Document:

ex_116461.htm

Exhibit 10.1

 

 

 

 

 

 

 

 

CATASYS, INC.

ANXIOLITIX, INC.

CATASYS HEALTH, INC.

 

HERITAGE BANK OF COMMERCE

LOAN AND SECURITY AGREEMENT

 

 

 

 

 

 

 

 

 

 

This Loan And Security Agreement is entered into as of June 14, 2018, by and between HERITAGE BANK OF COMMERCE (“Bank”) and CATASYS, INC. (“Parent”), ANXIOLITIX, INC. (“Anxiolitix”), and CATASYS HEALTH, INC. (“Catasys Health”).

 

 

 

Recitals

 

Borrowers wish to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrowers. This Agreement sets forth the terms on which Bank will advance credit to Borrowers, and Borrowers will repay the amounts owing to Bank.

 

Agreement

 

The parties agree as follows:

 

1.     Definitions and Construction.

 

1.1     Definitions. As used in this Agreement, the following terms shall have the following definitions:

 

“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to a Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by a Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by a Borrower and such Borrower’s Books relating to any of the foregoing.

 

“Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.

 

“Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.

 

“Borrower” means each of Parent, Anxiolitix, and Catasys Health.

 

“Borrower’s Books” means all of a Borrower’s books and records including: ledgers; records concerning such Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.

 

“Borrowing Base” means an amount equal to (i) eighty-five percent (85%) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrowers, minus (ii) the amount of tax obligations that are/were secured by the Tax Liens, until such time as Borrowers provide evidence satisfactory to Bank that such Tax Liens have been released.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.

 

1.

 

 

“Change in Control” shall mean a transaction in which (i) any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of a Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the board of directors of such Borrower, who did not have such power before such transaction, or (ii) Parent ceases to directly or indirectly own all of the outstanding capital stock of any other Borrower.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code.

 

“Collateral” means the property described on Exhibit A attached hereto.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Bank in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof.

 

“Credit Extension” means each Advance or any other extension of credit by Bank for the benefit of Borrowers hereunder.

 

“Daily Balance” means the amount of the Obligations owed at the end of a given day.

 

“EBITDA” means Parent’s consolidated earnings before interest, taxes, depreciation and amortization expenses, plus stock-based compensation expense and other non-cash expenses (as may be approved by Bank on a case by case basis), including change in the estimated fair value of warrant liabilities, each determined in accordance with GAAP.

 

“Eligible Accounts” means those Accounts that arise in the ordinary course of a Borrower’s business that comply with all of Borrowers’ representations and warranties to Bank set forth in Section 5.4 and net after all offsets and contras; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank’s reasonable judgment and upon notification thereof to Borrowers in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:

 

(a)     Accounts that the account debtor has failed to pay within ninety (90) days of invoice date;

 

(b)     Accounts with respect to an account debtor, twenty-five percent (25%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date;

 

(c)     Accounts with respect to which the account debtor is an officer, employee, or agent of any Borrower;

 

(d)     Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, demo or promotional, or other terms by reason of which the payment by the account debtor may be conditional;

 

2.

 

 

(e)     Accounts with respect to which the account debtor is an Affiliate of any Borrower;

 

(f)     Accounts with respect to which the account debtor does not have its principal place of business in the United States or Canada, except for Eligible Foreign Accounts;

 

(g)     Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for Accounts of the United States that Bank approves on a case-by-case basis, which approval may be conditioned upon the requirement that the payee has assigned its payment rights to Bank, the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. Section 3727), and such assignment otherwise complies with the Assignment of Claims Act to Bank's reasonable satisfaction;

 

(h)     Accounts with respect to which a Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to a Borrower or for deposits or other property of the account debtor held by a Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to such Borrower;

 

(i)     Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed thirty percent (30%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank;

 

(j)     Accounts that have not yet been billed to the account debtor;

 

(k)     Accounts that relate to deposits (such as good faith deposits) or other property of the account debtor held by a Borrower for the performance of services or delivery of goods which Borrowers have not yet performed or delivered (i.e., prebillings);

 

(l)     retention billings, progress billings or bonded receivables;

 

(m)     Accounts consisting of deferred revenue ;

 

(n)     Accounts with respect to which the account debtor in good faith disputes liability or makes any good faith claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such good faith dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and

 

(o)     Accounts which Bank reasonably determines to be unsatisfactory for inclusion as an Eligible Account.

 

“Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not have its principal place of business in the United States or Canada and that Bank approves on a case-by-case basis, which approval may be conditioned upon such Accounts being (i) supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank or (ii) covered in full by credit insurance satisfactory to Bank, less any deductible.

 

“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which a Borrower has any interest.

 

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

 

“Event of Default” has the meaning assigned in Article 8.

 

“Existing CB&T Account” means Parent’s deposit account existing as of the Closing Date that is maintained at California Bank & Trust.

 

3.

 

 

“Existing Foreign Subsidiaries” means Parent’s wholly owned Subsidiaries Catasys International (Cayman) Ltd. and Catasys Switzerland Sarl.

 

“Financial Plan” has the meaning set forth in Section 6.3(d) hereof

 

“GAAP” means generally accepted accounting principles as in effect from time to time.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding unsecured trade payables incurred in the ordinary course of business and aged less than one hundred eighty (180) days), including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations; (d) all Contingent Obligations, and (e) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such person.

 

“Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property” means all of a Borrower’s right, title, and interest in and to the following: Copyrights, Trademarks and Patents; all trade secrets, all design rights, claims for damages by way of past, present and future infringement of any of the rights included above, all licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and all proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

 

“Inventory” means all inventory in which a Borrower has or acquires any interest, including work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of a Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and such Borrower’s Books relating to any of the foregoing.

 

“Investment” means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any investment, loan, advance or capital contribution to any Person.

 

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

 

“Loan Documents” means, collectively, this Agreement, any note or notes, certificates, documents or instruments executed by a Borrower, any guarantees by third parties, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.

 

“Management Services Agreement” means any license, management or other agreement by and between any Borrower on the one hand and another Person organized under the laws of a given jurisdiction, on the other hand, and involving, among other things, the license of Intellectual Property or other personal property of any Borrower to such other Person so as to facilitate the provision of certain Borrowers’ services to end users or patients of such Person in a manner that complies with the given jurisdiction’s laws generally concerning the authorized practice of medicine. For the avoidance of any doubt, (i) the Management Services Agreement by and between the Parent, as Manager thereunder, and Texas Integrated Health, Inc., a Texas nonprofit health organization (“TIH”), dated as of April 2, 2018, (ii) the License Agreement, dated as of April 2, 2018 by and between the Parent, as Licensor thereunder, and TIH, and (iii) the license, management and other agreements (each that are of the type described in the previous sentence) that the Borrowers shall enter into after the date hereof with California Integrated Health, Inc. (“CIH”), shall each constitute a “Management Services Agreement” hereunder.

 

4.

 

 

“Material Adverse Effect” means a material adverse effect on (i) the business operations, condition (financial or otherwise) of Parent and its Subsidiaries taken as a whole or (ii) the ability of Borrowers to repay the Obligations or otherwise perform their obligations under the Loan Documents or (iii) the value or priority of Bank’s security interests in the Collateral.

 

“Measurement Date” has the meaning set forth in Section 6.9(c).

 

“Negotiable Collateral” means all letters of credit of which a Borrower is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and such Borrower’s Books relating to any of the foregoing.

 

“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrowers pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrowers to others that Bank may have obtained by assignment or otherwise.

 

“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.

 

“Periodic Payments” means all installments or similar recurring payments that Borrowers may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrowers and Bank.

 

“Permitted Indebtedness” means:

 

(a)     Indebtedness of Borrowers in favor of Bank arising under this Agreement or any other Loan Document;

 

(b)     Indebtedness existing on the Closing Date and disclosed in the Schedule;

 

(c)     Indebtedness secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $100,000 in the aggregate at any given time;

 

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

 

(e)     Indebtedness in an aggregate amount not to exceed $7,500,000 owing to Horizon Technology Finance Corporation, subject to an intercreditor agreement in form and substance reasonably satisfactory to Bank;

 

(f)     Subordinated Debt;

 

(g)     intercompany Indebtedness owed by any Subsidiary to any Borrower or any wholly-owned Subsidiary, as applicable; provided that, such Indebtedness is also permitted as a Permitted Investment and, in the case of such Indebtedness owed to a Borrower, such Indebtedness shall be incurred in the ordinary course of business and consistent with past practices and evidenced by one or more promissory notes that are provided to Bank;

 

(h)     Indebtedness for deferred compensation to each Borrower’s employees, not to exceed $150,000 in the aggregate in addition to that which is existing on the Closing Date;

 

(i)     reimbursement obligations of any Borrower to its employees for travel and other expenses incurred in the ordinary course of business;

 

5.

 

 

(j)      liabilities of any Borrower associated with accrued but unused vacation time of employees of the Borrowers incurred in the ordinary course of business and pursuant to applicable laws governing Borrowers; and

 

(k)     Lien in favor of Los Angeles County Tax Collector for unpaid taxes in the amount of $6,414.13, and a Lien in favor of North Carolina Department of Revenue for unpaid taxes in the amount of $1,952.34, both of which have been paid in full by the Parent prior to the Closing Date (collectively, the “Tax Liens”); and

 

(l)     extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness under subsection (e) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose materially more burdensome terms upon any Borrower or all Borrowers collectively.

 

“Permitted Investment” means:

 

(a)     Investments existing on the Closing Date disclosed in the Schedule;

 

(b)     (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank’s money market accounts;

 

(c)     Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business;

 

(d)     Investments by Borrowers and Subsidiaries in their Subsidiaries in the ordinary course, in an aggregate amount not to exceed $250,000 after the Closing Date;

 

(e)     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;

 

(f)     Investments or other participation in joint ventures or strategic alliances in the ordinary course of each Borrower’s business consisting of the licensing of technology, intellectual property and/or product, the development of such technology, intellectual property and/or product or the providing of technical support, provided that any cash Investments by Borrowers do not exceed $100,000 in the aggregate in any fiscal year and there are no Investments or transfers of any other property of Borrowers to such joint venture;

 

(g)     Investments by Borrower in TIH, CIH or any other Person pursuant to or in connection with a Management Services Agreement in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) during any fiscal year; and

 

(h)     other Investments aggregating not in excess of One Hundred Thousand Dollars ($100,000) at any time.

 

“Permitted Licenses” means and includes (i) non-exclusive licenses of Intellectual Property entered into in the ordinary course of business, including, without limitation pursuant to any Management Services Agreement, (ii) exclusive licenses of Intellectual Property entered into in the ordinary course of business and applicable solely outside the United States, provided that such exclusive licenses could not result in a legal transfer of title of the licensed Intellectual Property and (iii) exclusive licenses of Intellectual Property entered into in the ordinary course of business that are exclusive as to the United States, to the extent consented to by Bank, which consent shall not be unreasonably withheld, conditioned or delayed.

 

6.

 

 

“Permitted Liens” means the following:

 

(a)     Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;

 

(b)     Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to any Borrower, or all Borrowers collectively, and that Parent has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Parent), provided the same have no priority over any of Bank’s security interests;

 

(c)     Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or leasing of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired or leased and improvements thereon, and the proceeds of such equipment;

 

(d)     Liens in favor of Horizon Technology Finance Corporation securing the Indebtedness described in clause (e) of the definition of Permitted Indebtedness, subject to an intercreditor agreement in form and substance reasonably satisfactory to Bank;

 

(e)     carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to any Borrower, or all Borrowers collectively, and that Parent has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Parent);

 

(f)     leases or subleases of real property granted in the ordinary course of any Borrower’s business, and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of any Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit granting Lender a security interest therein;

 

(g)     Liens in favor of financial institutions arising solely in connection with any Borrower’s deposit or securities accounts held at such institutions that are maintained in compliance with Section 6.8;

 

(h)     Liens consisting of Permitted Licenses; and

 

(i)     Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (d) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase.

 

“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

 

“Prime Rate” means the variable rate of interest, per annum, that appears in The Wall Street Journal from time to time.

 

7.

 

 

“Remaining Months Liquidity” means the amount of Borrowers’ unrestricted cash maintained in their accounts with Bank plus the amount available for borrowing under the Revolving Facility.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of each Borrower.

 

“Revolving Facility” means the facility under which Borrowers may request Bank to issue Advances, as specified in Section 2.1(a) hereof.

 

“Revolving Line” means a credit extension of up to Two Million Five Hundred Thousand Dollars ($2,500,000).

 

“Revolving Maturity Date” means the second anniversary of the Closing Date.

 

“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.

 

“SEC Documents” means the reports, schedules, forms, statements and other documents required to be filed by a Person under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein.

 

“Shares” means (i) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by a Borrower or any Subsidiary of a Borrower, in any direct or indirect Subsidiary; and (ii) sixty five percent (65%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by a Borrower or any Subsidiary of Borrower, in any direct or indirect Subsidiary which is not an entity organized under the laws of the United States or any territory thereof, including the Existing Foreign Subsidiaries.

 

“Subordinated Debt” means any debt incurred by a Borrower that is subordinated to the debt owing by such Borrower to Bank on terms acceptable to Bank (and identified as being such by such Borrower and Bank).

 

“Subsidiary” means, 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 (including any Affiliate), or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of a Borrower.

 

“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.

 

 1.2     Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto.

 

2.     Loan and Terms Of Payment.

 

 2.1     Credit Extensions.

 

Each Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrowers hereunder. Each Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

 

8.

 

 

(a)     Revolving Advances.

 

(i)     Subject to and upon the terms and conditions of this Agreement, Borrowers may request Advances in an aggregate outstanding amount not to exceed the lesser of (i) the Revolving Line or (ii) the Borrowing Base. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Notwithstanding the foregoing, Bank may, in its sole discretion and upon a Borrower’s request, make Advances to such Borrower after the Revolving Maturity Date, and all other terms and conditions under this Agreement shall apply to such Advances. Borrowers may prepay any Advances without penalty or premium. Borrowers shall use the proceeds of the Advances for short-term working capital and corporate purposes.

 

(ii)     Whenever a Borrower desires an Advance, such Borrower will notify Bank by email, facsimile transmission or telephone no later than 2:00 p.m. Pacific Time, on the Business Day that is one day before the Business Day the Advance is to be made. Each such notification shall be promptly confirmed by an Advance Request Form in substantially the form of Exhibit B hereto, along with (i) aged listings of accounts receivable and accounts payable, (ii) a sales journal, (iii) a collections journal, (iv) a deferred revenue schedule and (v) a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any email or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrowers shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section to the appropriate Borrower’s deposit account at Bank.

 

2.2     Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrowers shall immediately pay to Bank, in cash, the amount of such excess.

 

2.3     Interest Rates, Payments, and Calculations.

 

(a)     Interest Rates. 

 

(i)     Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, at a per annum rate equal to three percent (3.00%) above the Prime Rate.

 

(b)     Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, Borrowers shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

 

(c)     Payments. Interest hereunder shall be due and payable on the last business day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrowers’ deposit accounts (and each Borrower hereby authorizes Bank to deduct such amounts from its deposit accounts maintained at Bank) or against the Revolving Facility, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.

 

9.

 

 

(d)     Lockbox.    Borrowers shall cause all account debtors to wire or direct all ACH or other electronic payments of any amounts owing to a Borrower to a restricted account at Bank (the “Bancontrol Account”) as Bank shall specify, and to mail all payments made by check to a lockbox or post office box under Bank’s control (and Borrowers shall cease the use of any remote deposit check systems). All invoices shall specify such post office box as the payment address. Bank shall have sole authority to collect such payments and deposit them to the Bancontrol Account. If a Borrower receives any amount despite such instructions, such Borrower shall immediately deliver such payment to Bank in the form received, except for an endorsement to the order of Bank and, pending such delivery, shall hold such payment in trust for Bank. Bank shall credit all amounts paid into the Bancontrol Account first against any Obligations owing to Bank, and then any remaining balance of such amount shall be credited to such Borrower’s operating account maintained at Bank. Borrowers shall enter into such lockbox agreement as Bank shall reasonably request from time to time. Bank may, at its option, conduct a credit check of the account debtor for each Eligible Account requested by a Borrower for inclusion in the Borrowing Base and notify any account debtor of Bank’s security interest in the Borrowers’ Accounts. Bank may also verify directly with the respective account debtors the validity, amount and other matters relating to the Eligible Accounts, by means of matching purchase orders or contracts to invoices, analyzing customer payment history and direct telephonic or written confirmation with the account debtor or otherwise.

 

(e)     Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.

 

2.4     Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as a Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific Time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

 

2.5     Fees and Expenses.

 

(a)     Facility Fees. Borrowers shall pay to Bank on the Closing Date and on the first anniversary of the Closing Date, a facility fee with respect to the Revolving Facility equal to one percent (1.00%) of the Revolving Line, which is fully earned and nonrefundable on such due date.

 

(b)     Bank Expenses. Borrowers shall pay to Bank, on the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees and expenses, as and when they are incurred by Bank.

 

2.6     Term. This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.

 

3.     Conditions of Loans.

 

3.1     Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance reasonably satisfactory to Bank, the following:

 

(a)     this Agreement;

 

10.

 

 

(b)     a certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

 

(c)     UCC National Form Financing Statements;

 

(d)     a warrant to purchase stock;

 

(e)     intercreditor agreement with Horizon Technology Finance Corporation;

 

(f)     evidence of Borrower’s receipt of at least $5,000,000 in cash proceeds from its debt financing transaction with Horizon Technology Finance Corporation;

 

(g)     account control agreement with respect to the Existing CB&T Account;

 

(h)     certificate(s) of insurance naming Bank as loss payee and additional insured;

 

(i)     payment of the fees and Bank Expenses then due specified in Section 2.5 hereof;

 

(j)     to the extent not provided in Parent’s SEC Documents, current financial statements of each Borrower;

 

(k)     an audit of the Collateral, the results of which shall be satisfactory to Bank;

 

(l)     establishment of the Bancontrol Account and lockbox arrangements; and

 

(m)     such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

3.2     Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:

 

(a)     timely receipt by Bank of the Loan Advance/Payment Request Form, along with (i) aged listings of accounts receivable and accounts payable, (ii) a sales journal, (iii) a collections journal, (iv) a deferred revenue schedule and (v) a Borrowing Base Certificate, as provided in Section 2.1;

 

(b)     the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of Borrowers’ request for such Credit Extension and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by Borrowers on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2; and

 

(c)     in Bank’s sole discretion, there has not been any material impairment in the Accounts, general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or there has not been any material adverse deviation (more than 25%) by Borrowers from the most recent business plan of Borrowers presented to and accepted by Bank.

 

4.     Creation of Security Interest.

 

4.1     Grant of Security Interest. Each Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrowers of each of its covenants and duties under the Loan Documents. Such security interest constitutes a valid, first priority security interest in the presently existing Collateral (subject to (i) Permitted Liens described in clause (c) which are permitted to be senior to Bank’s Lien and (ii) Permitted Liens described in clauses (b) and (e) of such defined term, to the extent such Liens are senior to Bank’s Lien by operation of law), and will constitute a valid, first priority security interest in Collateral acquired after the date hereof (subject to (i) Permitted Liens described in clause (c) which are permitted to be senior to Bank’s Lien and (ii) Permitted Liens described in clauses (b) and (e) of such defined term, to the extent such Liens are senior to Bank’s Lien by operation of law).

 

11.

 

 

4.2     Delivery of Additional Documentation Required. Each Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue the perfection of Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Each Borrower from time to time may deposit with Bank specific time deposit accounts to secure specific Obligations. Each Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any request by a Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Obligations are outstanding.

 

4.3     Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers’ usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect each Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify each Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.

 

4.4     Pledge of Shares. Each Borrower hereby pledges, assigns and grants to Bank, a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. Within ten (10) days following Bank’s request (which request shall not be made until after the earlier of the occurrence of an Event of Default or August 31, 2018), the certificate or certificates for the Shares will be delivered to Bank, accompanied by an instrument of assignment duly executed in blank by Borrowers, and Borrowers shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares, and Borrowers will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank’s security interest in the Shares. Upon the occurrence of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new (as applicable) certificates representing such securities to be issued in the name of Bank or its transferee. Unless an Event of Default shall have occurred and be continuing, Borrowers shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.

