require an extension of time for processing the claim.  In the event an extension is necessary, written or electronic notice of the extension shall be furnished to the Claimant prior to the expiration of the initial 90 day period.  The notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered.  In no event shall the period of the extension exceed 90 days from the end of the initial 90 day period.

(b)           In the case of a denial of the Claimant’s claim, the written or electronic notice of such denial shall set forth (i) the specific reasons for the denial, (ii) references to the Plan provisions upon which the denial is based, (iii) a description of any additional information or material necessary for perfection of the claim (together with an explanation why such material or information is necessary), (iv) an explanation of the Plan’s appeals procedures and, if applicable, (v) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA if his or her claim is denied upon appeal.

(c)           In the case of a denial of a claim, a Claimant who wishes to appeal the decision shall follow the administrative procedures for an appeal as set forth in Section 3.6 hereof.

3.6. Appeals Procedures.  A Claimant who wishes to appeal the denial of his or her claim for benefits shall follow the administrative procedures for an appeal as set forth in this Section and shall exhaust such administrative procedures prior to seeking any other form of 

 

  

5

  

relief.  Appeals shall be reviewed in accordance with the procedures established by the Committee subject to the following administrative procedures set forth in this Section.

 

(a)           In order to appeal a decision rendered with respect to his or her claim for benefits, a Claimant must file an appeal with the Committee in writing within 60 days following his or her receipt of the notice of denial with respect to the claim.

(b)           The Claimant’s appeal may include written comments, documents, records and other information relating to his or her claim.  The Claimant may review all pertinent documents and, upon request, shall have reasonable access to or be provided free of charge, copies of all documents, records, and other information relevant to his or her claim.

(c)           The Committee shall provide a full and fair review of the appeal and shall take into account all claim related comments, documents, records, and other information submitted by the Claimant without regard to whether such information was submitted or considered under the initial determination or review of the initial determination.  Where appropriate, the Committee will overturn a notice of denial if it determines that an error was made in the interpretation of the controlling plan documents or if the Committee determines that an existing interpretation of the controlling plan documents should be changed on a prospective basis.  In the event the Claimant is a member of the Committee or, as determined by the Committee, the Claimant is a subordinate to a member of the Committee, such individual shall recuse himself or herself from the review of the appeal.

(d)           The Committee shall furnish the Claimant with written or electronic notice of the decision rendered with respect to an appeal within 60 days following receipt by the Committee of the appeal unless the Committee determines that special circumstances require an extension of time for processing the appeal.  In the event an extension is necessary, written or electronic notice of the extension shall be furnished to the Claimant prior to the expiration of the initial 60 day period.  The notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered.  In no event shall the period of the extension exceed 60 days from the end of the initial 60 day period.

(e)           In the case of a denial of an appeal, the written or electronic notice of such denial shall set forth (i) the specific reasons for the denial, (ii) references to the Plan provisions upon which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relating to his or her claim for benefits and, if applicable, (iv) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.

 

  

6

  

 

ARTICLE IV

BENEFITS

 

4.1. Determination of Benefits.

 

(a)           For the SRIP, except as provided in Article V hereof, the supplemental retirement benefit payable to any Participant under the Plan shall be an amount equal to the excess (if any) of (i) the retirement benefit to which such Participant would be entitled under the Pension Plan if his or her retirement benefit under the Pension Plan were determined without regard to the limits imposed by Code Section 415 over (ii) the retirement benefit to which such Participant is actually entitled under the Pension Plan, and, for purposes of a Participant’s Section 409A Benefits, shall be determined as of such Participant’s Termination Date and as though the Participant’s benefits under the Pension Plan will begin as of the date upon which the Participant is scheduled to begin receiving benefits under the Plan.

 

(b)           For the SEBP, except as provided in Article V hereof, the supplemental retirement benefit payable to any Participant under the Plan shall be an amount equal to the excess (if any) of (i) the retirement benefit to which such Participant would be entitled under the Pension Plan if his or her retirement benefit under the Pension Plan were determined without regard to the limits imposed by Code Sections 401(a)(17) and 415, over (ii) the retirement benefit to which such Participant would be entitled under the Pension Plan if his or her benefit under the Pension Plan were determined without regard to the limits imposed by Code Section 415, and for purposes of a Participant’s Section 409A Benefits, shall be determined as of such Participant’s Termination Date and as though the Participant’s benefits under the Pension Plan will begin as of the date upon which the Participant is scheduled to begin receiving benefits under the Plan.