 

5.     Representations and Warranties.

 

Each Borrower represents and warrants as follows:

 

5.1     Due Organization and Qualification. Each Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except for such states as to which any failure to so qualify could not reasonably be expected to have a Material Adverse Effect.

 

5.2     Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within each Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in a Borrower’s Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which a Borrower is a party or by which a Borrower is bound, in each case, to the extent such conflict, breach or default could not reasonably be likely to have a Material Adverse Effect No Borrower is in default under any material agreement to which it is a party or by which it is bound to the extent such default could not reasonably be likely to have a Material Adverse Effect.

 

12.

 

 

5.3     No Prior Encumbrances. Each Borrower has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.

 

5.4     Bona Fide Eligible Accounts. The Eligible Accounts are bona fide existing obligations. The property and services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or to the account debtor’s agent for immediate and unconditional acceptance by the account debtor. No Borrower has received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account.

 

5.5     Merchantable Inventory. All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.

 

5.6     Intellectual Property. Each Borrower is the sole owner of the Intellectual Property, except for Permitted Licenses. Each of the Patents is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property violates the rights of any third party. Except as set forth in the Schedule, each Borrower’s rights as a licensee of intellectual property do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. No Borrower is a party to, or bound by, any agreement that restricts the grant by such Borrower of a security interest in such Borrower’s rights under such agreement.

 

5.7     Name; Location of Chief Executive Office. Except as disclosed in the Schedule, no Borrower has done business under any name other than that specified on the signature page hereof; or, in the past five (5) years, changed its jurisdiction of formation, corporate structure, organizational type, or any organizational number assigned by its jurisdiction. The chief executive office of each Borrower is located at the address indicated in Section 10 hereof. All Borrowers’ Inventory and Equipment is located only at the location set forth in Section 10 hereof.

 

5.8     Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against a Borrower or any Subsidiary before any court or administrative agency which could result in liabilities in excess of $250,000 or in which an adverse decision could have a Material Adverse Effect.

 

5.9     No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrowers and any Subsidiary that Bank has received from Borrowers fairly present in all material respects Borrowers’ financial condition as of the date thereof and Borrowers’ consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or the consolidating financial condition of Borrowers since the date of the most recent of such financial statements submitted to Bank.

 

5.10     Solvency, Payment of Debts. Each Borrower is solvent and able to pay its debts (including trade debts) as they mature.

 

5.11     Regulatory Compliance. Each Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from a Borrower’s failure to comply with ERISA that could result in such Borrower’s incurring any material liability. No Borrower is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. No Borrower is engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Each Borrower and each Subsidiary have materially complied with all the provisions of the Federal Fair Labor Standards Act. Each Borrower and each Subsidiary have not materially violated any material statutes, laws, ordinances or rules applicable to it.

 

13.

 

 

5.12     Environmental Condition. None of Borrowers’ or any Subsidiary’s properties or assets has ever been used by a Borrower or any Subsidiary or, to the best of Borrowers’ knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrowers’ knowledge, none of Borrowers’ properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by a Borrower or any Subsidiary; and neither a Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by a Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.

 

5.13     Taxes. Each Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed (or extensions have been obtained and such extensions have not expired), and have paid, or have made adequate provision for the payment of, all taxes reflected therein, except for the payment of any such taxes, assessments, fees and other governmental charges which are being diligently contested by such Borrower in good faith by appropriate proceedings and for which adequate reserves have been made under GAAP.

 

5.14     Investments; Subsidiaries. Except as set forth in the Schedule, no Borrower or any Subsidiary owns any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.

 

5.15     Government Consents. Each Borrower and each Subsidiary have obtained all material consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of such Borrower’s business as currently conducted, except for such consents, approval or authorization the failure to obtain could not reasonably be expected to result in a Material Adverse Effect.

 

5.16     Operating, Depository and Investment Accounts. None of a Borrower’s nor any Subsidiary’s operating, depository or investments accounts is maintained or invested with a Person other than Bank, except in compliance with Section 6.8.

 

5.17     Shares. Each Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit such Borrower from pledging the Shares pursuant to this Agreement. There are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares, other than that restrictions on transfer that arise by operation of applicable law. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. The Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and each Borrower knows of no reasonable grounds for the institution of any such proceedings.

 

5.18     Full Disclosure. No representation, warranty or other statement made by a Borrower in any certificate or written statement furnished to Bank (other than projections, forward-looking statements and other information of a general economic or industry nature, which projections, forward-looking statements and other information of a general economic or industry nature have been prepared by the applicable Borrower in good faith based upon assumptions believed by such Borrower to be reasonable at the time) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.

 

6.     Affirmative Covenants.

 

Each Borrower shall do all of the following:

 

6.1     Good Standing. Each Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which it is required under applicable law. Each Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.

 

14.

 

 

6.2     Government Compliance. Each Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Each Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.

 

6.3     Financial Statements, Reports, Certificates. Borrowers shall deliver the following to Bank:

 

(a)     within fifteen (15) days after the last day of each month, (i) aged listings of accounts receivable and accounts payable, (ii) a sales journal, (iii) a collections journal, (iv) a deferred revenue schedule and (v) a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto;

 

(b)     as soon as available, but in any event within thirty (30) days after the end of each month, a Borrower prepared consolidated and consolidating balance sheet, income statement, and cash flow statement covering each Borrower’s consolidated and consolidating operations during such month, prepared in accordance with GAAP, consistently applied, in a form acceptable to Bank along with a Compliance Certificate signed by a Responsible Officer in substantially the form separately provided by Bank to Borrower;

 

(c)     as soon as available, but in any event within ninety (90) days after the end of each Borrower’s fiscal year, audited consolidated financial statements of each Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank;

 

(d)     as soon as available, but in any event no later than thirty (30) days following the beginning of each Borrower’s next fiscal year, annual operating projections (including income statements, balance sheets and cash flow statements presented in a monthly format) for such fiscal year, approved by Borrowers’ board of directors, in form and substance reasonably satisfactory to Bank (each, a “Financial Plan”);

 

(e)     a detailed cash receipts journal on the Friday of each week until such time as Bank determines such reporting item is not required;

 

(f)     copies of all statements, reports and notices sent or made available generally by each Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission;

 

(g)     promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against either a Borrower or any Subsidiary that could result in damages or costs to such Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000) or more, or any commercial tort claim (as defined in the Code) acquired by any Borrower;

 

(h)     such budgets, sales projections, operating plans, other financial information including information related to the verification of Borrowers’ Accounts as Bank may reasonably request from time to time; and

 

(i)     promptly (and in any event within three (3) Business Days) upon a Borrower becoming aware of the existence of any Event of Default or event described in Section 8 (including Section 8.6) which, with the giving of notice or passage of time, or both, would constitute an Event of Default, such Borrower shall give written notice to Bank of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default.

 

15.

 

 

6.4     Audits. Bank shall have a right from time to time hereafter to audit each Borrower’s Accounts and appraise Collateral at Borrowers’ expense, provided that such audits will be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing.

 

6.5     Inventory; Returns. Borrowers shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrowers and their account debtors shall be on the same basis and in accordance with the usual customary practices of Borrowers, as they exist at the time of the execution and delivery of this Agreement. Borrowers shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).

 

6.6     Taxes. Each Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and each Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that such Borrower or a Subsidiary has made such payments or deposits; provided that such Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrowers.

 

6.7     Insurance.

 

(a)     Each Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where each Borrower’s business is conducted on the date hereof. Each Borrower shall also maintain insurance relating to such Borrower’s business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to such Borrower’s.

 

(b)     All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank, and Bank hereby acknowledges and agrees that the insurance coverage of the Borrowers as of the date hereof is reasonably satisfactory to the Bank and if so maintained during the term hereof the Borrowers shall be in compliance with the requirements set forth in this Section 6.7, All such policies of property insurance shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days' notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrowers shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.

 

6.8     Operating, Depository and Investment Accounts. Each Borrower shall maintain and shall cause each of its Subsidiaries to maintain all of its depository, operating, and investment accounts with Bank; provided however that Parent may maintain its Existing CB&T Account during the 90 day period following the Closing Date. For each account that a Borrower maintains outside of Bank, such Borrower shall cause the applicable bank or financial institution at or with which any such account is maintained to execute and deliver an account control agreement or other appropriate instrument in form and substance satisfactory to Bank.

 

6.9     Financial Covenants.

 

(a)     Asset Coverage Ratio. Measured on the last day of each month, Borrowers shall maintain a minimum ratio of (i) unrestricted cash maintained at Bank plus all Eligible Accounts to (ii) all Obligations owing to Bank (“Asset Coverage Ratio”) of at least 2.00 to 1.00. Notwithstanding the foregoing, upon the completion of two consecutive quarters in which Borrowers’ EBITDA is at least $1 and provided that no Event of Default has occurred during such two quarter period, the minimum Asset Coverage Ratio shall automatically be reduced to 1.25 : 1.00, beginning with the first month following such two quarter period and ending on the first day following any trailing three month period in which Borrowers’ EBITDA is negative.

 

16.

 

 

(b)     Performance to Plan - EBITDA. Measured on the last day of each calendar quarter, Parent’s trailing three months’ EBITDA shall not negatively deviate by more than 30% from its projected EBITDA for such period as set forth in Borrowers’ Financial Plan. For purposes of determining Borrower’s compliance with this Section 6.9(b) for the calendar quarters ending June 30, 2018 through December 31, 2019, the minimum EBITDA requirements are set forth on the Compliance Certificate separately provided by Bank to Borrower on the Closing Date.

 

(c)     Remaining Months Liquidity. Borrowers’ Remaining Months Liquidity, measured as of the last day of each month (the “Measurement Date”), shall be at least three (3) times the absolute value of the monthly average of Parent’s EBITDA loss for the trailing three (3) month period ending on the Measurement Date.

 

6.10     Intellectual Property Rights.

 

(a)     Each Borrower shall (i) protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing of material infringements of its Intellectual Property; and (iii) not allow any Intellectual Property material to a Borrower’s business to be abandoned, forfeited or dedicated to the public.

 

(b)     Borrowers shall give Bank quarterly written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.

 

(c)      Borrowers shall (i) give Bank not less than 30 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed, and (ii) execute such documents as Bank may reasonably request for Bank to perfect or maintain its perfection in the proceeds of such intellectual property rights to be registered by any Borrower, and upon the request of Bank and shall file such documents simultaneously with the filing of any such applications or registrations. Upon filing any such applications or registrations with the United States Copyright Office, Borrowers shall promptly provide Bank with (i) a copy of such applications or registrations, without the exhibits, if any, thereto, (ii) evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in the proceeds of such intellectual property rights, and (iii) the date of such filing.

 

(d)     Bank may audit any Borrower's Intellectual Property to confirm compliance with this Section, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrowers’ sole expense, any actions that a Borrower is required under this Section to take but which such Borrower fails to take, after 15 days’ notice to Borrowers. Borrowers shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section.

 

6.11     Post-Closing Covenant. On or before August 31, 2018, Borrowers shall provide evidence satisfactory to Bank of the commencement of dissolution proceedings regarding the Existing Foreign Subsidiaries, and use commercially reasonable efforts to consummate the dissolution of the Existing Foreign Subsidiaries in a timely manner.

 

6.12     Further Assurances. At any time and from time to time Borrowers shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.

 

17.

 

 

7.      Negative Covenants.

 

No Borrower will do any of the following:

 

7.1     Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of a Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank; (iv) Transfers consisting of Permitted Licenses; (v) sales of assets with Bank’s prior written consent; (vi) Transfers by a Subsidiary of any or all of its business, property or assets to a Borrower (with prompt notice to Bank); (vii) Transfers consisting of transactions permitted by Sections 7.6, 7.3, 7.7 and 7.8; (viii) Transfers of cash or cash equivalents for uses not prohibited by the terms of this Agreement in the ordinary course of business and consistent with Borrower’s Financial Plan; and (ix) Transfers consisting of Permitted Liens.

 

7.2     Change in Business or Executive Office. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrowers and any business substantially similar or related thereto (or incidental thereto); cease to conduct business in substantially the manner conducted by Borrowers as of the Closing Date; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Bank’s prior written consent, change the date on which its fiscal year ends.

 

7.3     Mergers or Acquisitions; Change in Control. Suffer or permit a Change in Control; merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or a material portion of the capital stock or property of another Person provided that (i) any Subsidiary may merge into another Subsidiary and (ii) any Subsidiary may merge into a Borrower so long as such Borrower is the surviving entity, as long as Borrowers provide prompt notice to Bank of any such merger.

 

7.4     Indebtedness. Create, incur, guarantee, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.

 

7.5     Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or enter into any agreement with any Person (other than Bank or Horizon Technology Finance Corporation) not to grant a security interest in, or otherwise encumber, any of its property, or permit any Subsidiary to do so.

 

7.6     Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that (i) Parent may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, and the aggregate amount of such repurchase does not exceed $100,000 in any fiscal year and (ii) any subsidiary of Parent may pay dividends or make distributions on account of any capital stock without restriction.

 

7.7     Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in form and substance satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to a Borrower.

 

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

 

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7.9     Subordinated Debt. Make any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Bank, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.

 

7.10     Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than the location set forth in Section 10 of this Agreement.

 

7.11     Compliance. Become an “investment company” or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect or a material adverse effect on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.

 

8.       Events of Default.

 

Any one or more of the following events shall constitute an Event of Default by Borrowers under this Agreement:

 

8.1     Payment Default. If Borrowers fail to pay, when due, any of the Obligations.

 

8.2     Covenant Default.

 

(a)     If a Borrower fails to perform any obligation under Article 6 (other than Section 6.2, 6.4, 6.5, 6.10(a) or 6.10(b)) or violates any of the covenants contained in Article 7 of this Agreement; or

 

(b)     If a Borrower fails or neglects to perform or observe any obligation under Section 6.2, 6.4, 6.5, 6.10(a) or 6.10(b) or any other material term, provision, condition, or covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between such Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within twenty days after such Borrower receives notice thereof or any officer of such Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the twenty day period or cannot after diligent attempts by such Borrower be cured within such twenty day period, and such default is likely to be cured within a reasonable time, then such Borrower shall have an additional reasonable period (which shall not in any case exceed an aggregate of 40 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made.

 

8.3     Material Adverse Effect. If there occurs any circumstance or circumstances that could have a Material Adverse Effect.

 

8.4     Attachment. If any portion of a Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if a Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any portion of a Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of a Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after any Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by such Borrower (provided that no Credit Extensions will be required to be made during such cure period).

 

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8.5     Insolvency. If a Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by a Borrower, or if an Insolvency Proceeding is commenced against any Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding).

 

8.6     Other Agreements. If there is a default or other failure to perform in any agreement to which a Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or which could have a Material Adverse Effect.

 

8.7     Subordinated Debt. If any Borrower makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Bank.

 

8.8     Judgments; Settlements; Fines; Penalties.  If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) shall be rendered against a Borrower, or if a Borrower enters into any settlement agreement with respect to any litigation matters that results in payment obligations or liabilities incurred by such Borrower in excess of One Hundred Thousand Dollars ($100,000); or if one or more fines, penalties or orders or decrees for the payment of money in excess of One Hundred Thousand Dollars ($100,000) shall be rendered against Borrower by any governmental authority; and the foregoing shall remain unsatisfied and unstayed for a period of ten (10) days except for those that are fully covered by a reputable and financially sound insurer (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment, settlement, fine, penalty or orders or decree); or

 

8.9     Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.

 

9.       Bank’s Rights and Remedies.

 

9.1     Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrowers:

 

(a)     Declare all or any portion of Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);

 

(b)     Cease advancing money or extending credit to or for the benefit of Borrowers under this Agreement or under any other agreement between Borrowers and Bank;

 

(c)     Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Each Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Each Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of a Borrower’s owned premises, each Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;

 

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(d)     Set off and apply to the Obligations any and all (i) balances and deposits of any Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrowers held by Bank;

 

(e)     Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, each Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrowers’ rights under all licenses and all franchise agreements shall inure to Bank’s benefit;

 

(f)     Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including each Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;

 

(g)     Bank may credit bid and purchase at any public sale; and

 

(h)     Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrowers.

 

9.2     Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as such Borrower’s true and lawful attorney to:(a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) notify all account debtors with respect to the Accounts to pay Bank directly; (c) sign a Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) make, settle, and adjust all claims under and decisions with respect to a Borrower’s policies of insurance; (e) demand, collect, receive, sue, and give releases to any account debtor for the monies due or which may become due upon or with respect to the Accounts and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Accounts; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) sell, assign, transfer, pledge, compromise, discharge or otherwise dispose of any Collateral; (h) receive and open all mail addressed to a Borrower for the purpose of collecting the Accounts; (i) endorse a Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (j) execute on behalf of a Borrower any and all instruments, documents, financing statements and the like to perfect Bank's interests in the Accounts and file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral; and (k) to the extent permitted by applicable law, do all acts and things necessary or expedient, in furtherance of any such purposes; provided however Bank may exercise such power of attorney with respect to any actions described in clause (j) above, regardless of whether an Event of Default has occurred. The appointment of Bank as each Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated.

 

9.3     Accounts Collection. In addition to the foregoing, at any time after the occurrence of an Event of Default, Bank may notify any Person owing funds to Borrowers of Bank’s security interest in such funds and verify the amount of such Account. Each Borrower shall collect all amounts owing to Borrowers for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.

 

9.4     Bank Expenses. If Borrowers fail to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.7 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

 

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9.5     Application of Collateral Proceeds. The proceeds of the Collateral, or any part thereof resulting from Bank’s exercise of its rights and remedies hereunder shall be paid to and applied as follows.

 

(a)     First, to the payment of out-of-pocket costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys’ fees, incurred or made hereunder by Bank, including Bank Expenses;

 

(b)      Second, to the payment of Obligations owing to Bank, to be applied in such manner as Bank determines in its sole discretion; and

 

(c)     Third, to the payment of the surplus, if any, to Borrowers, their successors and assigns or to the persons lawfully entitled to receive the same.

 

9.6     Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrowers.

 

9.7     Shares. Borrowers recognize that Bank may be unable to effect a public sale of any or all the Shares, by reason of certain prohibitions contained in federal securities laws and applicable state and provincial securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Borrowers acknowledge and agree that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Bank shall be under no obligation to delay a sale of any of the Shares for the period of time necessary to permit the issuer thereof to register such securities for public sale under federal securities laws or under applicable state and provincial securities laws, even if such issuer would agree to do so. Upon the occurrence of an Event of Default which continues, Bank shall have the right to exercise all such rights as a secured party under the Code as it, in its sole judgment, shall deem necessary or appropriate, including without limitation the right to liquidate the Shares and apply the proceeds thereof to reduce the Obligations. Effective only upon the occurrence and during the continuance of an Event of Default, Borrowers hereby irrevocably appoint Bank (and any of Bank’s designated officers, or employees) as such Borrowers’ true and lawful attorney to enforce such Borrower’s rights against any Subsidiary, including the right to compel any Subsidiary to make payments or distributions owing to such Borrower.

 

9.8     Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrowers’ part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.

 

9.9     Demand; Protest. Each Borrower waives demand, protest, notice of protest, 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 at any time held by Bank on which Borrowers may in any way be liable.

 

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10.       Notices.

 

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by email or telefacsimile to Borrowers or to Bank, as the case may be, at its addresses set forth below:

 

	If to any Borrower:	CATASYS, INC.
	 	
			11601 Wilshire Blvd., Suite 1100

			Los Angeles, CA 90025

			Attn: _______________

			FAX: (____) _______________

			Email: ________________________

			
	 	 
	If to Bank:	HERITAGE BANK OF COMMERCE
	 	
			150 South Almaden Blvd.

			San Jose, California 95113

			Attn: Karla Schrader

			FAX: (408) 947-6910

			Email:  Karla.Schrader@herbank.com

			

 

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

11.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWERS AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement, the Loan Documents or any of the transactions contemplated therein shall be settled by judicial reference pursuant to Code of Civil Procedure Section 638 et seq. before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the Presiding Judge of the California Superior Court for Santa Clara County. This Section shall not restrict a party from exercising remedies under the Code or from exercising pre-judgment remedies under applicable law.

 

12.      General Provisions.

 

12.1     Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by any Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrowers to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.

 

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12.2     Indemnification. Each Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to the transactions between Bank and Borrowers whether under this Agreement, or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.

 

12.3     Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.

 

12.4     Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

12.5     Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.

 

12.6     Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. In the event that any signature to this Agreement or any other Loan Document is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. Notwithstanding the foregoing, Borrowers shall deliver all original signed documents requested by Bank no later than ten (10) Business Days following the Closing Date.