 

Benefits under the Plan shall be calculated by including any additional service credit a Participant may be awarded in a separate written agreement between the Participant and the Sponsor.

 

4.2. Time and Form of Benefit Payments for Grandfathered Benefits.  Except as provided in Article V hereof or as provided in Section 4.5 hereof, a Participant’s Grandfathered Benefits under this Plan as determined pursuant to Section 4.1 hereof shall be paid to the Participant in the same form and at the same time, and shall be calculated under the same actuarial assumptions, as the Participant’s benefits under the Pension Plan.  For example, if a Participant were entitled to monthly benefit payments under the Pension Plan, the Participant’s benefit under this Plan would also be paid on a monthly basis at the same time as the monthly benefit payments under the Pension Plan, and in the amount as determined under Section 4.1.  Notwithstanding the foregoing, if the level income payment option is elected for an annuity under the Pension Plan, a Participant’s Grandfathered Benefits will be payable in the form of annuity selected under the Pension Plan, but disregarding the level income payment option.

 

4.3. Time of Benefit Payments for Section 409A Benefits.  Except as provided 

 

  

7

  

in Article V hereof or as provided in Sections 4.5, 4.6, 4.7, and 4.8 hereof, a Participant’s Section 409A Benefits under the Plan as determined pursuant to Section 4.1 hereof shall commence as of the later of: (i) the first day of the month coincident with or next following the Participant’s attainment of age 55; or (ii) the first day of the month coincident with or next following the Participant’s Termination Date.  Payments that are scheduled to be made on the first day of the month may be delayed (but not more than sixty (60) days) in order to process payment.

 

4.4. Form of Benefit Payments for Section 409A Benefits.  Except as provided in Article V hereof or as provided in Sections 4.5 or 4.6, hereof, a Participant who is not married as of the date he or she begins receiving benefits under the Plan shall receive his or her Section 409A Benefits in the form of a Single Life Annuity and a Participant who is married as of the date he or she begins receiving benefits under the Plan shall receive his or her Section 409A Benefits in the form of (a) a 50% Joint and Survivor Annuity with respect to any such benefits that are scheduled to commence prior to March 1, 2011 and (b) a 100% Joint and Survivor Annuity with respect to any such benefits that are scheduled to commence on or after March 1, 2011.  Prior to the start of benefit payment, a Participant may elect an alternative form of life annuity permitted under the Pension Plan or otherwise permitted by the Sponsor (including the designation of a non-spousal Beneficiary pursuant to Section 6.1 hereof, as applicable), provided that such alternative form is Actuarially Equivalent to the applicable form of benefit referenced in the foregoing sentence.  A single election shall be made solely for purposes of the SRIP and the SEBP, and shall govern payment of Section 409A Benefits payments made under each Plan (i.e., the SRIP and the SEBP shall have the same form of life annuity).  To the extent that payment of Section 409A Benefits under the SRIP and the SEBP and payment under the Pension Plan commence at the same time, the election of a form of life annuity (but not an election of the level income payment option) under the Pension Plan shall apply for payment of Section 409A Benefits under the Plan.

 

4.5. Small Benefit Payments.  Notwithstanding any other provision of the Plan, if the lump sum Actuarial Equivalent of a Participant’s combined benefit under both the SRIP and SEBP at the start of the earliest scheduled payment commencement date under the Plan does not exceed the applicable dollar limit under Code Section 402(g)(1)(B) for the calendar year of payment (for 2011, $16,500), the Participant’s entire combined benefit under both plans shall be paid in a single lump sum payment as soon as administratively practicable following the scheduled payment commencement date.

 

4.6. Transition Elections for Section 409A Benefits.

 

(a)           Notwithstanding the provisions of Sections 4.3 and 4.4 hereof, for Section 409A Benefits commenced on or prior to December 31, 2008, time and form of a Participant’s benefit payment under the Plan shall continue to follow the Participant’s payment election made prior to December 31, 2008 under the Pension Plan.

 

(b)           Notwithstanding the provisions of Sections 4.3 or 4.6(a) hereof, to the extent permitted by the Sponsor, a Participant may elect on or before December 31, 2008 the time of payment of Section 409A Benefits in accordance with procedures set by the Sponsor, provided that such election applies only to amounts that would not otherwise be payable in the year of the election and does not cause an amount to be paid in the year of 

 

  

8

  

    the election that would not otherwise be payable in such year.