 

12.7     Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrowers. The obligations of Borrowers to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

 

12.8     Confidentiality. In handling any confidential information Bank and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrowers, (ii) to prospective transferees or purchasers of any interest in the loans, provided that they are similarly bound by confidentiality obligations, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, and (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder, and shall use such information only for purposes in connection with this Agreement, including but not limited to the evaluation of the creditworthiness of any Borrower, the administration, management and review of the Credit Extensions provided hereunder, and the exercise or potential exercise of Bank’s rights and the enforcement of its remedies under this Agreement and the other Loan Documents. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.

 

12.9     Publicity. Each Borrower authorizes Bank to disclose its relationship with such Borrower for marketing and/or advertising purposes with prior notice to such Borrower, including the use of such Borrower’s logo, name and contact information, photographs of such Borrower or its buildings, and quotes about Bank from Borrowers’ officers and employees in Bank’s promotional materials.

 

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12.10     Patriot Act Notice. Bank hereby notifies Borrowers that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrowers, which information includes names and addresses and other information that will allow Bank, as applicable, to identify the Borrowers in accordance with the Patriot Act.

 

13.     CO-BORROWERS. 

 

13.1     Co-Borrowers. Borrowers are jointly and severally liable for the Obligations and Bank may proceed against one Borrower to enforce the Obligations without waiving its right to proceed against the other Borrower. This Agreement and the Loan Documents are a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of the Credit Extensions were advanced to such Borrower. Bank may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without limitation any Advance request form or borrowing base certificate or compliance certificates. Each Borrower appoints each other Borrower as its agent with all necessary power and authority to give and receive notices, certificates or demands for and on behalf of both Borrowers, to act as disbursing agent for receipt of any Advances on behalf of each Borrower and to apply to Bank on behalf of each Borrower for Advances, any waivers and any consents. This authorization cannot be revoked, and Bank need not inquire as to one Borrower’s authority to act for or on behalf of another Borrower.

 

13.2     Subrogation and Similar Rights. Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives, until all Obligations are paid in full and Bank has no further obligation to make Credit Extensions to Borrower, all rights that it may have at law or in equity (including, without limitation, any law subrogating the Borrower to the rights of Bank under the Loan Documents) to seek contribution, indemnification, or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by a Borrower with respect to the Obligations in connection with the Loan Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by a Borrower with respect to the Obligations in connection with the Loan Documents or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

 

13.3     Waivers of Notice. Each Borrower waives, to the extent permitted by law, notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default except as set forth herein; notice of the amount of the Obligations outstanding at any time; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase the Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument; and all other notices and demands to which the Borrower would otherwise be entitled by virtue of being a co-borrower or a surety. Each Borrower waives any defense arising from any defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Bank’s failure at any time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Each Borrower also waives any defense arising from any act or omission of Bank that changes the scope of the Borrower’s risks hereunder. Each Borrower hereby waives any right to assert against Bank any defense (legal or equitable), setoff, counterclaim, or claims that such Borrower individually may now or hereafter have against another Borrower or any other Person liable to Bank with respect to the Obligations in any manner or whatsoever.

 

13.4     Subrogation Defenses. Until all Obligations are paid in full and Bank has no further obligation to make Credit Extensions to Borrowers, each Borrower hereby waives any defense based on impairment or destruction of its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter amended, and under any other similar statutes now and hereafter in effect.

 

25.

 

 

13.5     Right to Settle, Release.

 

(a)     The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any release or unenforceability, whether partial or total, of rights, if any, which Bank may now or hereafter have against any other Person, including another Borrower, or property with respect to any of the Obligations.

 

(b)     Without notice to any given Borrower and without affecting the liability of any given Borrower hereunder, Bank may (i) compromise, settle, renew, extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release all or any of the Obligations with respect to any other Borrower by written agreement with such other Borrower, (ii) grant other indulgences to another Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to any other Borrower by written agreement with such other Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.

 

13.6     Subordination. All indebtedness of a Borrower now or hereafter arising held by another Borrower, is subordinated to the Obligations and the Borrower holding the indebtedness shall take all actions reasonably requested by Bank to effect, to enforce and to give notice of such subordination.

 

[signature page follows]

 

26.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

 

	
			 

				
			BORROWERS:

			 

			CATASYS, INC.

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By: 

				
			/s/ Terren Peizer

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			Name:

				
			Terren Peizer

				
			 

			
	 	 	 	 
	 	Title:	Chairman & CEO	 
	 	 	 	 
	 	ANXIOLITIX, INC.	 
	 	 	 	 
	 	By:	/s/ Terren Peizer	 
	 	 	 	 
	 	Name:	Terren Peizer	 
	 	 	 	 
	 	Title:	Chairman & CEO	 
	 	 	 	 
	 	CATASYS HEALTH, INC.	 
	 	 	 	 
	 	By:	/s/ Terren Peizer	 
	 	 	 	 
	 	Name:	Terren Peizer	 
	 	 	 	 
	 	Title:	Chairman & CEO	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	BANK:

			

			HERITAGE BANK OF COMMERCE	 
	 	 	 	 
	 	By:	/s/ Karla Schrader	 
	 	 	 	 
	 	Name:	Karla Schrader	 
	 	 	 	 
	 	Title:	VP	 

 

27.

 

 

	
			DEBTOR: 

				
			CATASYS, INC., ANXIOLITIX, INC. and CATASYS HEALTH, INC.

			

 

	
			SECURED 

				
			PARTY: HERITAGE BANK OF COMMERCE

			

 

Exhibit A

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

 

All personal property of each Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

 

(a)      all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), commercial tort claims, deposit accounts, securities accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and

 

(b)      any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.

 

Notwithstanding the foregoing, the Collateral shall not include any copyrights, patents, trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or any claims for damages by way of any past, present and future infringement of any of the foregoing (collectively, the “Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment.

 

 

 

 

Exhibit B

 

 

 

 

	
			 Exhibit C

				 
	
			BORROWING BASE CERTIFICATE

				 
	
			Borrower: Catasys, Inc. et. al.

				 	
			Lender:

				
			HERITAGE BANK OF COMMERCE 

				 
	
			Commitment Amount:

				
			$2,500,000

				
			 

				
			 

				
			 

				
			Loan #:

				
			 

				 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
			ACCOUNTS RECEIVABLE

				 	 	
			Period:

				 	 	 	 	 	 	 
	 	
			1

				
			Accounts Receivable Book Value as of:

				
			X/X/XX

				 	
			Catasys, Inc.

				 	
			$0.00

				 
	 	
			2

				 	 	 	 	 	
			Anxiolitix, Inc.

				
			$0.00

				 
	 	
			3

				 	 	 	 	 	
			Catasys Health, Inc.

				
			$0.00

				 
	 	
			4

				 	 	 	 	 	 	
			$0.00

				 
	 	
			5

				
			Total Accounts Receivable:

				 	 	 	 	 	
			$0.00

				 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
			ACCOUNTS RECEIVABLE DEDUCTIONS

				 	 	 	 	 	 	 	 	 	 
	 	
			6

				
			Accounts Receivable Aged over 90 Days from invoice date

				 	 	 	 	
			$0.00

				 	 	 
	 	
			7

				
			Cross aging over

				 	 	
			25%

				 	 	 	
			$0.00

				 	 	 
	 	
			8

				
			Concentration

				 	
			30%

				 	 	 	
			$0.00

				 	 	 
	 	
			9

				
			Contra Accounts (including Customer's Related Deposits)

				 	 	 	 	
			$0.00

				 	 	 
	 	
			10

				
			Foreign Accounts other than Canada (w/out Insurance or LC)

				 	 	 	 	
			$0.00

				 	 	 
	 	
			11

				
			Affiliate/Related Party/Employee Accounts

				 	 	 	 	
			$0.00

				 	 	 
	 	
			12

				
			Prebillings, progress billings, retention billings, bonded receivables

				 	 	 	 	 	 	
			$0.00

				 	 	 
	 	
			13

				
			Bill & Hold Accounts

				 	 	 	 	 	 	
			$0.00

				 	 	 
	 	14	U.S. Government Accounts (w/o assignment of claims)	 	 	 	 	 	 	$0.00	 	 	 
	 	
			15

				
			Other Deductions as Defined by Lender: ____________________

				 	 	 	 	 	
			$0.00

				 	 	 
	 	
			16

				
			Total Ineligible Accounts:

				 	 	 	 	 	 	
			$0.00

				 	 	 
	 	
			17

				
			Total Eligible Accounts (#2 − #16)

				 	 	 	 	 	
			$0.00

				 
	 	
			18

				
			Advance Rate

				 	 	 	 	 	 	 	 	 	
			85%

				 
	 	
			19

				
			Borrowing Base (#17 multiplied by #18)

				 	 	 	 	 	
			$0.00

				 
	 	 	 	 	 	 	 	 	 	 	 	 	
			 

				 
	
			BALANCES

				 	 	 	 	 	 	 	 	 	 
	 	
			20

				
			Maximum Loan Amount

				 	 	 	
			$2,500,000.00

				 	 	 
	 	
			21

				
			Total Borrowing Base [Lesser of #19 or #20]

				 	 	 	 	
			$0.00

				 
	 	
			22

				
			Less: Present Balance owing on Line of Credit

				 	 	 	 	
			$0.00

				 
	 	
			23

				
			Less: Other (tax obligations secured by Tax Liens)

				 	 	 	 	 	 	 	
			$0.00

				 
	 	
			24

				
			Less: Funding Request Today

				 	 	 	 	 	 	 	
			$0.00

				 
	 	
			25

				
			Remaining Availability [#21 − (#22 + #23 + #24)]

				 	 	 	 	
			$0.00 

				 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
			If line #25 is a negative number, this amount must be remitted to the Bank immediately to bring loan balance into compliance. By signing this form you authorize Bank to deduct any advance amounts directly from the company’s checking account at HERITAGE BANK OF COMMERCE in the event there is an overadvance.

				 
	 	 
	
			The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and HERITAGE BANK OF COMMERCE.

				 
	 	
			 

				 
	
			Each Borrower hereby requests funding in the amount of $___________ in accordance with this Borrowing Base Certificate. All representations and warranties of Borrowers stated in the Loan and Security Agreement are true, correct, and complete in all material respects as of the date of this Borrowing Base Certificate; provided that those representations and warranties expressly referring to another date shall be true, correct, and complete in all material respects as of such date.

				 
	 	 
	
			 

				
			 

				
			 

				 	
			 

				
			 

				
			 

				
			 

				 	
			 

				
			 

				
			 

				
			 

				 
	
			By (Authorized Signer):

				 	
			Title:

				 	 	 	 	
			Date:

				 	 	 
	 	 	 	 	 	 	 	 
	
			 

				
			 

				
			 

				 	
			 

				
			 

				
			 

				
			 

				 	
			 

				
			 

				
			 

				
			 

				 
	
			Reviewed by Bank:

				 	
			Title:

				 	 	 	 	
			Date:ex_116454.htm

Exhibit 10.2

 

	
			VENTURE LOAN AND SECURITY AGREEMENT

			
	 
	 
	 
	 	
			Dated as of June __, 2018

			
	 
	
			by and among

			HORIZON TECHNOLOGY FINANCE CORPORATION,

			a Delaware corporation

			312 Farmington Avenue

			Farmington, CT 06032

			 

			as a Lender and Collateral Agent

			 

			And

			
	
			 

			CATASYS, INC.,

			a Delaware corporation

			11601 Wilshire Blvd., Suite 1100

			Los Angeles, CA 90025

			 

			as a Co-Borrower and Borrower Representative

			 

				
			 

			ANXIOLITIX, INC.

			a Delaware corporation

			11601 Wilshire Blvd., Suite 1100

			Los Angeles, CA 90025

			 

			as a Co-Borrower

			 

			CATASYS HEALTH, INC.

			a Delaware corporation

			11601 Wilshire Blvd., Suite 1100

			Los Angeles, CA 90025

			 

			as a Co-Borrower

			
	 	 
	
			 

			Loan A Commitment Amount: $2,500,000

			Loan B Commitment Amount: $2,500,000

			Loan C Commitment Amount: $2,500,000

			

 

 

Loan A Commitment Termination Date:     June 18, 2018

 

Loan B Commitment Termination Date:     June 18, 2018

 

Loan C Commitment Termination Date:     November 30, 2018

 

 

 

 

The Lender, Collateral Agent and Co-Borrowers hereby agree as follows:

 

AGREEMENT

 

1.     Definitions and Construction.

 

1.1     Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

“Account Control Agreement” means an agreement acceptable to Lender which perfects via control Lender’s and Collateral Agent’s security interest in each Co-Borrower’s deposit accounts and/or securities accounts.

 

“Affiliate” means, with respect to any Person, any other Person that owns or controls directly or indirectly ten percent (10%) or more of the stock of another entity of such Person, any other Person that controls or is controlled by or is under common control with such Person and each of such Person’s officers, directors, managers, joint venturers or partners. For purposes of this definition, the term “control” of a Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting Equity Securities, by contract or otherwise and the terms “controlled by” and “under common control with” shall have correlative meanings.

 

“Agreement” means this certain Venture Loan and Security Agreement by and among Co-Borrowers, Collateral Agent and Lender dated as of the date on the cover page hereto (as it may from time to time be amended, modified or supplemented in a writing signed by each Co-Borrower, Collateral Agent and Lender).

 

“Anti-Terrorism Laws” means any laws relating to terrorism or money laundering, including Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAC.

 

“Billings” means the aggregate dollar value of the invoices generated by Borrower Representative and sent to its customers during a measurement period as a result of services rendered, or products sold, by Borrower Representative to such customers during such measurement period.

 

“Borrower Representative” means the Borrower Representative as set forth on the cover page of this Agreement.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to close in Connecticut or California.

 

“Claim” has the meaning given such term in Section 10.3 of this Agreement.

 

1

 

 

“Co-Borrower” means a Co-Borrower as set forth on the cover page of this Agreement, and “Co-Borrowers” means all such Co-Borrowers cumulatively.

 

“Code” means the Uniform Commercial Code as adopted and in effect in the State of Connecticut, as amended from time to time; provided that if by reason of mandatory provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Connecticut, the term “Code” shall also mean the Uniform Commercial Code as in effect from time to time in such jurisdiction for purposes of the provisions hereof relating to such creation, perfection or effect of perfection or non-perfection.

 

“Collateral” has the meaning given such term in Section 4.1 of this Agreement.

 

“Collateral Agent” means Horizon, or any successor collateral agent appointed by Lender.

 

“Commitment Amount” means the Loan A Commitment Amount, the Loan B Commitment Amount, or the Loan C Commitment Amount, as applicable.

 

“Commitment Fee” has the meaning given such term in Section 2.6(c) of this Agreement.

 

“Consolidated” means the consolidation of accounts in accordance with GAAP.

 

“Default” means any Event of Default or any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder.

 

“Default Rate” means the per annum rate of interest equal to five percent (5%) over the Loan Rate, but such rate shall in no event be more than the highest rate permitted by applicable law to be charged on commercial loans in a default situation.

 

“Disclosure Schedule” means Exhibit A attached hereto.

 

“EBITDA” means, with respect to any fiscal period, an amount equal to the sum of (a) earnings of the Borrower Representative for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the earnings of the Borrower Representative and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) interest expense paid or accrued during such period, plus (iv) all other non-cash charges as approved by Lender from time to time, all as determined in accordance with GAAP.

 

“Environmental Laws” means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act.

 

2

 

 

“Equity Securities” of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests, membership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.

 

“ERISA” has the meaning given to such term in Section 7.12 of this Agreement.

 

“Event of Default” has the meaning given to such term in Section 8 of this Agreement.

 

“Funding Certificate” means a certificate executed by a duly authorized Responsible Officer of Borrower Representative substantially in the form of Exhibit B or such other form as Lender may agree to accept.

 

“Funding Date” means any date on which a Loan is made to or on account of any Co-Borrower under this Agreement.

 

“GAAP” means generally accepted accounting principles as in effect in the United States of America from time to time, consistently applied.

 

“Good Faith Deposit” has the meaning given such term in Section 2.6(a) of this Agreement.

 

“Governmental Authority” means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal, or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented.

 

“Hazardous Materials” means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.

 

“Horizon” means Horizon Technology Finance Corporation.

 

“Indebtedness” means, with respect to any Person, the aggregate amount of, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person, (e) all obligations or liabilities of others secured by a Lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such Person.

 

“Indemnified Person” has the meaning given such term in Section 10.3 of this Agreement.

 

3

 

 

“Intellectual Property” means, with respect to any Person, all of such Person’s right, title and interest in and to patents, patent rights (and applications and registrations therefor and divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same), trademarks and service marks (and applications and registrations therefor and the goodwill associated therewith), whether registered or not, inventions, copyrights (including applications and registrations therefor and like protections in each work or authorship and derivative work thereof), whether published or unpublished, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs, source code, object code, trade secrets, licenses, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, all whether now owned or subsequently acquired or developed by such Person and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media (but not including embedded computer programs and supporting information included within the definition of “goods” under the Code).

 

“Interest Only Extension Milestone” means, Borrower Representative providing Lender with evidence reasonably satisfactory to Lender that Borrower Representative, during the period commencing on January 1, 2019 and continuing through June 30, 2019, has achieved Billings of not less than Twenty Million Dollars ($20,000,000).

 

“Internal Revenue Code” has the meaning given such term in Section 5.19 of this Agreement.

 

“Investment” means the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, or any other investment in, or deposit with, any Person.

 

“Landlord Agreement” means an agreement substantially in the form provided by Lender to Borrower Representative or such other form as Lender may agree to accept in the exercise of its reasonable discretion.

 

“Lender” means the Lender as set forth on the cover page of this Agreement.

 

“Lender’s Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, documentation, drafting, amendment, modification, administration, perfection and funding of the Loan Documents; and all of Lender’s reasonable attorneys’ fees, costs and expenses incurred in enforcing or defending the Loan Documents (including reasonable fees and expenses of appeal or review), including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is brought, whether before or after bankruptcy or insolvency, including all reasonable fees and costs incurred by Lender in connection with such Lender’s enforcement of its rights in a bankruptcy or insolvency proceeding filed by or against any Co-Borrower, any Subsidiary or their respective Property.

 

4

 

 

“Lien” means any voluntary or involuntary security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien with respect to any Property in favor of any Person.

 

“Loan” means each advance of credit by Lender to any Co-Borrower under this Agreement.

 

“Loan A” means the advance of credit by Horizon to any Co-Borrower under this Agreement in the Loan A Commitment Amount.

 

“Loan A Commitment Amount” has the meaning set forth on the cover page of this Agreement.

 

“Loan A Commitment Termination Date” has the meaning set forth on the cover page of this Agreement.

 

“Loan A Final Payment” has the meaning given such term in Section 2.2(g) of this Agreement.

 

“Loan Amortization Date” means, with respect to each Loan, the Payment Date on which Co-Borrowers are required, pursuant to Section 2.2 (a) below, to commence making equal payments of principal plus accrued interest on the outstanding principal amount of such Loan.

 

“Loan B” means the advance of credit by Horizon to any Co-Borrower under this Agreement in the Loan B Commitment Amount.

 

“Loan B Commitment Amount” has the meaning set forth on the cover page of this Agreement.

 

“Loan B Commitment Termination Date” has the meaning set forth on the cover page of this Agreement.

 

“Loan B Final Payment” has the meaning given such term in Section 2.2(g) of this Agreement.

 

“Loan C” means the advance of credit by Horizon to any Co-Borrower under this Agreement in the Loan C Commitment Amount.

 

“Loan C Commitment Amount” has the meaning set forth on the cover page of this Agreement.

 

“Loan C Commitment Termination Date” has the meaning set forth on the cover page of this Agreement.

 

“Loan C Final Payment” has the meaning given such term in Section 2.2(g) of this Agreement.

 

5

 

 

“Loan Documents” means, collectively, this Agreement, the Notes, any Landlord Agreement, any Account Control Agreement and all other documents, instruments and agreements entered into in connection with this Agreement.