 

4.7. Second Elections for Time of Section 409A Benefits.  Notwithstanding the provisions of Section 4.3 hereof, to the extent permitted by the Sponsor, and in accordance with procedures established by the Sponsor, a Participant who has not yet terminated employment with the Sponsor or an Affiliated Company may elect to change the time that payment of Section 409A Benefits under the Plan shall commence (including with respect to a transition election made pursuant to Section 4.6(b) hereof), subject to the following requirements:

 

(a)           the new election may not take effect until at least 12 months after the date on which the new election is made;

 

(b)           the new election must defer payments for at least 5 years from the scheduled payment date under the Plan (e.g., a Participant who did not make a transition election pursuant to Section 4.6(b) may elect to change his or her scheduled payment date to either (i) the later of age 60 (or later) or termination of employment, (ii) the later of age 55 or 5 years (or later) after termination of employment, or (iii) the later of age 60 (or later) or 5 years (or later) after termination of employment);

 

(c)           if the new election defers payment from the date of attaining a specified age, the new election must be made at least 12 months prior to Participant attaining the specified age; and

 

(d)           a Participant may make a second election only once.

 

For purposes of this Section 4.7, entitlement to an annuity is treated as entitlement to a single payment.

 

4.8. Delay for Key Employees for Section 409A Benefits.  Nothwithstanding any other provision of this Article IV, in the case of a Participant who is a “Key Employee,” payment of Section 409A Benefits upon termination of employment shall (i) commence no earlier than (i) the first business day after six (6) months following the Participant’s Termination Date, or (ii) the death of the Participant, whichever occurs first, and (ii) any payments to which the Participant would have been entitled to during the six-month delay shall be paid on the first business day of the seventh month.

 

4.9. Death Before Section 409A Benefits Commence under the Plan.  If a Participant dies prior to the date upon which his or her Section 409A Benefits are scheduled to commence under the Plan, the Participant’s Beneficiary, if any, shall become entitled to receive a survivor benefit in such form and amount that would have become payable to the Beneficiary if the Participant had terminated employment on the date of the Participant’s death and had died immediately following the commencement of his or her Section 409A Benefits pursuant to the terms of the Plan.  Any such survivor benefits shall commence as of the earliest date upon which the Participant would have commenced Section 409A Benefits if the Participant had terminated employment on the date of his or her death and had survived until such benefit commencement date.

 

4.10. Accelerated Section 409A Benefits to Pay Employment Taxes.  

 

  

9

  

Notwithstanding any other provision of the Plan, the Sponsor may accelerate the time or schedule of one or more payments of any Participant’s Section 409A Benefits to the extent permitted by, and in a manner consistent with, Treasury Regulation section 1.409A-3(j)(4)(vi) (Payment of employment taxes).

 

 

ARTICLE V

CHANGE IN CONTROL

 

5.1. Effect of a Change in Control.  Notwithstanding the provisions of Article IV hereof and subject to Section 5.5 hereof, in the event that a Change in Control (as defined in Section 5.4 hereof) occurs on or after the Effective Date hereof, each Participant shall receive a “Lump Sum Benefit” in lieu of any benefits under the Plan to which such Participant is or would otherwise become entitled and which have not already been paid as of the date such Change in Control occurs (the “Change in Control Date”), with such Lump Sum Benefit to be paid as provided in Section 5.2 hereof in the amount calculated as provided in Section 5.3 hereof.

 

5.2. Payment of Lump Sum Benefit.  Subject to Section 5.5 hereof, the Lump Sum Benefit payable to any Participant under Section 5.1 hereof shall be paid to such Participant within 30 days following such Participant’s Determination Date.  As used herein, a Participant’s “Determination Date” shall be the later of the Change in Control Date or such Participant’s Termination Date.