 

“Loan Rate” means, with respect to each Loan, the per annum rate of interest equal to 9.75% plus the amount by which the one month LIBOR Rate (rounded to the nearest one hundredth percent), as reported in the Wall Street Journal exceeds 2.00%, provided, however that to the extent LIBOR (a) is no longer reported in the Wall Street Journal, (b) is no longer widely used as a benchmark market rate for new facilities of this type, or (c) becomes permanently unavailable, Lender shall select a successor benchmark rate, which successor rate shall be applied in a manner consistent with market practice, or if there is no consistent market practice, such successor rate shall be applied in a manner reasonably determined by Lender. Notwithstanding the foregoing, in no event shall the Loan Rate be less than 9.75%.

 

“Management Services Agreement” means any license, management or other agreement by and between any Co-Borrower on the one hand and another Person organized under the laws of a given jurisdiction, on the other hand, and involving, among other things, the license of Intellectual Property or other personal property of any Co-Borrower to such other Person so as to facilitate the provision of certain Co-Borrowers’ services to end users or patients of such Person in a manner that complies with the given jurisdiction’s laws generally concerning the authorized practice of medicine. For the avoidance of any doubt, (i) the Management Services Agreement by and between the Borrower Representative, as Manager thereunder, and Texas Integrated Health, Inc., a Texas nonprofit health organization (“TIH”), dated as of April 2, 2018, (ii) the License Agreement, dated as of April 2, 2018 by and between the Borrower Representative, as Licensor thereunder, and TIH, and (iii) the license, management and other agreements (each that are of the type described in the previous sentence) that the Co-Borrowers shall enter into after the date hereof with California Integrated Health, Inc. (“CIH”), shall each constitute a “Management Services Agreement” hereunder.

 

“Material Adverse Effect” means a material adverse effect on (a) the condition (financial or otherwise), business, operations, or Properties of any Co-Borrower, or all Co-Borrowers collectively, (b) the ability of any Co-Borrower to perform its Obligations under the Loan Documents or (c) the Collateral or Collateral Agent’s or Lender’s security interest in the Collateral.

 

“Maturity Date” means, with respect to each Loan, March 1, 2022, or if earlier, the date of acceleration of the Loans following an Event of Default or the date of prepayment of the Loans, whichever is applicable.

 

“Minimum Required Revenue Based Payments” means, (a) if Lender makes Loans A and B to or on behalf of any Co-Borrower, Seven Hundred Fifty Thousand Dollars ($750,000) and (b) if Lender makes Loans A, B and C to or on behalf of any Co-Borrower, One Million One Hundred Thousand Dollars ($1,100,000).

 

“Note” means each promissory note executed in connection with a Loan in substantially the form of Exhibit C attached hereto.

 

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“Obligations” means all debt, principal, interest, fees, charges, expenses and reasonable attorneys’ fees and costs and other amounts, obligations, covenants, and duties owing by any Co-Borrower to Collateral Agent or Lender of any kind and description (whether pursuant to or evidenced by this Agreement or the other Loan Documents, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all Lender’s Expenses.

 

“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.

 

“Officer’s Certificate” means a certificate executed by a Responsible Officer substantially in the form of Exhibit E or such other form as Lender may agree to accept.

 

“Payment Date” has the meaning given such term in Section 2.2(a) of this Agreement.

 

“Permitted Indebtedness” means and includes:

 

(a)     Indebtedness of Co-Borrowers to Lender under the Loan Documents;

 

(b)     Indebtedness arising from the endorsement of instruments in the ordinary course of business;

 

(c)     Indebtedness of Co-Borrowers existing on the date hereof and set forth on the Disclosure Schedule;

 

(d)     Indebtedness of Borrower Representative in an aggregate principal amount not exceeding Two Million Five Hundred Thousand Dollars ($2,500,000), consisting of a revolving credit facility in which the loans are limited to not more than Eighty-Five Percent (85%) of Borrower Representative’s outstanding accounts receivable; provided, however, that such Indebtedness described in this subclause (d) shall only be deemed to be ‘Permitted Indebtedness” hereunder if and to the extent that the lender and provider of such Indebtedness described under this subclause (d) enters into an intercreditor agreement with the Lender in a form and of a substance reasonably acceptable to Lender;

 

(e)     intercompany Indebtedness owed by any Subsidiary to Borrower Representative or any wholly-owned Subsidiary, as applicable; provided that, if applicable, such Indebtedness is also permitted as a Permitted Investment and, in the case of such Indebtedness owed to Borrower Representative, such Indebtedness shall be evidenced by one or more promissory notes;

 

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

 

(g)     to the extent constituting or that may constitute Indebtedness, any Equity Securities of a Co-Borrower outstanding as of the date hereof, including any preferred stock, warrants, options and other rights to acquire a Co-Borrower’s Equity Securities and any payments that may arise thereunder;

 

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(h)     Indebtedness of Borrower secured by Liens permitted under clause (g) of the definition of Permitted Liens, up to an aggregate principal amount of Two Hundred Fifty Thousand Dollars ($250,000) at any one time;

 

(i)     Indebtedness for deferred salaried compensation to each Co-Borrower’s employees, not to exceed $150,000 in the aggregate;

 

(j)     Reimbursement obligations of any Co-Borrower to its employees for travel and other expenses incurred in the ordinary course of business;

 

(k)     liabilities of Co-Borrowers associated with accrued but unused vacation time of employees of the Co-Borrowers incurred in the ordinary course of business and pursuant to applicable laws governing Co-Borrowers; and

 

(l)     extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness under subsection (d) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose materially more burdensome terms upon any Co-Borrower or all Co-Borrowers collectively.

 

“Permitted Investments” means and includes any of the following Investments as to which Collateral Agent and Lender have a perfected security interest:

 

(a)     Deposits and deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent: (i) the deposit accounts of each such institution are insured by the Federal Deposit Insurance Corporation up to the legal limit; and (ii) each such institution has an aggregate capital and surplus of not less than One Hundred Million Dollars ($100,000,000);

 

(b)     Investments in marketable obligations issued or fully guaranteed by the United States, any state thereof or any agency thereof and maturing not more than one (1) year from the date of issuance;

 

(c)     Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof;

 

(d)     Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business;

 

(e)     Investments by Borrower Representative and Subsidiaries in their Subsidiaries outstanding on the date hereof;

 

(f)     Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;

 

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(g)     Investments or other participation in joint ventures or strategic alliances in the ordinary course of each Co-Borrower’s business consisting of the licensing of technology, intellectual property and/or product, the development of such technology, intellectual property and/or product or the providing of technical support, provided that any cash Investments by Co- Borrowers do not exceed $100,000 in the aggregate in any fiscal year;

 

(h)     Investments by Borrower in TIH, CIH or any other Person pursuant to or in connection with a Management Services Agreement in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) during any fiscal year; and

 

(i)      other Investments aggregating not in excess of One Hundred Thousand Dollars ($100,000) at any time.

 

“Permitted Licenses” means and includes (i) non-exclusive licenses of Intellectual Property entered into in the ordinary course of business, including, without limitation pursuant to any Management Services Agreement (ii) exclusive licenses of Intellectual Property entered into in the ordinary course of business and applicable solely outside the United States, provided that such exclusive licenses could not result in a legal transfer of title of the licensed Intellectual Property and (iii) exclusive licenses of Intellectual Property entered into in the ordinary course of business that are exclusive as to the United States, to the extent consented to by Lender, which consent shall not be unreasonably withheld, conditioned or delayed.

 

“Permitted Liens” means and includes:

 

(a)     the Liens created by this Agreement;

 

(b)     Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind which are not yet delinquent or which are being contested in good faith by appropriate proceedings which suspend the collection thereof (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to any Co-Borrower, or all Co-Borrowers collectively, and that Borrower Representative has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower Representative);

 

(c)     Liens identified on the Disclosure Schedule;

 

(d)     carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to any Co-Borrower, or all Co-Borrowers collectively, and that Borrower Representative has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower Representative);

 

(e)     Liens granted in connection with Indebtedness permitted under subsection (d) of the definition of Permitted Indebtedness, provided, however, that the lender providing the indebtedness permitted under subsection (d) of the definition of Permitted Indebtedness shall have a first priority lien over Borrower Representative’s cash, accounts receivable and bank accounts, and Lender shall have a first priority lien over all other Collateral (as defined below);

 

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(f)     Permitted Licenses;

 

(g)     Liens upon any equipment or other personal property acquired by Borrower after the date hereof to secure (i) the purchase price of such equipment or other personal property, or (ii) capital lease obligations or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or other personal property; provided that (A) such Liens are confined solely to the equipment or other personal property so acquired and the amount secured does not exceed the acquisition price thereof, and (B) no such Lien shall be created, incurred, assumed or suffered to exist in favor of Borrower’s officers, directors or shareholders holding five percent (5%) or more of Borrower’s Equity Securities;

 

(h)     leases or subleases of real property granted in the ordinary course of any Co-Borrower’s business, and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of any Co- Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit granting Lender a security interest therein; and

 

(i)     Liens in favor of financial institutions arising solely in connection with any Co-Borrower’s deposit or securities accounts held at such institutions.

 

“Person” means and includes any individual, any partnership, any corporation, any business trust, any joint stock company, any limited liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency, authority or bureau of any of the foregoing.

 

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible.

 

“Responsible Officer” has the meaning given such term in Section 6.3 of this Agreement.

 

“Restricted License” means any license or other agreement with respect to which any Co-Borrower is the licensee and such license or agreement is material to any Co-Borrower’s business and (a) that prohibits or otherwise restricts any Co-Borrower from granting a security interest in any Co-Borrower’s interest in such license or agreement or any other property or (b) for which a default under or termination of would reasonably be expected to interfere with Collateral Agent’s or Lender’s right to sell any Collateral.

 

“Revenue Based Payment” means the payment by Co-Borrowers to Lender of an amount equal to the product of (a) 0.20% multiplied by (b) the revenue (as determined in accordance with GAAP) achieved by all Co-Borrowers in the aggregate during such calendar quarter, provided, however, that during any calendar quarter in which Co-Borrowers achieve aggregate EBITDA of not less than one dollar ($1.00), the Revenue Based Payment due and owing from Co-Borrowers to Lender for such calendar quarter shall be equal to the product of (x) 0.40% multiplied by (y) the revenue (as determined in accordance with GAAP) achieved by all Co-Borrowers in the aggregate during such calendar quarter; provided, however, that if (i) the Funding Date for Loans A and B occurs on a date other than the first calendar day of a quarter, then the Revenue Based Payment required to be paid by Co-Borrowers to Lender for such quarter shall be pro-rated based upon the actual number of days in such calendar quarter occurring on or after such Funding Date or (ii) the Maturity Date occurs on a date other than the last calendar day of a quarter, then the Revenue Based Payment required to be paid by Co-Borrowers to Lender for such quarter shall be pro-rated based upon the actual number of days in such calendar quarter occurring on or prior to the Maturity Date.

 

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“Rights to Payment” has the meaning given such term in Section 4.1 of this Agreement.

 

“Sanctions” means any economic or financial sanction administered or enforced by the United States Government (including, without limitation, OFAC and the United States Department of State), the United Nations Security Council, the European Union, Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority.

 

“Scheduled Payments” has the meaning given such term in Section 2.2(a) of this Agreement.

 

“SEC Documents” means the reports, schedules, forms, statements and other documents required to be filed by a Person under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein.

 

“Solvent” has the meaning given such term in Section 5.12 of this Agreement.

 

“Subsidiary” means any corporation or other entity of which a majority of the outstanding Equity Securities entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by any Co-Borrower directly or indirectly through Subsidiaries.

 

“Transfer” has the meaning given such term in Section 7.4 of this Agreement.

 

1.2     Construction. References in this Agreement to “Articles,” “Sections,” “Exhibits,” “Schedules” and “Annexes” are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement and each of the other Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all documents, instruments or agreements issued or executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time (subject, in the case of clauses (b) and (c), to any restrictions on such replacement, amendment, modification or supplement set forth in the Loan Documents). The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. The words “include” and “including” and words of similar import when used in this Agreement or any other Loan Document shall not be construed to be limiting or exclusive. Unless the context requires otherwise, any reference in this Agreement or any other Loan Document to any Person shall be construed to include such Person’s successors and assigns. Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP, and all terms describing Collateral shall be construed in accordance with the Code. The terms and information set forth on the cover page of this Agreement are incorporated into this Agreement.

 

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2.     Loans; Repayment.

 

2.1     Commitments.

 

(a)     The Commitment Amounts. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Horizon agrees to lend to Co-Borrowers prior to the Loan A Commitment Termination Date, Loan A, prior to the Loan B Commitment Termination Date, Loan B, and prior to the Loan C Commitment Termination Date, Loan C.

 

(b)     The Loans and the Notes. The obligation of Co-Borrowers to repay the unpaid principal amount of and interest on each Loan shall be evidenced by a Note issued to the Lender.

 

(c)      Use of Proceeds. The proceeds of each Loan shall be used solely for working capital or general corporate purposes of Co-Borrowers.

 

(d)     Termination of Commitment to Lend. Notwithstanding anything in the Loan Documents, Lender’s obligation to lend the undisbursed portion of the Commitment Amount to Co-Borrowers hereunder shall terminate on the earlier of (i) at Lender’s sole election, the occurrence of any Default or Event of Default hereunder, and (ii) with respect to Loan A, the Loan A Commitment Termination Date, with respect to Loan B, the Loan B Commitment Termination Date and with respect to Loan C, the Loan C Commitment Termination Date. Notwithstanding the foregoing, Lender’s obligation to lend the undisbursed portion of the Commitment Amount to Co-Borrowers shall terminate if, in Lender’s sole discretion, there has been a material adverse change in the general affairs, management, or results of operations, condition (financial or otherwise) of any Co-Borrower, or Co-Borrowers collectively, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by any Co-Borrower from the business plan of such Co-Borrower presented to Lender on or before the date of this Agreement.

 

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2.2     Payments.

 

(a)     Scheduled Payments. Co-Borrowers shall make (i) a payment of accrued interest only to Lender on the outstanding principal amount of each Loan commencing on the first Payment Date occurring after the Funding Date of such Loan and continuing through September 1, 2019 and (ii) an equal payment of principal plus accrued interest to Lender on the outstanding principal amount of each Loan on the next thirty (30) Payment Dates as set forth in the Note applicable to such Loan (collectively, the “Initial Scheduled Payments”). Notwithstanding, and in lieu of, the foregoing, if Co-Borrowers satisfies the Interest Only Extension Milestone, then Co-Borrowers shall make (A) a payment of accrued interest only to Lender on the outstanding principal amount of each Loan commencing on the first Payment Date occurring after the Funding Date of such Loan and continuing through March 1, 2020 and (ii) an equal payment of principal plus accrued interest to Lender on the outstanding principal amount of each Loan on the next twenty-four (24) Payment Dates as set forth in the Note applicable to such Loan (collectively, the “Extended Scheduled Payments”, and collectively with the Initial Scheduled Payments, the “Scheduled Payments”). Co-Borrowers shall make such Scheduled Payments commencing on the date set forth in the Note applicable to such Loan and continuing thereafter on the first Business Day of each calendar month (each a “Payment Date”) through the Maturity Date. In any event, all unpaid principal and accrued interest shall be due and payable in full on the Maturity Date.

 

(b)     Interim Payment. Unless the Funding Date for a Loan is the first day of a calendar month, Co-Borrower shall pay the per diem interest (accruing at the Loan Rate from the Funding Date through the last day of that month) payable with respect to such Loan on the first Business Day of the next calendar month.

 

(c)     Payment of Interest. Co-Borrowers shall pay interest on each Loan at a per annum rate of interest equal to the Loan Rate. The Loan Rate shall initially be calculated using the LIBOR Rate reported in the Wall Street Journal on the date which is five (5) Business Days prior to the proposed date of disbursement of the Loan, but shall thereafter be calculated for each calendar month using the LIBOR Rate reported in the Wall Street Journal on the first calendar day of such month, provided, however, that if the first calendar day of any month is not a Business Day, the Loan Rate shall be calculated using the LIBOR Rate reported in the Wall Street Journal on the Business Day immediately preceding the first calendar day of such month. Interest (including interest at the Default Rate, if applicable) shall be computed on the basis of a 360-day year for the actual number of days elapsed. Notwithstanding any other provision hereof, the amount of interest payable hereunder shall not in any event exceed the maximum amount permitted by the law applicable to interest charged on commercial loans.

 

(d)     Application of Payments. All payments received by Lender prior to an Event of Default shall be applied as follows: (i) first, to Lender’s Expenses then due and owing; and (ii) second, ratably, to all Scheduled Payments then due and owing (provided, however, if such payments are not sufficient to pay the whole amount then due, such payments shall be applied first to unpaid interest at the Loan Rate, then to the remaining amounts then due). After the occurrence of an Event of Default that has not been waived by Lender, all payments and application of proceeds shall be made as set forth in Section 9.7.

 

(e)     Late Payment Fee. Co-Borrowers shall pay to Lender a late payment fee equal to six percent (6%) of any Scheduled Payment or Revenue Based Payment not paid when due to such Lender.

 

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(f)      Default Rate. After the occurrence of an Event of Default that has not been waived by Lender, Co-Borrowers shall pay interest at a per annum rate equal to the Default Rate on any amounts required to be paid by any Co-Borrower to Collateral Agent or Lender under this Agreement or the other Loan Documents (including Scheduled Payments and Revenue Based Payments), payable with respect to any Loan, accrued and unpaid interest, and any fees or other amounts which remain unpaid after such amounts are due. If an Event of Default has occurred and the Obligations have been accelerated (whether automatically or by Lender’s election), Co-Borrowers shall pay interest on the aggregate, outstanding accelerated balance hereunder from the date of the Event of Default until all Events of Default are cured, at a per annum rate equal to the Default Rate.

 

(g)     Final Payment.

 

(i)     Loan A Final Payment. Co-Borrowers shall pay to Horizon a payment in the amount of One Hundred Fifty Thousand Dollars ($150,000) (the “Loan A Final Payment”) upon the earlier of (A) payment in full of the principal balance of Loan A, (B) an Event of Default and demand by Horizon in writing of payment in full of Loan A or (C) the Maturity Date, as applicable.

 

(ii)     Loan B Final Payment. Co-Borrowers shall pay to Horizon a payment in the amount of One Hundred Fifty Thousand Dollars ($150,000) (the “Loan B Final Payment”) upon the earlier of (A) payment in full of the principal balance of Loan B, (B) an Event of Default and demand by Horizon in writing of payment in full of Loan B or (C) the Maturity Date, as applicable.

 

(iii)    Loan C Final Payment. Co-Borrowers shall pay to Horizon a payment in the amount of One Hundred Fifty Thousand Dollars ($150,000) (the “Loan C Final Payment”) upon the earlier of (A) payment in full of the principal balance of Loan C, (B) an Event of Default and demand by Horizon in writing of payment in full of Loan C or (C) the Maturity Date, as applicable.

 

2.3     Prepayments.

 

(a)     Mandatory Prepayment Upon an Acceleration. If the Loans are accelerated following the occurrence of an Event of Default pursuant to Section 9.1(a) hereof, then Co-Borrowers, in addition to any other amounts which may be due and owing hereunder, shall immediately pay to Lender the amount set forth in Section 2.3(b) below, as if Co-Borrowers had opted to prepay on the date of such acceleration.

 

(b)     Optional Prepayment. Upon ten (10) Business Days’ prior written notice to Lender, Co-Borrowers may, at its option, at any time, prepay all (and not less than all) of the outstanding Loans by simultaneously paying to Lender an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; plus (ii) an amount equal to (A) if such Loan is prepaid on or before the Loan Amortization Date applicable to such Loan, three percent (3%) of the then outstanding principal balance of such Loan, or (B) if such Loan is prepaid after the Loan Amortization Date applicable to such Loan, two percent (2%) of the then outstanding principal balance of such Loan; plus (iii) the outstanding principal balance of such Loan; plus (iv) an amount equal to the difference between the actual Revenue Based Payments paid by Co-Borrowers to Lender and the applicable Minimum Required Revenue Based Payments; plus (v) all other sums, if any, that shall have become due and payable hereunder.

 

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2.4     Other Payment Terms.

 

(a)     Place and Manner. Co-Borrowers shall make all payments due to Lender in lawful money of the United States. All payments of principal, interest, fees and other amounts payable by any Co-Borrower hereunder shall be made, in immediately available funds, not later than 2:00 p.m. Connecticut time, on the date on which such payment is due. Co-Borrowers shall make such payments to Lender via wire transfer or ACH as instructed by Lender from time to time.

 

(b)     Date. Whenever any payment is due hereunder on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be.

 

(c)     Taxes.

 

(i)     Unless otherwise required under applicable law, any and all payments made hereunder or under the Notes shall be made free and clear of and without deduction for any taxes; provided that if any Co-Borrower shall be required to deduct any taxes from such payments, then (A) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.4(c)) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (B) such Co-Borrower shall make such deductions and (C) such Co-Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

 

(ii)     Each Co-Borrower shall indemnify Lender, within 10 days after written demand therefor, for the full amount of any taxes imposed or asserted directly on Lender by any Governmental Authority on or attributable to amounts payable under this Agreement solely as a result of Lender entering into this Agreement to the extent such taxes are paid by Lender, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided, however, that such indemnified taxes shall not include income or franchise taxes imposed on (or measured by) Lender’s net income by the jurisdiction, or any political subdivision thereof or taxing authority therein, under the laws of which such recipient is organized or in which its principal office is located or in which its applicable lending office is located. A certificate as to the amount of such payment or liability delivered to any Co-Borrower by Lender shall be conclusive absent manifest error.

 

(iii)     As soon as practicable after any payment of taxes by any Co-Borrower hereunder to a Governmental Authority, Borrower Representative shall deliver to Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Lender.

 

(iv)     If Lender is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which any Co-Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement, Lender shall deliver to Borrower Representative, as reasonably requested by Borrower Representative, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate.

 

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(v)     If Lender receives a refund in respect of taxes paid by any Co-Borrower pursuant to this Section 2.4(c), which in the reasonable discretion of Lender exercised in good faith is allocable to such payment, it shall promptly pay such refund, together with any other amounts paid by such Co-Borrower in connection with such refunded taxes, to such Co-Borrower, net of all out-of-pocket expenses (including any taxes to which Lender has become subject as a result of its receipt of such refund) of Lender incurred in obtaining such refund and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that each Co-Borrower, upon the request of the Lender, shall repay to Lender amounts paid over pursuant to the preceding clause (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (v), in no event will Lender be required to pay any amount to any Co-Borrower pursuant to this paragraph (v) the payment of which would place Lender in a less favorable net after-tax position than Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Co-Borrower or any other Person.

 

2.5     Procedure for Making the Loans.

 

(a)     Notice. Borrower Representative shall notify Lender of the date on which any Co-Borrower desires Lender to make any Loan at least five (5) Business Days in advance of the desired Funding Date, unless the Lender elects at its sole discretion to allow the Funding Date for a Loan to be made by Lender to be within five (5) Business Days of Borrower Representative’s notice. Lender acknowledges that the Co-Borrowers have satisfied the five (5) Business Day notice requirement with respect to Loan A and Loan B which shall be advanced by Lender to Co-Borrowers on the date of this Agreement. Each Co-Borrower’s execution and delivery to Lender of one or more Notes in respect of a Loan shall be such Co-Borrower’s agreement to the terms and calculations thereunder with respect to such Loan. Lender’s obligation to make any Loan shall be expressly subject to the satisfaction of the conditions set forth in Section 3.

 

(b)     Loan Rate Calculation. Prior to each Funding Date for any Loan, Lender shall establish the Loan Rate with respect to such Loan, which shall be set forth in the Note to be executed by each Co-Borrower with respect to such Loan and shall be conclusive in the absence of a manifest error.

 

(c)     Disbursement. Lender shall disburse the proceeds of each Loan by wire transfer to Borrower Representative at the account specified in the Funding Certificate for such Loan.

 

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2.6     Good Faith Deposit; Legal and Closing Expenses; and Commitment Fee.

 

(a)     Good Faith Deposit. Borrower Representative has delivered to Horizon a good faith deposit in the amount of Fifty Thousand Dollars ($50,000) (the “Good Faith Deposit”). The Good Faith Deposit paid to Horizon will be credited to the Commitment Fee payable to the Lender. If the Funding Date for Loan A and Loan B does not occur based on Borrower Representative’s election not to proceed with the financing, Lender shall retain the Good Faith Deposit as compensation for its time, expenses and opportunity cost. If the Funding Date for Loan A and Loan B does not occur based on Lender’s election not to proceed with the financing, Lender shall retain from the Good Faith Deposit its Lender’s Expenses and promptly return the balance thereof to Borrower Representative.

 

(b)     Legal, Due Diligence and Documentation Expenses. Concurrently with its execution and delivery of this Agreement, Co-Borrowers shall pay to Lender all of Lender’s reasonable legal, due diligence and documentation expenses in connection with the negotiation and documentation of this Agreement and the Loan Documents.

 

(c)     Commitment Fee. Co-Borrowers shall pay, concurrently with its execution and delivery of this Agreement, a commitment fee to Horizon in the amount of Seventy-Five Thousand Dollars ($75,000) (the “Commitment Fee”). The Commitment Fee shall be retained by the Lender and be deemed fully earned upon receipt.

 

3.     Conditions of Loans.

 

3.1     Conditions Precedent to Closing. At the time of the execution and delivery of this Agreement, Lender shall have received, in form and substance reasonably satisfactory to Lender, all of the following (unless Lender has agreed to waive such condition or document, in which case such condition or document shall be a condition precedent to the making of any Loan and shall be deemed added to Section 3.2):

 

(a)     Loan Agreement. This Agreement duly executed by each Co-Borrower, Collateral Agent and Lender.

 

(b)     INTENTIONALLY OMITTED

 

(c)     Secretary’s Certificate. A certificate of the secretary or assistant secretary of each Co-Borrower, dated as of the date hereof, with copies of the following documents attached: (i) the certificate of incorporation and bylaws (or equivalent documents) of such Co-Borrower certified by such Co-Borrower as being complete and in full force and effect on the date thereof, (ii) incumbency and representative signatures, and (iii) resolutions authorizing the execution and delivery of this Agreement and each of the other Loan Documents.

 

(d)     Good Standing Certificates. A good standing certificate from each Co-Borrower’s state of organization and the state in which each Co-Borrower’s principal place of business is located, each dated as of a date no earlier than thirty (30) days prior to the date hereof.

 

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(e)     Certificate of Insurance. Evidence of the insurance coverage required by Section 6.8 of this Agreement.

 

(f)     Consents. All necessary consents of shareholders and other third parties with respect to the execution, delivery and performance of this Agreement and the other Loan Documents.

 

(g)     Legal Opinion. A legal opinion of each Co-Borrower’s counsel, dated as of the date hereof, covering the matters set forth in Exhibit D hereto.

 

(h)     Account Control Agreements. Account Control Agreements for all of each Co-Borrower’s deposit accounts and securities accounts duly executed by all of the parties thereto.     

 

(i)     INTENTIONALLY OMITTED

 

(j)     Fees and Expenses. Payment of all fees and expenses then due hereunder or under any other Loan Document.

 

(k)     Other Documents. Such other documents and completion of such other matters, as Lender may reasonably deem necessary or appropriate.

 

3.2     Conditions Precedent to Making Loan A and Loan B. The obligation of Lender to make Loan A and Loan B is further subject to satisfaction of the following conditions as of the applicable Funding Date:

 

(a)     No Default. No Default or Event of Default shall have occurred and be continuing.

 

(b)     Landlord Agreements. Borrower Representative shall have provided Lender with a Landlord Agreement for each location where any Co-Borrower’s books and records and the Collateral (other than (i) laptops and similar equipment maintained by any employee of any Co-Borrower and (ii) other Collateral with an aggregate value of not more than $50,000) is located (unless a Co-Borrower is the fee owner thereof).

 

(c)     Note. Each Co-Borrower shall have duly executed and delivered a Note in the amount of each of the Loan A and Loan B to Horizon.

 

(d)     UCC Financing Statements. Lender shall have received such documents, instruments and agreements, including UCC financing statements or amendments to UCC financing statements and UCC financing statement searches, as Lender shall reasonably request to evidence the perfection and priority of the security interests granted to Collateral Agent and Lender pursuant to Section 4. Each Co-Borrower authorizes Collateral Agent and Lender to file any UCC financing statements, continuations of or amendments to UCC financing statements they deem necessary to perfect its security interest in the Collateral.

 

(e)     Funding Certificate. Borrower Representative shall have duly executed and delivered to Lender a Funding Certificate for such Loans.

 

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(f)     Subordination Agreement. To the extent Borrower Representative has incurred any Indebtedness permitted pursuant to clause (d) of the definition of Permitted Indebtedness prior to the date of this Agreement, Borrower Representative shall have provided Lender with a Subordination Agreement with respect to such Indebtedness, executed by the lender providing such Indebtedness.

 

(g)     Representations and Warranties. The representations and warranties made by each Co-Borrower in Section 5 and in the other Loan Documents shall be true and correct as of such Funding Date.

 

(h)     Other Documents. Each Co-Borrower shall have provided Lender with such other documents and completion of such other matters, as Lender may reasonably deem necessary or appropriate.

 

3.3     Conditions Precedent to Making Loan C. The obligation of Lender to make Loan C is further subject to satisfaction of the following conditions as of the applicable Funding Date:

 

(a)     No Default. No Default or Event of Default shall have occurred and be continuing.

 

(b)     Note. Each Co-Borrower shall have duly executed and delivered a Note in the amount of each of the Loan C to Horizon.

 

(c)     Funding Certificate. Borrower Representative shall have duly executed and delivered to Lender a Funding Certificate for such Loan C.

 

(d)     Billings. Borrower Representative shall have provided Lender with evidence reasonably satisfactory to Lender that Co-Borrowers have, during the three calendar month period immediately preceding the Funding Date for such Loan C, achieved Billings of not less than Five Million Dollars ($5,000,000).

 

(e)     Representations and Warranties. The representations and warranties made by each Co-Borrower in Section 5 and in the other Loan Documents shall be true and correct as of such Funding Date (except to the extent that such representations are made as of a specific date, in which event they shall only be required to remain true and correct in all material respects as of such date (or if such representation or warranty is already qualified as to materiality, in all respects)).

 

(f)     Other Documents. Each Co-Borrower shall have provided Lender with such other documents and completion of such other matters, as Lender may reasonably deem necessary or appropriate.

 

3.4     Covenant to Deliver. Each Co-Borrower agrees (not as a condition but as a covenant) to deliver to Lender each item required to be delivered to Lender as a condition to each Loan, if such Loan is advanced. Each Co-Borrower expressly agrees that the extension of any Loan prior to the receipt by Lender of any such item shall not constitute a waiver by Lender of any Co-Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in each Lender’s sole discretion.

 

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4.     Creation of Security Interest.

 

4.1     Grant of Security Interests. Each Co-Borrower grants to Collateral Agent and Lender a valid, continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to secure prompt, full and complete performance by each Co-Borrower of each of its covenants and duties under each of the Loan Documents. The “Collateral” shall mean and include all right, title, interest, claims and demands of each Co-Borrower in the following:

 

(a)     All goods (and embedded computer programs and supporting information included within the definition of “goods” under the Code) and equipment now owned or hereafter acquired, including all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

 

(b)     All inventory now owned or hereafter acquired, including all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of any Co-Borrower’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and each Co-Borrower’s books relating to any of the foregoing;

 

(c)     All contract rights and general intangibles (except to the extent included within the definition of Intellectual Property), now owned or hereafter acquired, including goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, software, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payment intangibles, commercial tort claims, payments of insurance and rights to payment of any kind;

 

(d)     All now existing and hereafter arising accounts, contract rights, royalties, license rights, license fees and all other forms of obligations owing to any Co-Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by any Co-Borrower (subject, in each case, to the contractual rights of third parties to require funds received by any Co-Borrower to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by any Co-Borrower and each Co-Borrower’s books relating to any of the foregoing;

 

(e)     All documents, cash, deposit accounts, letters of credit and letters of credit rights (whether or not the letter of credit is evidenced by a writing) and other supporting obligations, certificates of deposit, instruments, promissory notes, chattel paper (whether tangible or electronic) and investment property, including all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and each Co-Borrower’s books relating to the foregoing; and

 

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(f)     To the extent not covered by clauses (a) through (e), all other personal property of each Co-Borrower, whether tangible or intangible, and any and all rights and interests in any of the above and the foregoing and, any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including insurance, condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual Property to the extent such proceeds no longer constitute Intellectual Property; but

 

Notwithstanding the foregoing, the Collateral shall not include any Intellectual Property; provided, however, that the Collateral shall include all accounts receivables, accounts, and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date hereof, include the Intellectual Property to the extent necessary to permit perfection of Lender’s security interest in the Rights to Payment.

 

4.2     After-Acquired Property. If any Co-Borrower shall at any time acquire a commercial tort claim, as defined in the Code, with a value in excess of Fifty Thousand Dollars ($50,000), Borrower Representative shall promptly notify Collateral Agent and Lender in writing signed by Borrower Representative of the brief details thereof and grant to Collateral Agent and Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Collateral Agent and Lender.

 

4.3     Duration of Security Interest. Collateral Agent’s and Lender’s security interest in the Collateral shall continue until the indefeasible payment in full and the satisfaction of all Obligations, and termination of Lender’s commitment to fund the Loans, whereupon such security interest shall terminate. Collateral Agent and Lender shall, at Co-Borrowers’ sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to make effective the release contemplated by this Section 4.3, including duly authorizing and delivering termination statements for filing in all relevant jurisdictions under the Code.

 

4.4     Location and Possession of Collateral. The Collateral (other than (i) laptops and similar equipment maintained by any Co-Borrower’s employees and (ii) other Collateral with an aggregate value of not more than $50,000) is and shall remain in the possession of each Co-Borrower at its location listed on the cover page hereof or as set forth in the Disclosure Schedule or at such other location(s) as to which any Co-Borrower has provided not less than ten (10) Business Days prior written notice to Collateral Agent. Co-Borrowers shall remain in full possession, enjoyment and control of the Collateral (other than (i) laptops and similar equipment maintained by any Co-Borrower’s employees and (ii) other Collateral with an aggregate value of not more than $50,000 and except only as may be otherwise required by Collateral Agent or Lender for perfection of the security interests therein created hereunder) and so long as no Event of Default has occurred, shall be entitled to manage, operate, dispose of and use the same and each part thereof with the rights and franchises appertaining thereto; provided that the possession, enjoyment, control and use of the Collateral shall at all times be subject to the observance and performance of the terms of this Agreement.

 

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4.5     Delivery of Additional Documentation Required. Each Co-Borrower shall from time to time execute and deliver to Collateral Agent and Lender, at the request of Collateral Agent or Lender, all financing statements and other documents Collateral Agent or Lender may reasonably request, in form reasonably satisfactory to Collateral Agent and Lender, to perfect and continue Collateral Agent’s and Lender’s perfected security interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents.

 

4.6     Right to Inspect. Collateral Agent and Lender (through any of their officers, employees, or agents) shall have the right, upon reasonable prior written notice, from time to time during each Co-Borrower’s usual business hours, to inspect the books and records of each Co-Borrower and Subsidiaries and to make copies thereof and to inspect, test, and appraise the Collateral in order to verify each Co-Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral; provided that so long as no Event of Default has occurred or is continuing, Collateral Agent and Lender shall not make such inspections, in the aggregate, more than twice in any calendar year. Any inspection, test or appraisal conducted hereunder shall be conducted at the sole cost and expense of Co-Borrowers.

 

4.7     Protection of Intellectual Property. Each Co-Borrower shall: 

 

(a)     protect, defend and maintain the validity and enforceability of its Intellectual Property and promptly advise Collateral Agent in writing of material infringements;

 

(b)     not allow any Intellectual Property material to any Co-Borrower’s business to be abandoned, forfeited or dedicated to the public without Lender’s written consent; and

 

(c)      provide written notice to Collateral Agent within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public).

 

5.     Representations and Warranties. Except as set forth in the Disclosure Schedule, each Co-Borrower represents and warrants as follows:

 

5.1     Organization and Qualification. Each Co-Borrower and its Subsidiaries is a corporation duly organized and validly existing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any jurisdiction in which the conduct of its business or its ownership of Property requires that it be so qualified and licensed or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a Material Adverse Effect. 

 

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5.2     Authority. Each Co-Borrower has all necessary power and authority to execute, deliver, and perform its obligations in accordance with the terms thereof, the Loan Documents to which it is a party. Each Co-Borrower and its Subsidiaries have all requisite power and authority to own and operate their Property and to carry on their businesses as now conducted. Each Co-Borrower and its Subsidiaries have obtained all licenses, permits, approvals and other authorizations necessary for the operation of their business, other than the failure to obtain which would not reasonably be likely to have a Material Adverse Effect.

 

5.3     Conflict with Other Instruments, etc. Neither the execution and delivery of any Loan Document to which any Co-Borrower is a party nor the consummation of the transactions therein contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or result in a breach of any of the terms, conditions or provisions of the certificate of incorporation, the by-laws, or any other organizational documents of any Co-Borrower or violate in any material respect any law or any regulation, order, writ, injunction or decree of any court or Governmental Authority by which any Co-Borrower or any Subsidiary or any of their respective property or assets may be bound or affected or any material agreement or instrument to which any Co-Borrower is a party or by which it or any of its Property is bound or to which it or any of its Property is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens, in each case, to the extent such contravention, conflict, violation or default would not reasonably be likely to have a Material Adverse Effect.

 

5.4     Authorization; Enforceability. The execution and delivery of this Agreement, the granting of the security interest in the Collateral, the incurrence of the Loans, the execution and delivery of the other Loan Documents to which any Co-Borrower is a party and the consummation of the transactions herein and therein contemplated have each been duly authorized by all necessary action on the part of each Co-Borrower. No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with, or notice to, (other than those that have been obtained on or before the date hereof), any Person is, was or will be necessary to (a) the valid execution and delivery of any Loan Document to which any Co-Borrower is a party, (b) the performance of each Co-Borrower’s obligations under any Loan Document or (c) the granting of the security interest in the Collateral, except for filings in connection with the perfection of the security interest in any of the Collateral. and those that would not reasonably be likely to have a Material Adverse Effect. The Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of each Co-Borrower, enforceable against each Co-Borrower in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application relating to or affecting the enforcement of creditors’ rights or by general principles of equity. 

 

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5.5     No Prior Encumbrances. Each Co-Borrower has good and marketable title to the Collateral, free and clear of Liens except for Permitted Liens. Each Co-Borrower has good title and ownership of, or is licensed under, all of such Co-Borrower’s current Intellectual Property. Each Co-Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) Permitted Licenses, (b) over-the-counter software that is commercially available to the public and (c) material Intellectual Property licensed to such Co-Borrower (other than off-the-shelf software) and noted on the Disclosure Schedule. Each patent which it owns or purports to own and which is material to any Co-Borrower’s business is valid and enforceable, and no part of the Intellectual Property which any Co-Borrower owns or purports to own and which is material to any Co-Borrower’s business has been judged invalid or unenforceable, in whole or in part. Except as noted on the Disclosure Schedule, no Co-Borrower is a party to, nor is it bound by, any Restricted License. No Co-Borrower has received any communications alleging that any Co-Borrower has violated, or by conducting its business as proposed, would violate any proprietary rights of any other Person, in each case that could reasonably be expected to have a Material Adverse Effect. No Co-Borrower has knowledge of any infringement or violation by it of the intellectual property rights of any third party and has no knowledge of any violation or infringement by a third party of any of its Intellectual Property. The Collateral and the Intellectual Property constitute substantially all of the assets and property each Co-Borrower, and each Co-Borrower owns all Intellectual Property associated with the business of such Co-Borrower and Subsidiaries, free and clear of any Liens other than Permitted Liens.

 

5.6     Security Interest. The provisions of this Agreement create legal and valid security interests in the Collateral in favor of Collateral Agent and Lender, and, assuming the proper filing of one or more financing statement(s) identifying the Collateral with the proper state and/or local authorities, the security interests in the Collateral granted to Collateral Agent and Lender pursuant to this Agreement (a) constitute and will continue to constitute first priority security interests (except to the extent any Permitted Liens may have a superior priority to Collateral Agent’s and Lender’s Liens under this Agreement) and (b) are and will continue to be superior and prior to the rights of all other creditors of each Co-Borrower (except to the extent any Permitted Liens may have a superior priority to Collateral Agent’s and Lender’s Liens under this Agreement). 