 

5.3. Amount of Lump Sum Benefit.  Subject to Section 5.5 hereof, the amount of the Lump Sum Benefit payable to any Participant pursuant to Section 5.1 hereof shall be the amount equal to the lump sum actuarial equivalent, determined as of such Participant’s Determination Date, of the unpaid Plan benefits to which such Participant is entitled under Article IV hereof, provided, however, that in determining the lump sum actuarial equivalent of such Participant’s unpaid Plan benefits, the following special rules shall apply:

 

(a)   The interest/discount rate assumed shall be 3.6 percent (3.6%);

 

(b)   The mortality table used shall be the same as the mortality table used for purposes of determining the Sponsor’s minimum funding obligation under ERISA with respect to the Pension Plan for the plan year preceding the plan year in which the Participant’s Determination Date falls; and

 

(c)   In the case of a Participant who has not commenced receiving Plan benefits, it shall be assumed that the Participant would commence receiving benefit payments under the Pension Plan and under Article IV of the Plan as of the date which is the later of (i) such Participant’s Termination Date or (ii) the earliest date such Participant would be eligible to commence receiving Plan benefits.

 

5.4. Change in Control.  As used in the Plan, “Change in Control” shall mean the following and shall be deemed to occur if any of the following events occur:

 

(a)           Any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”), is or 

 

  

10

  

becomes the “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act (a “Beneficial Owner”), directly or indirectly, of securities of the Sponsor representing (i) 20% or more of the combined voting power of the Sponsor’s then outstanding voting securities, which acquisition is not approved in advance of the acquisition or within 30 days after the acquisition by a majority of the Incumbent Board (as hereinafter defined) or (ii) 33% or more of the combined voting power of the Sponsor’s then outstanding voting securities, without regard to whether such acquisition is approved by the Incumbent Board;

(b)           Individuals who, as of the date hereof, constitute the Board of Directors (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board of Directors, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Sponsor’s stockholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Sponsor, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall, for the purposes of the Plan, be considered as though such person were a member of the Incumbent Board of the Sponsor;

(c)           The consummation of a merger, consolidation or reorganization involving the Sponsor, other than one which satisfies both of the following conditions:

(i)           a merger, consolidation or reorganization which would result in the voting securities of the Sponsor outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) at least 55% of the combined voting power of the voting securities of the Sponsor or such other entity resulting from the merger, consolidation or reorganization (the “Surviving Corporation”) outstanding immediately after such merger, consolidation or reorganization and being held in substantially the same proportion as the ownership in the Sponsor’s voting securities immediately before such merger, consolidation or reorganization, and

(ii)           a merger, consolidation or reorganization in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Sponsor representing 20% or more of the combined voting power of the Sponsor’s then outstanding voting securities; or

(d)           The stockholders of the Sponsor approve a plan of complete liquidation of the Sponsor or an agreement for the sale or other disposition by the Sponsor of all or substantially all of the Sponsor’s assets.

Notwithstanding the preceding provisions of this Section 5.4, a Change in Control shall not be deemed to have occurred if the Person described in the preceding provisions of this Section 5.4 is (i) an underwriter or underwriting syndicate that has acquired any of the Sponsor’s then outstanding voting securities solely in connection with a public offering of the Sponsor’s 

 

  

11

  

securities, (ii) the Sponsor or any subsidiary of the Sponsor or (iii) an employee stock ownership plan or other employee benefit plan maintained by the Sponsor (or any of its subsidiaries) that is qualified under the provisions of the Code.  In addition, notwithstanding the preceding provisions of this Section 5.4, a Change in Control shall not be deemed to have occurred, (x) if the Person described in the preceding provisions of this Section 5.4 becomes a Beneficial Owner of more than the permitted amount of outstanding securities as a result of the acquisition of voting securities by the Sponsor which, by reducing the number of voting securities outstanding, increases the proportional number of shares beneficially owned by such Person, provided, that if a Change in Control would occur but for the operation of this sentence and such Person becomes the Beneficial Owner of any additional voting securities (other than through the exercise of options granted under any stock option plan of the Sponsor or through a stock dividend or stock split), then a Change in Control shall occur, and (y) upon the distribution of the stock of Advanced Medical Optics, Inc. on June 29, 2002 by the Sponsor to its stockholders.

 

5.5. Limitation to Section 409A Change in Control.  Upon a Change in Control, to the extent that the Change in Control does not also qualify as a Section 409A Change in Control, as defined in Section 5.6 below, Sections 5.1 thru 5.3 shall not apply to any Section 409A Benefits (but shall apply to Grandfathered Benefits), and the provisions of Article IV shall continue to govern the payment of such Section 409A Benefits.  If the Change in Control qualifies as a Section 409A Change in Control, Section 409A Benefits shall be paid as provided in Sections 5.1 thru 5.3, provided that, (a) in the case of a Participant who is still employed when the Change in Control occurs, the Participant’s Termination Date is within two years after the Change in Control, and (b) any amount attributable to Section 409A Benefits that are otherwise to be paid upon a Key Employee’s Termination Date (as opposed to upon the Change in Control for Participants who have already terminated prior to the Change in Control) shall be delayed pursuant to Section 4.8.