 

5.7     Name; Location of Chief Executive Office, Principal Place of Business and Collateral. No Co-Borrower has done business under any name other than that specified on the signature page hereof. Each Co-Borrower’s jurisdiction of incorporation, chief executive office, principal place of business, and the place where such Co-Borrower maintains its records concerning the Collateral are presently located in the state and at the address set forth on the cover page of this Agreement. The Collateral is presently located at the address set forth on the cover page hereof or as set forth in the Disclosure Schedule or at such locations permitted under Section 7.2 of this Agreement.

 

5.8     Litigation. There are no actions or proceedings pending by or against any Co-Borrower or any Subsidiary before any court, arbitral tribunal, regulatory organization, administrative agency or similar body in which an adverse decision could have a Material Adverse Effect. No Co-Borrower has knowledge of any such pending or threatened actions or proceedings.

 

5.9     Financial Statements. All financial statements relating to any Co-Borrower, any Subsidiary or any Affiliate that have been delivered by any Co-Borrower to Collateral Agent or Lender present fairly in all material respects such Co-Borrower’s Consolidated financial condition as of the date thereof and such Co-Borrower’s Consolidated results of operations for the period then ended.

 

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5.10     No Material Adverse Effect. No event has occurred and no condition exists which could reasonably be expected to have a Material Adverse Effect since the Co-Borrowers’ most recently filed SEC Documents.

 

5.11     Full Disclosure. No representation, warranty or other statement made by any Co-Borrower in any Loan Document (including the Disclosure Schedule), certificate or written statement furnished to Collateral Agent or Lender (other than projections, forward-looking statements and other information of a general economic or industry nature, which projections, forward-looking statements and other information of a general economic or industry nature have been prepared by the applicable Co-Borrower in good faith based upon assumptions believed by such Co-Borrower to be reasonable at the time) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. There is no fact known to any Co-Borrower which materially adversely affects, or which could in the future be reasonably expected to materially adversely affect, its ability to perform its obligations under this Agreement.

 

5.12     Solvency, Etc. Each Co-Borrower is Solvent (as defined below) and, after the execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby, each Co-Borrower will be Solvent. “Solvent” means, with respect to any Person on any date, that on such date (a) the fair value of the property of such Person is greater than the fair value of the liabilities (including contingent liabilities) of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital.

 

5.13      Subsidiaries. No Co-Borrower has any Subsidiaries.

 

5.14     Capitalization. All issued and outstanding Equity Securities of each Co-Borrower are duly authorized and validly issued, fully paid and non-assessable, and such securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities, except for such compliance with such laws that would not reasonably be expected to result in a Material Adverse Effect.

 

5.15     Catastrophic Events; Labor Disputes. No Co-Borrower, Subsidiary or any of their respective Property is or has been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty that could reasonably be expected to have a Material Adverse Effect. There are no disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which any Co-Borrower or any Subsidiary is a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to the knowledge of any Co-Borrower, jurisdictional disputes or organizing activity occurring or threatened which could reasonably be expected to have a Material Adverse Effect.

 

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5.16     Certain Agreements of Officers, Employees and Consultants. 

 

(a)     No Violation. To the knowledge of each Co-Borrower, no officer, employee or consultant of any Co-Borrower is, or is now expected to be, in violation of any term of any employment contract, proprietary information agreement, nondisclosure agreement, noncompetition agreement or any other material contract or agreement or any restrictive covenant relating to the right of any such officer, employee or consultant to be employed by any Co-Borrower because of the nature of the business conducted or to be conducted by any Co-Borrower or relating to the use of trade secrets or proprietary information of others, and to each Co-Borrower’s knowledge, the continued employment of each Co-Borrower’s officers, employees and consultants does not subject any Co-Borrower to any material liability for any claim or claims arising out of or in connection with any such contract, agreement, or covenant.

 

(b)     No Present Intention to Terminate. To the knowledge of each Co-Borrower, no officer of any Co-Borrower, and no employee or consultant of any Co-Borrower whose termination, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, has any present intention of terminating his or her employment or consulting relationship with such Co-Borrower.

 

5.17     No Plan Assets. No Co-Borrower nor any Subsidiary is an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of any Co-Borrower or any Subsidiary constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) no Co-Borrower nor any Subsidiary is a “governmental plan” within the meaning of Section 3(32) of ERISA and (b) transactions by or with each Co-Borrower or any Subsidiary are not subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Internal Revenue Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Loan Agreement.

 

5.18     Sanctions, Etc. No Co-Borrower, any of its Subsidiaries or, to the knowledge of any Co-Borrower, any director, officer, employee, agent or Affiliate of any Co-Borrower or any of its Subsidiaries, is a Person that is, or is owned or controlled by Persons that are, (a) the subject or target of any Sanctions or (b) located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions. To the best of each Co-Borrower’s knowledge, as of the date hereof and at all times throughout the term of this Agreement, including after giving effect to any transfers of interests permitted pursuant to the Loan Documents, none of the funds of each Co-Borrower, each Subsidiary or each of their Affiliates have been (or will be) derived from any unlawful activity with the result that the investment in the respective party (whether directly or indirectly), is prohibited by applicable law or the Loans are in violation of applicable law.

 

5.19     Regulatory Compliance. No Co-Borrower is a “bank holding company” or a direct or indirect subsidiary of a “bank holding company” as defined in the Bank Holding Company Act of 1956, as amended, and Regulation Y thereunder of the Board of Governors of the Federal Reserve System. No Co-Borrower or any Subsidiary is an “investment company” or a company controlled by an “investment company” under the Investment Company Act of 1940. No Co-Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no proceeds of any Loan will be used to purchase or carry margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

 

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5.20     Payment of Taxes. All federal and other material tax returns, reports and statements (including any attachments thereto or amendments thereof) of each Co-Borrower and its Subsidiaries filed or required to be filed by any of them have been timely filed (or extensions have been obtained and such extensions have not expired) and all taxes shown on such tax returns or otherwise due and payable and all assessments, fees and other governmental charges upon each Co-Borrower, its Subsidiaries and their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable, except for the payment of any such taxes, assessments, fees and other governmental charges which are being diligently contested by such Co-Borrower in good faith by appropriate proceedings and for which adequate reserves have been made under GAAP. To the knowledge of each Co-Borrower, no tax return of any Co-Borrower or any Subsidiary is currently under an audit or examination, and no Co-Borrower has received written notice of any proposed audit or examination, in each case, where a material amount of tax is at issue. No Co-Borrower is an “S corporation” within the meaning of Section 1361(a)(1) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

 

5.21     Anti-Terrorism Laws. No Co-Borrower will, directly or indirectly, use the proceeds of the Loans, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person, (i) to fund any activities or business of or with any Person, or in any country or territory, that, at the time of such funding, is, or whose government is, the subject of Sanctions, or (ii) in any other manner that would result in a violation of Sanctions by any Person (including any Person participating in the Loans, whether as lender, underwriter, advisor, investor or otherwise). Lender hereby notifies each Co-Borrower that pursuant to the requirements of Anti-Terrorism Laws, and Lender’s policies and practices, Lender is required to obtain, verify and record certain information and documentation that identifies each Co-Borrower and its principals, which information includes the name and address of each Co-Borrower and its principals and such other information that will allow Lender to identify such party in accordance with Anti-Terrorism Laws.

 

6.     Affirmative Covenants. Each Co-Borrower, until the full and complete payment of the Obligations, covenants and agrees that:

 

6.1     Good Standing. Each Co-Borrower shall maintain, and cause each of its Subsidiaries to maintain, its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect. Each Co-Borrower shall maintain, and cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a Material Adverse Effect.

 

6.2     Government Compliance. Each Co-Borrower shall comply, and cause each of its Subsidiaries to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could reasonably be expected to have a Material Adverse Effect.

 

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6.3     Financial Statements, Reports, Certificates. Each Co-Borrower shall deliver to Lender: (a) as soon as available, but in any event within forty-five (45) days after the end of each calendar quarter, a Co-Borrower prepared Consolidated balance sheet, Consolidated income statement and Consolidated cash flow statement covering such Co-Borrower’s operations during such period, certified by such Co-Borrower’s president, treasurer or chief financial officer (each, a “Responsible Officer”), (b) as soon as available, but in any event within ninety (90) days after the end of such Co-Borrower’s fiscal year, audited Consolidated financial statements of such Co-Borrower prepared in accordance with GAAP, together with an unqualified opinion on such financial statements of a nationally recognized or other independent public accounting firm reasonably acceptable to Lender; and (c) as soon as available, but in any event within thirty (30) days after the earlier of (i) the end of such Co-Borrower’s fiscal year or (ii) the date of such Co-Borrower’s board of directors’ adoption, such Co-Borrower’s operating budget and plan for the next fiscal year; and (d) such other financial information as Lender may reasonably request from time to time. Additionally, each Co-Borrower shall provide Lender promptly as they are available and in any event: (i) at the time of filing of such Co-Borrower’s Form 10-K with the Securities and Exchange Commission after the end of each fiscal year of such Co-Borrower, the financial statements of such Co-Borrower filed with such Form 10-K; and (ii) at the time of filing of such Co-Borrower’s Form 10-Q with the Securities and Exchange Commission after the end of each of the first three fiscal quarters of such Co-Borrower, the Consolidated financial statements of such Co-Borrower filed with such Form 10-Q. In addition, each Co-Borrower shall deliver to Lender (A) promptly upon becoming available, copies of all statements, reports and notices sent or made available generally by such Co-Borrower to its security holders and (B) immediately upon receipt of notice thereof, a report of any material legal actions pending or threatened against any Co-Borrower or any Subsidiary or the commencement of any action, proceeding or governmental investigation involving any Co-Borrower or any Subsidiary is commenced that is reasonably expected to result in damages or costs to any Co-Borrower, or all Co-Borrowers collectively, of One Hundred Thousand Dollars ($100,000) or more.

 

6.4     Certificates of Compliance. Each time financial statements are furnished pursuant to Section 6.3 above, Borrower Representative shall deliver to Lender an Officer’s Certificate signed by a Responsible Officer in the form of, and certifying to the matters set forth in Exhibit E hereto. 

 

6.5     Notice of Defaults. As soon as possible, and in any event within five (5) days after the discovery of a Default or an Event of Default, Borrower Representative shall provide Lender with an Officer’s Certificate setting forth the facts relating to or giving rise to such Default or Event of Default and the action which each Co-Borrower proposes to take with respect thereto.

 

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6.6     Taxes. Each Co-Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law or imposed upon any Property belonging to it, and will execute and deliver to Collateral Agent and Lender, on written demand therefor, appropriate certificates attesting to the payment or deposit thereof; and each Co-Borrower will make, and cause each Subsidiary to make, timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Collateral Agent and Lender with proof satisfactory to Lender indicating that each Co-Borrower and each Subsidiary has made such payments or deposits; provided that no Co-Borrower shall be required to make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and that such Co-Borrower has adequately bonded such amounts or reserves sufficient to discharge such amounts have been provided on the books of such Co-Borrower. In addition, no Co-Borrower shall change, and shall not permit any Subsidiary to change, its respective jurisdiction of residence for taxation purposes.

 

6.7     Use; Maintenance. Each Co-Borrower shall keep and maintain all items of equipment and other similar types of personal property that form any significant portion or portions of the Collateral in reasonably good operating condition and repair (ordinary wear and tear excepted) and shall make all reasonably necessary replacements thereof and renewals thereto so that the value and operating efficiency thereof shall at all times be reasonably maintained and preserved. No Co-Borrower shall permit any such material item of Collateral to become a fixture to real estate or an accession to other personal property of another Person, without the prior written consent of Collateral Agent and Lender. No Co-Borrower shall permit any such material item of Collateral to be operated or maintained in violation of any applicable law, statute, rule or regulation. With respect to items of leased equipment (to the extent Collateral Agent and Lender have any security interest in any residual any Co-Borrower’s interest in such equipment under the lease), each Co-Borrower shall keep, maintain, repair, replace and operate such leased equipment in accordance in all material respects with the terms of the applicable lease.

 

6.8     Insurance. Each Co-Borrower shall keep its business and the Collateral insured for risks and in amounts standard for companies in such Co-Borrower’s industry and location, and as Collateral Agent or Lender may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Collateral Agent and Lender. All property policies shall have a lender’s loss payable endorsement showing Collateral Agent and Lender as an additional loss payee and all general liability policies shall show Collateral Agent and Lender as an additional insured and all policies shall provide that the insurer must give Collateral Agent at least thirty (30) days notice before canceling its policy. At Collateral Agent’s or Lender’s request, Borrower Representative shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any property policy shall, at Collateral Agent’s or Lender’s option, be payable to Collateral Agent, for the benefit of Lender, or to Lender on account of the Obligations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Co-Borrowers shall have the option of applying the proceeds of any property policy, toward the replacement or repair of destroyed or damaged property; provided that (a) any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Collateral Agent and Lender have been granted a first priority security interest and (b) after the occurrence and during the continuation of an Event of Default all proceeds payable under such property policy shall, at the option of Collateral Agent or Lender, be payable to Collateral Agent, for the benefit of Lender, or to Lender on account of the Obligations. If any Co-Borrower fails to obtain insurance as required under Section 6.8 or to pay any amount or furnish any required proof of payment to third persons and Collateral Agent, Collateral Agent or Lender may make all or part of such payment or obtain such insurance policies required in Section 6.8, and take any action under the policies Collateral Agent or Lender deems prudent. On or prior to the first Funding Date and prior to each policy renewal, Borrower Representative shall furnish to Collateral Agent certificates of insurance or other evidence reasonably satisfactory to Collateral Agent that insurance complying with all of the above requirements is in effect.

 

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6.9      Further Assurances. At any time and from time to time, each Co-Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Collateral Agent or Lender to make effective the purposes of this Agreement, including the continued perfection and priority of Collateral Agent’s Lender’s security interest in the Collateral.

 

6.10     Subsidiaries. Each Co-Borrower, upon Lender’s or Collateral Agent’s request, shall cause any Subsidiary to provide Lender and Collateral Agent with a guaranty of the Obligations and a security interest in such Subsidiary’s assets to secure such guaranty.

 

6.11      Keeping of Books. Each Co-Borrower shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of such Co-Borrower and its Subsidiaries in accordance with GAAP.

 

6.12     Increasing Billings. Co-Borrowers shall achieve aggregate Billings in each two (2) fiscal quarter period in an amount greater than the Billings achieved in the aggregate by Co-Borrowers in the immediately preceding two (2) fiscal quarter period. This covenant shall be tested on the last day of each calendar quarter.

 

6.13      Revenue Based Payments. Until the Obligations are indefeasibly repaid in full, and subject to the terms of Section 2.3(b), within sixty (60) days of the end of each calendar quarter, Co-Borrowers shall pay to Lender the required Revenue Based Payment. In addition, upon (a) the date of acceleration of the Loans following an Event of Default or (b) the date of prepayment of the Loans, Co-Borrowers shall pay to Lender an amount equal to the difference between the actual Revenue Based Payments paid by Co-Borrowers to Lender and the applicable Minimum Required Revenue Based Payments.

 

6.14     Upstreaming of Amounts from Managed Entities. Until the Obligations are indefeasibly repaid in full, Borrower Representative shall take all actions necessary to ensure that all amounts due and owing to Borrower Representative pursuant to the terms of any Management Services Agreement are paid to Borrower Representative no later than the end of each calendar month and not less than once a month.

 

7.     Negative Covenants. Each Co-Borrower, until the full and complete payment of the Obligations, covenants and agrees that such Co-Borrower shall not:

 

7.1       Chief Executive Office. Change its name, jurisdiction of incorporation, chief executive office, principal place of business or any of the items set forth in Section 1 of the Disclosure Schedule without thirty (30) days prior written notice to Collateral Agent.

 

7.2      Collateral Control. Subject to its rights under Sections 4.4 and 7.4, remove any items of Collateral (other than (i) laptops and similar equipment maintained by any Co-Borrower’s employees and (ii) other Collateral with an aggregate value of not more than $50,000) from any Co-Borrower’s facility located at the address set forth on the cover page hereof or as set forth on the Disclosure Schedule.

 

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7.3     Liens. Create, incur, allow or suffer, or permit any Subsidiary to 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 except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein (except for Permitted Liens that are permitted by the terms of this Agreement or by operation of law to have priority to Collateral Agent’s and Lender’s Liens), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Collateral Agent, for the benefit of Lender, or Lender) with any Person which directly or indirectly prohibits or has the effect of prohibiting any Co-Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any Co-Borrower’s or any Subsidiary’s Intellectual Property, except (a) as otherwise permitted in Section 7.4 hereof and (b) as set forth in the definition of “Permitted Liens” herein.

 

7.4     Other Dispositions of Collateral. Convey, sell, lease or otherwise dispose of, or permit any Subsidiary to convey, sell, lease or otherwise dispose, of all or any part of the Collateral to any Person (collectively, a “Transfer”), except for: (a) Transfers of inventory in the ordinary course of business; (b) Transfers of worn-out or obsolete equipment made in the ordinary course of business; (c) Transfers pursuant to Permitted Licenses; (d) sales of assets consented to by Lender; (e) Transfers by a Subsidiary of any or all of its business, property or assets to a Co-Borrower; (f) Transfers in connection with transactions permitted by Sections 7.5, 7.6 and 7.8; (g) Transfers of cash or cash equivalents for uses not prohibited by the terms of this Agreement; (h) Permitted Liens; (i) disposition of Investments permitted by Section 7.11.

 

7.5     Distributions. (a) Pay any dividends or make any distributions, or permit any Subsidiary to pay any dividends or make any distributions, on their respective Equity Securities; (b) purchase, redeem, retire, defease or otherwise acquire, or permit any Subsidiary to purchase, redeem, retire, defease or otherwise acquire, for value any of their respective Equity Securities (other than repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar arrangements in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) in any fiscal year); (c) return, or permit any Subsidiary to return, any capital to any holder of its Equity Securities as such; (d) make, or permit any Subsidiary to make, any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or (e) set apart any sum for any such purpose; provided, however, a Co-Borrower may pay dividends payable solely in such Co-Borrower’s common stock.

 

7.6     Mergers or Acquisitions. Merge or consolidate, or permit any Subsidiary to merge or consolidate, with or into any other Person or acquire, or permit any Subsidiary to acquire, all or substantially all of the capital stock or assets of another Person; provided that (a) any Subsidiary may merge into another Subsidiary and (b) any Subsidiary may merge into a Co-Borrower so long as such Co-Borrower is the surviving entity. 

 

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7.7     Change in Business or Ownership. (a) Engage, or permit any Subsidiary to engage, in any business other than the businesses currently engaged in by Borrower or such Subsidiary, as applicable, or reasonably related thereto or (b) have a material change in such Co-Borrower’s ownership equal to or greater than twenty-five percent (25%) other than (i) by the sale by such Co-Borrower of such Co-Borrower’s Equity Securities in a public offering or (ii) to venture capital investors so long as Borrower Representative identifies to Lender and Collateral Agent the venture capital investors prior to the execution of a definitive agreement relating to such change of ownership and any such venture capital investors that purchase or otherwise acquire twenty-five percent (25%) or more of the ownership of any Co-Borrower in one or a series of transactions have cleared Lender’s “know your customer” checks.

 

7.8     Transactions With Affiliates; Creation of Subsidiaries. (a) Enter, or permit any Subsidiary to enter, into any contractual obligation with any Affiliate or engage in any other transaction with any Affiliate except upon terms at least as favorable to each Co-Borrower or such Subsidiary, as applicable, as an arms-length transaction with Persons who are not Affiliates of any Co-Borrower or (b) create a Subsidiary without providing at least 10 Business Days advance notice thereof to Lender and, if requested by Lender, such Subsidiary guarantees the Obligations and grants a security interest in its assets to secure such guaranty, in each case on terms reasonably satisfactory to Collateral Agent and Lender.

 

7.9     Indebtedness Payments. (a) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due or permitted to be prepaid under this Agreement or under any revolving credit agreement constituting Permitted Indebtedness under clause (d) of the definition of Permitted Indebtedness) or lease obligations, (b) amend, modify or otherwise change the terms of any Indebtedness for borrowed money or lease obligations so as to accelerate the scheduled repayment thereof or (c) repay any notes to officers, directors or shareholders.

 

7.10    Indebtedness. Create, incur, assume or permit, or permit any Subsidiary to create, incur, or permit to exist, any Indebtedness except Permitted Indebtedness.

 

7.11     Investments. Make, or permit any Subsidiary to make, any Investment except for Permitted Investments.

 

7.12     Compliance. (a) Become, or permit any Subsidiary to become, an “investment company” or a company controlled by an “investment company” under the Investment Company Act of 1940, 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 Loan for that purpose; (b) become, or permit any Subsidiary to become, subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money; or (c) (i) fail, or permit any Subsidiary to fail, to meet the minimum funding requirements of the Employment Retirement Income Security Act of 1974, and its regulations, as amended from time to time (“ERISA”), permit, or (ii) permit, or permit any Subsidiary to permit, a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; (d) fail, or permit any Subsidiary to 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 Material Adverse Effect.

 

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7.13     Maintenance of Accounts. (a) Maintain any deposit account or securities account except accounts with respect to which Collateral Agent and Lender has obtained a perfected security interest in such accounts through one or more Account Control Agreements or (b) grant or allow any other Person (other than Collateral Agent or Lender) to perfect a security interest in, or enter into any agreements with any Persons (other than Collateral Agent or Lender) accomplishing perfection via control as to, any of its deposit accounts or securities accounts other than in favor of the lender providing Borrower Representative with Indebtedness permitted under subsection (d) of the definition of Permitted Indebtedness. Notwithstanding the foregoing, Co-Borrowers may maintain one account at California Bank and Trust that exists as of the date of this Agreement and over which Lender does not maintain an Account Control Agreement, provided that such account at California Bank and Trust is closed on or before the date that is ninety (90) days after the date of this Agreement.

 

7.14     Negative Pledge Regarding Intellectual Property. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Lien of any kind upon any Intellectual Property or Transfer any Intellectual Property, whether now owned or hereafter acquired, other than Permitted Liens.

 

8.     Events of Default. Any one or more of the following events shall constitute an “Event of Default” by Co-Borrowers under this Agreement:

 

8.1     Failure to Pay. If any Co-Borrower fails to pay when due and payable or when declared due and payable in accordance with the Loan Documents: (a) any Scheduled Payment on the relevant Payment Date or on the relevant Maturity Date; (b) any Revenue Based Payment on the date any such payment is due; or (c) any other portion of the Obligations within five (5) days after receipt of written notice from Lender that such payment is due.

 

8.2     Certain Covenant Defaults. If any Co-Borrower fails to perform any obligation arising under Sections 6.5, 6.8, 6.12, 6.13 or 6.14 or violates any of the covenants contained in Section 7 of this Agreement.

 

8.3     Other Covenant Defaults. If any Co-Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement (other than as set forth in Sections 8.1, 8.2 or 8.4 through 8.14), in any of the other Loan Documents and such Co-Borrower has failed to cure such default within thirty (30) days of the occurrence of such default. During this thirty (30) day period, the failure to cure the default is not an Event of Default (but no Loan will be made during the cure period).

 

8.4     Material Adverse Effect. The occurrence of an event that results in a Material Adverse Effect.

 

8.5     INTENTIONALLY OMITTED

 

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8.6     Seizure of Assets, Etc. (a) If any material portion of any Co-Borrower’s or any Subsidiary’s assets (i) is attached, seized, subjected to a writ or distress warrant, or is levied upon or (ii) comes into the possession of any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, (b) if any Co-Borrower or any Subsidiary is enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, (c) if a judgment or other claim becomes a lien or encumbrance upon any material portion of any Co-Borrower’s or any Subsidiary’s assets or (d) if a notice of lien, levy, or assessment is filed of record with respect to any Co-Borrower’s or any Subsidiary’s assets by the United States Government, or any department agency or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after any Co-Borrower receives notice thereof; provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by such Co-Borrower. 

 

8.7     Service of Process. (a) The service of process upon Collateral Agent or Lender seeking to attach by a trustee or other process any funds of any Co-Borrower on deposit or otherwise held by Collateral Agent or Lender in excess of One Hundred Thousand Dollars ($100,000), (b) the delivery upon Collateral Agent or Lender of a notice of foreclosure by any Person seeking to attach or foreclose on any funds of any Co-Borrower on deposit or otherwise held by Collateral Agent or Lender in excess of One Hundred Thousand Dollars ($100,000) or (c) the delivery of a notice of foreclosure or exclusive control to any entity holding or maintaining any Co-Borrower’s deposit accounts or accounts holding securities by any Person (other than Collateral Agent or Lender) seeking to foreclose or attach any such accounts or securities.

 

8.8     Default on Indebtedness. One or more defaults shall exist under any agreement with any third party or parties which consists of the failure to pay any Indebtedness of any Co-Borrower or any Subsidiary at maturity or which results in a right by such third party or parties, whether or not exercised, to accelerate the maturity of Indebtedness in an aggregate amount in excess of One Hundred Thousand Dollars ($100,000) or a default shall exist under any financing agreement with a Lender or any Lender’s Affiliates.

 

8.9     Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) shall be rendered against one or more Co-Borrowers or Subsidiary and shall remain unsatisfied and unstayed for a period of ten (10) days or more except for those that are fully covered by a reputable and financially sound insurer.

 

8.10     Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty, representation, statement, certification, or report made to Collateral Agent or Lender by any Co-Borrower or any officer, employee, agent, or director of any Co-Borrower.

 

8.11      INTENTIONALLY OMITTED

 

8.12     Unenforceable Loan Document. If any Loan Document shall in any material respect cease to be, or any Co-Borrower shall assert that any Loan Document is not, a legal, valid and binding obligation of any Co-Borrower enforceable in accordance with its terms.

 

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8.13     Involuntary Insolvency Proceeding. (a) If a proceeding shall have been instituted in a court having jurisdiction (i) seeking a decree or order for relief in respect of any Co-Borrower or any Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) for the appointment of a receiver, liquidator, administrator, assignee, custodian, trustee (or similar official) of any Co-Borrower or any Subsidiary or for any substantial part of its Property or (iii) for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or (b) such court shall enter a decree or order granting the relief sought in any such proceeding.

 

8.14     Voluntary Insolvency Proceeding. If any Co-Borrower or any Subsidiary shall (a) commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (b) consent to the entry of an order for relief in an involuntary case under any such law, (c) consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar official) of any Co-Borrower or any Subsidiary or for any substantial part of its Property, (d) shall make a general assignment for the benefit of creditors, (e) shall fail generally to pay its debts as they become due or (f) take any corporate action in furtherance of any of the foregoing.

 

9.     Lender’s Rights and Remedies.

 

9.1     Rights and Remedies. Upon the occurrence of any Default or Event of Default, Lender shall not have any further obligation to advance money or extend credit to or for the benefit of any Co-Borrower. In addition, upon the occurrence of an Event of Default, Collateral Agent and Lender shall have the rights, options, duties and remedies of a secured party as permitted by law and, in addition to and without limitation of the foregoing, Collateral Agent, on behalf of Lender, or Lender (acting alone) may, at its election, without notice of election and without demand, do any one or more of the following, all of which are authorized by each Co-Borrower:

 

(a)     Acceleration of Obligations. Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, including (i) any accrued and unpaid interest, (ii) the amounts which would have otherwise come due under Section 2.3(b)(ii) if the Loans had been voluntarily prepaid, (iii) the unpaid principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.13 or 8.14 all Obligations shall become immediately due and payable without any action by Collateral Agent or Lender);

 

(b)     Protection of Collateral. Make such payments and do such acts as Collateral Agent or Lender consider necessary or reasonable to protect Collateral Agent’s and Lender’s security interest in the Collateral. Borrower Representative agrees to assemble the Collateral if Collateral Agent or Lender so requires and to make the Collateral available to Collateral Agent or Lender as Collateral Agent or Lender may designate. Each Co-Borrower authorizes Collateral Agent, Lender and their designees and agents to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien which in Collateral Agent’s or Lender’s determination appears or is claimed to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any Co-Borrower’s owned premises, such Co-Borrower hereby grants Collateral Agent and Lender a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Collateral Agent’s and Lender’s rights or remedies provided herein, at law, in equity, or otherwise;

 

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(c)     Preparation of Collateral for Sale. Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Collateral Agent, Lender and their agents and any purchasers at or after foreclosure are hereby granted a non-exclusive, irrevocable, perpetual, fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, each Co-Borrower’s Intellectual Property, including labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any Property of a similar nature, now or at any time hereafter owned or acquired by any Co-Borrower or in which any Co-Borrower now or at any time hereafter has any rights; provided that such license shall only be exercisable in connection with the disposition of Collateral upon Collateral Agent’s or Lender’s exercise of its remedies hereunder and that any exercise of remedies under this Section 9.1(c) shall be subject to any rights of third parties in or to such Intellectual Property;

 

(d)     Sale of Collateral. Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including any Co-Borrower’s premises) as Collateral Agent or Lender determines are commercially reasonable; and

 

(e)     Purchase of Collateral. Credit bid and purchase all or any portion of the Collateral at any public sale.

 

Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Co-Borrowers.

 

9.2     Set Off Right. Upon the occurrence of an Event of Default that has not been waived by Lender, Collateral Agent and Lender may set off and apply to the Obligations any and all Indebtedness at any time owing to or for the credit or the account of any Co-Borrower or any other assets of any Co-Borrower in Collateral Agent’s or Lender’s possession or control.

 

9.3     Effect of Sale. Upon the occurrence of an Event of Default that has not been waived by Lender, to the extent permitted by law, each Co-Borrower covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take nor insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisement of the Collateral or any part thereof prior to any sale or sales thereof to be made pursuant to any provision herein contained, or to the decree, judgment or order of any court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part thereof, and, to the full extent legally permitted, except as to rights expressly provided herein, hereby expressly waives for itself and on behalf of each and every Person, except decree or judgment creditors of any Co-Borrower, acquiring any interest in or title to the Collateral or any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Collateral Agent or Lender, but will suffer and permit the execution of every such power as though no such power, law or laws had been made or enacted. Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of each Co-Borrower in and to the Property sold, and shall be a perpetual bar, both at law and in equity, against each Co-Borrower, its successors and assigns, and against any and all Persons claiming the Property sold or any part thereof under, by or through each Co-Borrower, its successors or assigns.

 

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9.4     Power of Attorney in Respect of the Collateral. Each Co-Borrower does hereby irrevocably appoint Collateral Agent, on behalf of Lender (which appointment is coupled with an interest) the true and lawful attorney in fact of such Co-Borrower, with full power of substitution and in its name to file any notices of security interests, financing statements and continuations and amendments thereof pursuant to the Code or federal law, as may be necessary to perfect or to continue the perfection of Collateral Agent’s and Lender’s security interests in the Collateral. Each Co-Borrower does hereby irrevocably appoint Collateral Agent, on behalf of Lender (which appointment is coupled with an interest) upon the occurrence of an Event of Default that has not been waived by Lender, the true and lawful attorney in fact of such Co-Borrower, with full power of substitution and in its name: (a) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all rents, issues, profits, avails, distributions, income, payment draws and other sums in which a security interest is granted under Section 4 with full power to settle, adjust or compromise any claim thereunder as fully as if Collateral Agent or Lender were such Co-Borrower itself; (b) to receive payment of and to endorse the name of such Co-Borrower to any items of Collateral (including checks, drafts and other orders for the payment of money) that come into Collateral Agent’s or Lender’s possession or under Collateral Agent’s or Lender’s control; (c) to make all demands, consents and waivers, or take any other action with respect to, the Collateral; (d) in Collateral Agent’s or Lender’s discretion to file any claim or take any other action or proceedings, either in its own name or in the name of such Co-Borrower or otherwise, which Collateral Agent or Lender may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Collateral Agent and Lender in and to the Collateral; (e) endorse such Co-Borrower’s name on any checks or other forms of payment or security; (f) sign such Co-Borrower’s name on any invoice or bill of lading for any account or drafts against account debtors; (g) make, settle, and adjust all claims under such Co-Borrower’s insurance policies; (h) settle and adjust disputes and claims about the accounts directly with account debtors, for amounts and on terms Collateral Agent or Lender determine reasonable; (i) transfer the Collateral into the name of Collateral Agent, Lender or a third party as the Code permits; and (j) to the extent permitted by applicable law, to otherwise act with respect thereto as though Collateral Agent or Lender were the outright owner of the Collateral.

 

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9.5     Lender’s Expenses. If any Co-Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Collateral Agent or Lender may do any or all of the following: (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type discussed in Section 6.8 of this Agreement, and take any action with respect to such policies as Collateral Agent or Lender deems prudent. Any amounts paid or deposited by Collateral Agent or Lender shall constitute Lender’s Expenses, shall be promptly paid by Co-Borrowers after written demand therefor, and shall bear interest at the Default Rate and shall be secured by the Collateral. Any payments made by Collateral Agent or Lender shall not constitute an agreement by Collateral Agent or Lender to make similar payments in the future or a waiver by Collateral Agent or Lender of any Event of Default under this Agreement. Co-Borrowers shall pay all reasonable fees and expenses, including Lender’s Expenses, incurred by Collateral Agent or Lender in the enforcement or attempt to enforce any of the Obligations hereunder not performed when due. 

 

9.6     Remedies Cumulative; Independent Nature of Lender’s Rights. Collateral Agent’s and Lender’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Collateral Agent and Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No failure on the part of Collateral Agent or Lender to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right. The Obligations of each Co-Borrower to Lender or Collateral Agent may be enforced by Lender or Collateral Agent against each Co-Borrower in accordance with the terms of this Agreement and the other Loan Documents and, to the fullest extent permitted by applicable law, it shall not be necessary for Collateral Agent or Lender, as applicable, to be joined as an additional party in any proceeding to enforce such Obligations.

 

9.7     Application of Collateral Proceeds. The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by Collateral Agent or Lender, at the time of or received by Collateral Agent or Lender after the occurrence of an Event of Default hereunder) shall be paid to and applied as follows:

 

(a)     First, to the payment of out-of-pocket costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys’ fees, incurred or made hereunder by Collateral Agent or Lender, including Lender’s Expenses;

 

(b)     Second, to the payment to Lender of the amount then owing or unpaid on the Loans for any accrued and unpaid interest, the amounts which would have otherwise come due under Section 2.3(b)(ii), if the Loans had been voluntarily prepaid, the principal balance of the Loans, and all other Obligations with respect to the Loans (provided, however, if such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon the Loans, then first, to the unpaid interest thereon ratably, second, to the amounts which would have otherwise come due under Section 2.3(b)(ii) ratably, if the Loans had been voluntarily prepaid, third, to the principal balance of the Loans ratably, and fourth, to the ratable payment of other amounts then payable to Lender under any of the Loan Documents); and

 

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(c)     Third, to the payment of the surplus, if any, to Co-Borrowers, their successors and assigns or to the Persons lawfully entitled to receive the same.

 

9.8     Reinstatement of Rights. If Collateral Agent or Lender shall have proceeded to enforce any right under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every such case (unless otherwise ordered by a court of competent jurisdiction), Collateral Agent and Lender shall be restored to their former position and rights hereunder with respect to the Property subject to the security interest created under this Agreement.

 

10.     Waivers; Indemnification.

 

10.1     Demand; Protest. Each Co-Borrower waives demand, protest, notice of protest, 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 at any time held by Collateral Agent or Lender on which any Co-Borrower may in any way be liable.

 

10.2     Lender’s Liability for Collateral. So long as Collateral Agent and Lender comply with their obligations, if any, under the Code, neither Collateral Agent nor Lender shall in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause other than Collateral Agent’s or Lender’s gross negligence or willful misconduct; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Co-Borrowers.

 

10.3     Indemnification and Waiver. Whether or not the transactions contemplated hereby shall be consummated:

 

(a)     General Indemnity. Each Co-Borrower agrees upon written demand to pay or reimburse Collateral Agent and Lender for all liabilities, obligations and out-of-pocket expenses, including Lender’s Expenses and reasonable fees and expenses of counsel for Collateral Agent and Lender from time to time arising in connection with the enforcement or collection of sums due under the Loan Documents, and in connection with any amendment or modification of the Loan Documents or any “work-out” in connection with the Loan Documents. Each Co-Borrower shall indemnify, reimburse and hold Collateral Agent, Lender, and each of their respective successors, assigns, agents, attorneys, officers, directors, equity holders, servants, agents and employees (each an “Indemnified Person”) harmless from and against all liabilities, losses, damages, actions, suits, demands, claims of any kind and nature (including claims relating to environmental discharge, cleanup or compliance), all costs and expenses whatsoever to the extent they may be incurred or suffered by such Indemnified Person in connection therewith (including reasonable attorneys’ fees and expenses), fines, penalties (and other charges of any applicable Governmental Authority), licensing fees relating to any item of Collateral, damage to or loss of use of property (including consequential or special damages to third parties or damages to any Co-Borrower’s property), or bodily injury to or death of any person (including any agent or employee of any Co-Borrower) (each, a “Claim”), directly or indirectly relating to or arising out of the use of the proceeds of the Loans or otherwise, the falsity of any representation or warranty of any Co-Borrower or any Co-Borrower’s failure to comply with the terms of this Agreement or any other Loan Document. The foregoing indemnity shall cover, without limitation, (i) any Claim in connection with a design or other defect (latent or patent) in any item of equipment or product included in the Collateral, (ii) any Claim for infringement of any patent, copyright, trademark or other intellectual property right, (iii) any Claim resulting from the presence on or under or the escape, seepage, leakage, spillage, discharge, emission or release of any Hazardous Materials on the premises owned, occupied or leased by any Co-Borrower, including any Claims asserted or arising under any Environmental Law, (iv) any Claim for negligence or strict or absolute liability in tort or (v) any Claim asserted as to or arising under any Account Control Agreement or any Landlord Agreement; provided, however, Co-Borrowers shall not indemnify any Indemnified Person for any liability incurred by such Indemnified Person as a direct and sole result of such Indemnified Person’s gross negligence or willful misconduct. Such indemnities shall continue in full force and effect, notwithstanding the expiration or termination of this Agreement. Upon Collateral Agent’s or Lender’s written demand, Co-Borrowers shall assume and diligently conduct, at their sole cost and expense, the entire defense of Collateral Agent and Lender, each of their members, partners, and each of their respective, agents, employees, directors, officers, equity holders, successors and assigns against any indemnified Claim described in this Section 10.3(a). No Co-Borrower shall settle or compromise any Claim against or involving Collateral Agent or Lender without first obtaining Collateral Agent’s or Lender’s written consent thereto, which consent shall not be unreasonably withheld.

 

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(b)     Waiver. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE ELSE, EACH CO-BORROWER AGREES THAT IT SHALL NOT SEEK FROM COLLATERAL AGENT OR LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.

 

(c)     Survival; Defense. The obligations in this Section 10.3 shall survive payment of all other Obligations pursuant to Section 12.8. At the election of any Indemnified Person, Co-Borrowers shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person’s reasonable discretion, at the sole cost and expense of Co-Borrowers. All amounts owing under this Section 10.3 shall be paid within thirty (30) days after written demand.

 

11.     Notices. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, by prepaid nationally recognized overnight courier, or by prepaid facsimile to Borrower Representative or to Lender, as the case may be, at their respective addresses set forth below:

 

	
			If to Borrower

			Representative:

				
			Catasys, Inc.

			11601 Wilshire Blvd., Suite 1100

			Los Angeles, CA 90025

			Attention: Christopher Shirley, Chief Financial Officer

			Fax: (888) 975-7712

			Ph: (310) 444-4317

			
	 	 
	
			If to Horizon:

				
			Horizon Technology Finance Corporation

			312 Farmington Avenue

			Farmington, CT 06032

			Attention: Legal Department

			Fax: (860) 676-8655

			Ph: (860) 676-8654

			

 

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The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

12.     General Provisions.

 

12.1     Successors and Assigns. This Agreement and the Loan Documents shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, neither this Agreement nor any rights hereunder may be assigned by any Co-Borrower without Lender’s prior written consent, which consent may be granted or withheld in Lender’s sole discretion. Lender shall have the right without the consent of or notice to any Co-Borrower to sell, transfer, assign, negotiate, or grant participations in all or any part of, or any interest in Lender’s rights and benefits hereunder. Collateral Agent and Lender may disclose the Loan Documents and any other financial or other information relating to any Co-Borrower to any potential participant or assignee of any of the Loans; provided that such participant or assignee agrees for the benefit of such Co-Borrower to protect the confidentiality of such documents and information using the same measures that it uses to protect its own confidential information. 

 

12.2     Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.