 

5.6. Section 409A Change in Control Defined.  As used in this Plan, “ Section 409A Change in Control” shall mean the following and shall be deemed to occur if any of the following events occur:

 

(a)           Any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”) or “Group” (within the meaning of Rule 13d-5 of the Exchange Act and Treas. Reg. § 1.409A-3(i)(5)(B)), is or becomes the “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act (a “Beneficial Owner”), directly or indirectly, of securities of the Sponsor representing 30% or more of the combined voting power of the Sponsor’s then outstanding voting securities, by acquisition or through merger, consolidation, or reorganization;

 

(b)           Individuals who, at the beginning of any 12 month period, constitute the Board of Directors (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board of Directors, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Sponsor’s stockholders, is approved by a vote of at least a majority of the directors shall, for the purposes of this Plan, be considered as though such person were a member of the 

 

  

12

  

Incumbent Board of the Sponsor (provided that this paragraph (b) does not apply if a majority shareholder of the Sponsor is another corporation); or

 

(c)           The consummation of sale or other disposition by the Sponsor of all or substantially all of the Sponsor’s assets based on the total gross fair market value of the Sponsor’s assets(and assuming that “substantially all” means in excess of 80%) to a Person or Group (each as defined in paragraph (a)) within a 12 month period ending on the then most recent acquisition of assets.  For this purpose, “gross fair market value” means the value of the assets of the Sponsor, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control event under this paragraph (c) when there is a transfer to (i) a shareholder of the Sponsor (immediately before the asset transfer) in exchange for or with respect to such shareholder’s stock; (ii) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Sponsor; (iii) a person, or more than one person acting as a Group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Sponsor; or (iv) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in clause (iii).

 

           Notwithstanding the preceding provisions of this Section 5.6, a Section 409A Change in Control shall not be deemed to have occurred if the Person described in the preceding provisions of this Section 5.6 is (i) an underwriter or underwriting syndicate that has acquired the ownership of any of the Sponsor’s then outstanding voting securities solely in connection with a public offering of the Sponsor’s securities, (ii) the Sponsor or any subsidiary of the Sponsor or (iii) to the extent permitted by Code Section 409A, an employee stock ownership plan or other employee benefit plan maintained by the Sponsor (or any of its subsidiaries) that is qualified under the provisions of the Code.  In addition, no Section 409A Change in Control shall have occurred unless the transaction or series of transactions results in a “change in control event” within the meaning of Code Section 409A and the regulations thereunder. This Section 409A Change in Control definition shall be interpreted in a manner that is consistent with Code Section 409A and the regulations thereunder, including with respect to any applicable limitations on the kinds of events that would constitute a Section 409A Change in Control.

 

 

ARTICLE VI

MISCELLANEOUS PROVISIONS

 

6.1. Designated Beneficiary.  A Participant shall be entitled to designate one or more individuals or entities, in any combination, as his “Beneficiary” or “Beneficiaries” to receive any Plan payments to which such Participant is entitled as of, or by reason of, his death.  Any such designation may be made or changed at any time prior to the Participant’s death by written notice filed with the Committee, with such written notice to be in such form and contain such information and/or authorizations as the Committee may from time to time require.  In the event that either (a) a Beneficiary designation is not on file at the date of a Participant’s death, (b) no Beneficiary survives the Participant or (c) no Beneficiary is living at the time any payment becomes payable under the Plan, then, for purposes of making any further payment of any unpaid benefits under the Plan, such Participant’s Beneficiary or Beneficiaries shall be deemed

 

  

13

  

to be the person or persons entitled to receive the Participant’s survivor and death benefits under the Pension Plan.

 

6.2. Payments During Incapacity.  In the event a Participant (or Beneficiary) is under mental or physical incapacity at the time of any payment to be made to such Participant (or Beneficiary) pursuant to the Plan, any such payment may be made to the conservator or other legally appointed personal representative having authority over and responsibility for the person or estate of such Participant (or Beneficiary), as the case may be, and for purposes of such payment references in the Plan to the Participant (or Beneficiary) shall mean and refer to such conservator or other personal representative, whichever is applicable.  In the absence of any lawfully appointed conservator or other personal representative of the person or estate of the Participant (or Beneficiary), any such payment may be made to any person or institution that has apparent responsibility for the person and/or estate of the Participant (or Beneficiary) as determined by the Committee.  Any payment made in accordance with the provisions of this Section 6.2 to a person or institution other than the Participant (or Beneficiary) shall be deemed for all purposes of the Plan as the equivalent of a payment to such Participant (or Beneficiary), and neither the Sponsor nor any Affiliated Company shall have any further obligation or responsibility with respect to such payment.

 

6.3. Domestic Relations Orders.  Notwithstanding any provision in the Plan to the contrary and subject to the approval of the Committee, in the event all or portion of a Participant’s benefit is awarded to an individual (hereinafter referred to as the “alternate payee”) pursuant to a domestic relations order entered by a court in settlement of marital property rights (hereinafter referred to as a “DRO”), the awarded benefit shall be subject to the terms of the DRO; provided, that, for purposes of the foregoing, if the DRO does not expressly address the distribution of Plan benefits to the alternate payee, the DRO shall be construed as distributing the awarded benefits in accordance with the alternate payee’s distribution election under the Pension Plan.  It is intended that a DRO shall be approved by the Committee only if it meets the applicable requirements of a “qualified domestic relations order” as defined in Code Section 414(p).

 

6.4. Limited Offsets.  Notwithstanding any provision in the Plan to the contrary, the Sponsor may accelerate the time or schedule of a payment of a Participant’s Section 409A Benefits to satisfy a debt owed by the Participant to the Sponsor, provided that any such acceleration shall be subject to the requirements set forth in Treasury Regulation section 1.409A-3(j)(4)(xiii) (Certain offsets).

 

6.5. Prohibition Against Assignment.  Except as otherwise expressly provided in Sections 6.1 through Section 6.4 hereof, the rights, interests and benefits of a Participant under the Plan (i) may not be sold, assigned, transferred, pledged, hypothecated, gifted, bequeathed or otherwise disposed of to any other party by such Participant or any Beneficiary, executor, administrator, heir, distributee or other person claiming under such Participant, and (ii) shall not be subject to execution, attachment or similar process.  Any attempted sale, assignment, transfer, pledge, hypothecation, gift, bequest or other disposition of such rights, interests or benefits contrary to the foregoing provisions of this Section 6.5 shall be null and void and without effect.

 

6.6. Binding Effect.  The provisions of the Plan shall be binding upon the

 

  

14

  

Sponsor, each Affiliated Company, the Participants and any successor-in-interest to the Sponsor, any Affiliated Company or any Participant.

 

6.7. No Transfer of Interest.  Benefits under the Plan shall be payable solely from the general assets of the Sponsor and no person shall be entitled to look to any source for payment of such benefits other than the general assets of the Sponsor.  The Sponsor shall have and possess all title to, and beneficial interest in, any and all funds or reserves maintained or held by the Sponsor on account of any obligation to pay benefits as required under the Plan, whether or not earmarked by the Sponsor as a fund or reserve for such purpose; any such funds, other property or reserves shall be subject to the claims of the creditors of the Sponsor, and the provisions of the Plan are not intended to create, and shall not be interpreted as vesting, in any Participant, Beneficiary or other person, any right to or beneficial interest in any such funds, other property or reserves.  Nothing in this Section 6.7 shall be construed or interpreted as prohibiting or restricting the establishment of a grantor trust within the meaning of Code Section 671 which is unfunded for purposes of Sections 4(b)(5), 201(2), 301(a)(3) and 401(a)(1) of ERISA, from which benefits under the Plan may be payable.

 

6.8. Amendment or Termination of the Plan.  The Sponsor, by action of its Board of Directors, may amend the Plan from time to time in any respect that it deems appropriate or desirable, and may terminate the Plan at any time, subject to the following provisions:

 

(a)           Any such Plan amendment or Plan termination shall not, without a Participant’s written consent, be given effect with respect to such Participant to the extent such Plan amendment or Plan termination operates to reduce or eliminate, in any material respect, such Participant’s accrued Plan benefit.  For purposes of the preceding sentence, the determination as to whether any Plan amendment or Plan termination operates to reduce or eliminate, in any material respect, a Participant’s accrued Plan benefit shall be made at the time of, and not until, such Participant’s Termination.

(b)           An amendment or termination of the Plan shall be treated as reducing or eliminating a Participant’s accrued Plan benefit only if, and to the extent that, (i) the benefit (expressed as a single life annuity payable monthly) to which such Participant is actually entitled under the Pension Plan upon his or her Termination, is less than (ii) such Participant’s “accrued benefit” under the Pension Plan as of the effective date of such Plan amendment or Plan termination (expressed as a single life annuity payable monthly), with such “accrued benefit” to be determined (A) as if such Participant incurred a Termination on the effective date of such Plan amendment or Plan termination and (B) without regard to the limits imposed by Code Sections 415 or 401(a)(17).

The Committee shall have the right to amend the Plan, subject to paragraphs (a) and (b) hereof, to make administrative amendments to the Plan that do not cause a substantial increase or decrease in benefits to Participants and that do not cause a substantial increase in the cost of administering the Plan.

 

6.9. No Right to Employment.  The Plan is voluntary on the part of the Sponsor and each Affiliated Company, and the Plan shall not be deemed to constitute an 

 

  

15

  

employment contract between the Sponsor or any Affiliated Company and any Participant, nor shall the adoption or existence of the Plan or any provision contained in the Plan be deemed to be a required condition of the employment of any Participant.  Nothing contained in the Plan shall be deemed to give any Participant the right to continued employment with the Sponsor or any Affiliated Company, and the Sponsor and each Affiliated Company may terminate any Participant who is in its employ at any time, in which case the Participant’s rights arising under the Plan shall be only those expressly provided under the terms of the Plan.

 

6.10. Notices. All notices, requests, or other communications (hereinafter collectively referred to as “Notices”) required or permitted to be given hereunder or which are given with respect to the Plan shall be in writing and may be personally delivered, or may be deposited in the United States mail, postage prepaid and addressed as follows:

 

	 To the Sponsor	 Allergan, Inc.
	 or the Committee at:	 Attention: Global Investments & Benefits Subcommittee
	 	                 (Supplemental Executive Retirement Plan)
	 	                 2525 Dupont Drive
	 	                 Irvine, CA 92612
	 	 
	 	                 cc: General Counsel
	 	 
	To Participant at:	 The Participant's residential mailing address as reflected in 
	 	 the Sponsor's or Affiliated Company's employment records 

    

A Notice which is delivered personally shall be deemed given as of the date of personal delivery, and a Notice mailed as provided herein shall be deemed given on the second business day following the date so mailed.  Any Participant may change his or her address for purposes of Notices hereunder pursuant to a Notice to the Committee, given as provided herein, advising the Committee of such change.  The Sponsor, the Committee and/or any Affiliated Company may at any time change its address for purposes of Notices hereunder pursuant to a Notice to all affected Participants, given as provided herein, advising the affected Participants of such change.

 

6.11. Governing Law. The Plan shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California.

 

6.12. Titles and Headings: Gender of Term. Article and Section headings herein are for reference purposes only and shall not be deemed to be part of the substance of the Plan or in any way to enlarge or limit the meaning or interpretation of any provision in the Plan. Use in the Plan of the masculine, feminine or neuter gender shall be deemed to include each of the omitted genders if the context so requires.

 

6.13. Severability.  In the event that any provision of the Plan is found to be invalid or otherwise unenforceable by a court or other tribunal of competent jurisdiction, such invalidity or unenforceability shall not be construed as rendering any other provision contained 

 

  

16

  

herein invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid and unenforceable provision was not contained herein.

 

6.14. Tax Effect of Plan.  Neither the Sponsor nor any Affiliated Company warrants any tax benefit nor any financial benefit under the Plan.  Without limiting the foregoing, the Sponsor, all Affiliated Companies and their directors, officers, employees and agents shall be held harmless by the Participant from, and shall not be subject to any liability on account of, any Federal or State tax consequences or any consequences under ERISA of any determination as to the amount of Plan benefits to be paid, the method by which Plan benefits are paid, the persons to whom Plan benefits are paid, or the commencement or termination of the payment of Plan benefits.

 

IN WITNESS WHEREOF, the Sponsor hereby executes this instrument, evidencing the terms of the Plan as amended and restated, this 28th day of February, 2011.

ALLERGAN, INC.

By:      /s/Scott D. Sherman                                              

          Scott D. Sherman

       Executive Vice President, Human Resources

  

17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00195-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00195-of-00352.parquet"}]]