 

12.3     Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

12.4     Entire Agreement; Construction; Amendments and Waivers.

 

(a)     Entire Agreement. This Agreement and each of the other Loan Documents, taken together, constitute and contain the entire agreement among Co-Borrowers, Collateral Agent and Lender and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. Each Co-Borrower acknowledges that it is not relying on any representation or agreement made by Collateral Agent, Lender or any employee, attorney or agent thereof, other than the specific agreements set forth in this Agreement and the Loan Documents.

 

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(b)     Construction. This Agreement is the result of negotiations between and has been reviewed by each Co-Borrower, Collateral Agent and Lender as of the date hereof and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against any Co-Borrower, Collateral Agent or Lender. Each Co-Borrower, Collateral Agent and Lender agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish each Co-Borrower’s, Collateral Agent’s or Lender’s actual intentions.

 

(c)     Amendments and Waivers. Any and all discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lender; provided that no such discharge, waiver or consent affecting the rights or duties of the Collateral Agent under this Agreement or any other Loan Document shall be effective without the written consent of the Collateral Agent. Any and all amendments and modifications of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lender and each Co-Borrower; provided that no such amendment or modification affecting the rights or duties of the Collateral Agent under this Agreement or any other Loan Document shall be effective without the written consent of the Collateral Agent. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Co-Borrower in any case shall entitle any Co-Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent affected in accordance with this Section 12.4 shall be binding upon Collateral Agent, Lender and on each Co-Borrower.

 

12.5     Reliance by Lender. All covenants, agreements, representations and warranties made herein by each Co-Borrower shall be deemed to be material to and to have been relied upon by Collateral Agent and Lender, notwithstanding any investigation by Collateral Agent or Lender.

 

12.6     No Set-Offs by any Co-Borrower. All sums payable by any Co-Borrower pursuant to this Agreement or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever.

 

12.7    Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts (including signatures delivered by facsimile or other electronic means), each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.

 

12.8     Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations or commitment to fund remain outstanding. The obligations of each Co-Borrower to indemnify Collateral Agent and Lender with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Collateral Agent or Lender have run.

 

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13.     Relationship of Parties. Co-Borrowers and Lender acknowledge, understand and agree that the relationship between each Co-Borrower, on the one hand, and Lender, on the other, is, and at all times shall remain solely that of a borrower and lender. Lender shall not, under any circumstances, be construed to be a partner or a joint venturer of any Co-Borrower or any of its Affiliates; nor shall Lender, under any circumstances, be deemed to be in a relationship of confidence or trust or a fiduciary relationship with any Co-Borrower or any of its Affiliates, or to owe any fiduciary duty or any other duty to any Co-Borrower or any of its Affiliates. Neither Collateral Agent nor Lender undertakes or assumes any responsibility or duty to any Co-Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform any Co-Borrower or any of its Affiliates of any matter in connection with its or their Property, any Collateral held by Collateral Agent or Lender or the operations of any Co-Borrower or any of its Affiliates. Each Co-Borrower and each of its Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Collateral Agent or Lender in connection with such matters is solely for the protection of Collateral Agent and Lender and no Co-Borrower nor any Affiliate is entitled to rely thereon.

 

14.     Confidentiality. All information (other than periodic reports filed by any Co-Borrower with the Securities and Exchange Commission) disclosed by any Co-Borrower to Collateral Agent or Lender in writing or through inspection pursuant to this Agreement shall be considered confidential. Collateral Agent and Lender agrees to use the same degree of care to safeguard and prevent disclosure of such confidential information as Collateral Agent and Lender uses with its own confidential information, but in any event no less than a reasonable degree of care. Neither Collateral Agent nor Lender shall disclose such information to any third party (other than (a) to another party hereto, (b) to Collateral Agent’s or Lender’s members, partners, attorneys, governmental regulators (including any self-regulatory authority) or auditors, (c) to Collateral Agent’s or Lender’s subsidiaries and affiliates, (d) on a confidential basis, to any rating agency, (e) to prospective transferees and purchasers of the Loans or any actual or prospective party (or its Affiliates) to any swap, derivative or other transaction under which payments are to be made by reference to the Obligations, any Co-Borrower, any Loan Document or any payment thereunder, all subject to the same confidentiality obligation set forth herein or (f) as required by law, regulation, subpoena or other order to be disclosed) and shall use such information only for purposes of evaluation of the creditworthiness of any Co-Borrower and the exercise of Collateral Agent’s or Lender’s rights and the enforcement of its remedies under this Agreement and the other Loan Documents. The obligations of confidentiality shall not apply to any information that (i) was known to the public prior to disclosure by any Co-Borrower under this Agreement, (ii) becomes known to the public through no fault of Collateral Agent or Lender, (iii) is disclosed to Collateral Agent or Lender on a non-confidential basis by a third party or (iv) is independently developed by Collateral Agent or Lender. Notwithstanding the foregoing, Collateral Agent’s and Lender’s agreement of confidentiality shall not apply if Collateral Agent or Lender has acquired indefeasible title to any Collateral or in connection with any enforcement or exercise of Collateral Agent’s or Lender’s rights and remedies under this Agreement following an Event of Default, including the enforcement of Collateral Agent’s and Lender’s security interest in the Collateral.

 

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15.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT. EACH CO-BORROWER, COLLATERAL AGENT AND LENDER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CONNECTICUT. EACH CO-BORROWER, COLLATERAL AGENT AND LENDER HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

 

16.     Cross-Guaranty of Co-Borrowers.

 

16.1     Cross-Guaranty. Each Co-Borrower hereby agrees that such Co-Borrower is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to Lender and its successors and assigns, the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Lender by each other Co-Borrower. Each Co-Borrower agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, that its obligations under this Section 16 shall not be discharged until payment and performance, in full, of the Obligations has occurred, and that its obligations under this Section 16 shall be absolute and unconditional, irrespective of, and unaffected by:

 

(a)     the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Co-Borrower is or may become a party;

 

(b)     the absence of any action to enforce this Agreement (including this Section 16) or any other Loan Document, or the waiver or consent by Lender with respect to any of the provisions hereof or thereof;

 

(c)     the existence, value or condition of, or failure to perfect its Lien against, any security for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any such security);

 

(d)     the insolvency of any Co-Borrower or any other Person; or

 

(e)     any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor.

 

Each Co-Borrower shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder.

 

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16.2     Waivers by Co-Borrowers. Each Co-Borrower expressly waives all rights it may have now or in the future under any statute, at common law, at law, in equity or otherwise, to compel Lender to marshal assets or to proceed in respect of the Obligations guaranteed hereunder against any other Co-Borrower, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Co-Borrower. Each Co-Borrower and the Lender agrees that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Section 16 and such waivers, Lender would decline to enter into this Agreement.

 

16.3     Benefit of Guaranty. Each Co-Borrower agrees that the provisions of this Section 16 are for the benefit of Lender and its successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Co-Borrower and the Lender, the obligations of such other Co-Borrower under the Loan Documents.

 

16.4     Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, and except as set forth in Section 16.7, each Co-Borrower hereby expressly and irrevocably waives any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor until the Obligations are indefeasibly paid in full in cash. Each Co-Borrower acknowledges and agrees that this waiver is intended to benefit Lender and shall not limit or otherwise affect such Co-Borrower’s liability hereunder or the enforceability of this Section 16, and that Lender and its successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 16.

 

16.5     Election of Remedies. If Lender may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Lender a Lien upon any Collateral, whether owned by any Co-Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 16. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies (including, without limitation, its right to enter a deficiency judgment against any Co-Borrower or any other Person), whether because of any applicable laws pertaining to “election of remedies” or the like, each Co-Borrower hereby consents to such action by Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation that each Co-Borrower might otherwise have had but for such action by Lender. Any election of remedies that results in the denial or impairment of the right of Lender to seek a deficiency judgment against any Co-Borrower shall not impair any other Co-Borrower’s obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee’s sale or at any private sale permitted by law or the Loan Documents, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether a Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 16, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale.

 

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16.6     Limitation. Notwithstanding any provision herein contained to the contrary, each Co-Borrower’s liability under this Section 16 (which liability is in any event in addition to amounts for which such Co-Borrower is primarily liable under this Agreement) shall be limited to an amount not to exceed as of any date of determination the lesser of:

 

(a)     the net amount of all Loans advanced to any other Co-Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Co-Borrower; and

 

(b)     the amount that could be claimed by Lender from such Co-Borrower under this Section 16 without rendering such claim voidable or avoidable under Section 548 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, such Co-Borrower’s right of contribution and indemnification from each other Co-Borrower under Section 16.7.

 

16.7     Contribution with Respect to Guaranty Obligations. 

 

(a)     To the extent that any Co-Borrower shall make a payment under this Section 16 of all or any of the Obligations (other than Loans made to such Co-Borrower for which it is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments then previously or concurrently made by any other Co-Borrower, exceeds the amount that such Co-Borrower would otherwise have paid if each Co-Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Co-Borrower’s “Allocable Amount” (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Co-Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations and termination of the commitments to lend hereunder, such Co-Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Co-Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.

 

(b)     As of any date of determination, the “Allocable Amount” of any Co-Borrower shall be equal to the maximum amount of the claim that could then be recovered from such Co-Borrower under this Section 16 without rendering such claim voidable or avoidable under Section 548 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law.

 

(c)     This Section 16.7 is intended only to define the relative rights of Co-Borrowers and nothing set forth in this Section 16.7 is intended to or shall impair the obligations of Co-Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement. Nothing contained in this Section 16.7 shall limit the liability of any Co-Borrower to pay the Loans made directly or indirectly to such Co-Borrower and accrued interest, fees and expenses with respect thereto for which such Co-Borrower shall be primarily liable.

 

46

 

 

(d)     The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Co-Borrowers to which such contribution and indemnification is owing.

 

(e)     The rights of the indemnifying Co-Borrowers against other Co-Borrowers under this Section 16 shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of the commitments to lend hereunder.

 

16.8     Liability Cumulative. The liability of Co-Borrowers under this Section 16 is in addition to and shall be cumulative with all liabilities of each Co-Borrower to the Lender under this Agreement and the other Loan Documents to which such Co-Borrower is a party or in respect of any Obligations or obligation of the other Co-Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

 

 

 

[Remainder of page intentionally left blank.]

 

47

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

 

	
			BORROWER REPRESENTATIVE and CO-BORROWER:

			CATASYS, INC.

			 

			By: /s/ Christopher Shirley                   

			Name: Christopher Shirley                   

			Title: CFO                                               

				
			CO-BORROWER:

			ANXIOLITIX, INC.

			 

			By: /s/ Christopher Shirley                      

			Name: Christopher Shirley                      

			Title: CFO                                                  

			
	 	
			CO-BORROWER:

			CATASYS HEALTH, INC.

			 

			By: /s/ Christopher Shirley                       

			Name: Christopher Shirley                       

			Title: CFO                                                   

			
	
			LENDER:

			HORIZON TECHNOLOGY FINANCE CORPORATION

			 

			 

			By: /s/ Robert D. Pomeroy, Jr.              

			Name: Robert D. Pomeroy, Jr.

			Title: Chief Executive Officer

				 

 

 

[SIGNATURE PAGE TO VENTURE LOAN AND SECURITY AGREEMENT]

 

 

 

 

LIST OF EXHIBITS AND SCHEDULES

 

 

	Exhibit A	Disclosure Schedule
	Exhibit B	Funding Certificate
	Exhibit C	Form of Note
	Exhibit D	Form of Legal Opinion
	Exhibit E	Form of Officer’s Certificate

     

 

 

 

EXHIBIT A

 

DISCLOSURE SCHEDULE

 

 

[Provided separately]

 

 

 

 

EXHIBIT B

 

FUNDING CERTIFICATE

 

Dated: [_], 20[_]

 

The undersigned, being the duly elected and acting                       of CATASYS, INC., a Delaware corporation (“Borrower Representative”), does hereby certify to HORIZON TECHNOLOGY FINANCE CORPORATION (“Horizon” or “Lender”) in connection with that certain Venture Loan and Security Agreement dated as of [_], 20[_] by and among Borrower Representative, Anxiolitix, Inc. (“Anxiolitix”), Catasys Health, Inc. (“Catasys Health” and collectively with Borrower Representative, Catasys Minnesota and Anxiolitix, “Co-Borrowers”), Lender and Horizon as Collateral Agent (the “Loan Agreement”; with other capitalized terms used below having the meanings ascribed thereto in the Loan Agreement) that:

 

1.     The representations and warranties made by each Co-Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct as of the date hereof. (except to the extent that such representations are made as of a specific date (such as “as of the date hereof”), in which event they shall only be required to remain true and correct in all material respects as of such date (or if such representation or warranty is already qualified as to materiality, in all respects)).

 

2.     No event or condition has occurred that would constitute a Default or an Event of Default under the Loan Agreement or any other Loan Document.

 

3.     Each Co-Borrower is in compliance with the covenants and requirements contained in Sections 4, 6 and 7 of the Loan Agreement.

 

4.     All conditions referred to in Section 3 of the Loan Agreement to the making of the Loan to be made on or about the date hereof have been satisfied.

 

5.     No material adverse change in the general affairs, management, results of operations, or condition (financial or otherwise) of any Co-Borrower, whether or not arising from transactions in the ordinary course of business, has occurred.

 

6.     The proceeds for Loans A and B shall be disbursed as follows:

 

	Disbursement from Horizon:	 
	Loan Amount	$
	Less:	$
	Legal Fees	$
	Balance of Commitment Fee	$
	 	 
	Net Proceeds due from Horizon: 	$

 

 

 

 

7.     The aggregate net proceeds of the Loans in the amount of $_________________ shall be transferred by Horizon to Borrower Representative’s account as follows:

 

Account Name:

Bank Name:

Bank Address:

Attention:

Telephone:

Account Number:

ABA Number:

 

 

 

BORROWER REPRESENTATIVE:

 

CATASYS, INC.

 

By: __________________________

 

Name: ________________________

 

Title: _________________________

 

 

[Signature page to Funding Certificate]

 

 

 

 

EXHIBIT C

 

SECURED PROMISSORY NOTE

 

(Loan A/B/C)

 

	$____________________	Dated: [_______, 20__]

     

FOR VALUE RECEIVED, the undersigned, CATASYS, INC., a Delaware corporation, (“Borrower Representative”), ANXIOLITIX, INC. (“Anxiolitix”), CATASYS HEALTH, INC. (“Catasys Health” and collectively with Borrower Representative, Catasys Minnesota and Anxiolitix, “Co-Borrowers”), HEREBY JOINTLY AND SEVERALLY PROMISE TO PAY to HORIZON TECHNOLOGY FINANCE CORPORATION, a Delaware corporation (“Lender”) the principal amount of ____________ Dollars ($__________) or such lesser amount as shall equal the outstanding principal balance of Loan [_] (the “Loan”) made to any Co-Borrower by Lender pursuant to the Loan Agreement (as defined below), and to pay all other amounts due with respect to the Loan on the dates and in the amounts set forth in the Loan Agreement. Capitalized terms used but not defined herein shall have the meaning ascribed thereto in the Loan Agreement.

 

Interest on the principal amount of this Note from the date of this Note shall accrue from the applicable Funding Date at the Loan Rate or, if applicable, the Default Rate, each as established in accordance with the Loan Agreement (as defined below). Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Funding Date is not the first day of the month, interim interest accruing from the Funding Date through the last day of that month shall be paid on the first calendar day of the next calendar month. Commencing [_], 201[_], through and including September 1, 2019, on the first day of each month (each an “Initial Interest Payment Date”) Co-Borrowers shall make payments of accrued interest only on the outstanding principal amount of the Loan. Commencing on October 1, 2019, and continuing on the first day of each month thereafter (each an “Initial Principal and Interest Payment Date”), Co-Borrowers shall make to Lender thirty (30) equal payments of principal in the amount of [______________] plus accrued interest on the then outstanding principal amount due hereunder. On the earliest to occur of (i) [_], 201[_], (ii) payment in full of the principal balance of the Loan or (iii) an Event of Default and demand by Lender of payment in full of the Loan, Co-Borrowers shall make a payment of One Hundred Fifty Thousand and 00/100 Dollars ($150,000) to Lender (the “Final Payment”). If not sooner paid, all outstanding amounts hereunder and under the Loan Agreement shall become due and payable on [_], 201[_].

 

Notwithstanding, and in lieu of, the foregoing, if Co-Borrowers satisfy the Interest Only Extension Milestone (as defined in the Loan Agreement), then commencing [_], 201[_], through and including March 1, 2020, on the first day of each month (each an “Extended Interest Payment Date”), Co-Borrowers shall make payments of accrued interest only on the outstanding principal amount of the Loan. Commencing on April 1, 2020, and continuing on the first day of each month thereafter (each an “Extended Principal and Interest Payment Date”, and collectively with each Initial Interest Payment Date, each Initial Principal and Interest Payment Date and each Extended Interest Payment date, each a “Payment Date”), Co-Borrowers shall make to Lender twenty-four (24) equal payments of principal in the amount of [______________] plus accrued interest on the then outstanding principal amount due hereunder. On the earliest to occur of (i) [_], 201[_], (ii) payment in full of the principal balance of the Loan or (iii) an Event of Default and demand by Lender of payment in full of the Loan, Co-Borrowers shall make a payment of One Hundred Fifty Thousand and 00/100 Dollars ($150,000) to Lender (the “Final Payment”). If not sooner paid, all outstanding amounts hereunder and under the Loan Agreement shall become due and payable on [_], 201[_].

 

 

 

 

Principal, interest and all other amounts due with respect to the Loan, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

 

This Note is referred to in, and is entitled to the benefits of, the Venture Loan and Security Agreement dated as of the date hereof (the “Loan Agreement”), among Co-Borrowers, Lender, and Lender as Collateral Agent. The Loan Agreement, among other things, (a) provides for the making of a secured Loan to Co-Borrowers, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

 

This Note may not be prepaid, except as set forth in Section 2.3 of the Loan Agreement.

 

This Note and the obligation of each Co-Borrower to repay the unpaid principal amount of the Loan, interest on the Loan and all other amounts due Lender under the Loan Agreement is secured under the Loan Agreement.

 

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

 

Co-Borrowers shall pay all fees and expenses, including reasonable attorneys’ fees and costs, incurred by Lender in the enforcement or attempt to enforce any Co-Borrower’s obligations hereunder not performed when due.

 

Any reference herein to Lender shall be deemed to include and apply to every subsequent holder of this Note. Reference is made to the Loan Agreement for provisions concerning optional and mandatory prepayments, Collateral, acceleration and other material terms affecting this Note.

 

This Note shall be governed by and construed under the laws of the State of Connecticut. Each Co-Borrower agrees that any action or proceeding brought to enforce or arising out of this Note may be commenced in the state or federal courts located within the State of Connecticut.

 

 

 

[Remainder of page intentionally blank. Signature page follows.]

 

 

 

 

IN WITNESS WHEREOF, each Co-Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.

 

 

	
			BORROWER REPRESENTATIVE and 

			CO-BORROWER:

			CATASYS, INC.

			 

			By: ______________________________

			Name: ____________________________

			Title: _____________________________

				
			CO-BORROWER:

			ANXIOLITIX, INC.

			 

			By: ______________________________

			Name: ____________________________

			Title: _____________________________

			
	 	 
	 	
			CO-BORROWER:

			CATASYS HEALTH, INC.

			 

			By: ______________________________

			Name: ____________________________

			Title: _____________________________

			

 

 

 

 

EXHIBIT D

 

ITEMS TO BE COVERED BY OPINION OF EACH CO-BORROWER’S COUNSEL

 

1.     Each Co-Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the state of its incorporation, and is duly qualified and authorized to do business in the State of California.

 

2.     Each Co-Borrower has the full corporate power, authority and legal right, and has obtained all necessary approvals, consents and given all notices to execute and deliver the Loan Documents and perform the terms thereof.

 

3.     The Loan Documents have been duly authorized, executed and delivered by each Co-Borrower.

 

4.     To our knowledge, there is no action, suit, audit, investigation, proceeding or patent claim pending or threatened against any Co-Borrower in any court or before any governmental commission, agency, board or authority which might have a Material Adverse Effect.

 

5.     The execution and delivery of the Loan Documents are not inconsistent with any Co-Borrower’s Certificate of Incorporation, as amended, or Bylaws, do not and will not contravene (i) any of the laws of the state of New York or any related New York governmental rule or regulation, judgment or order applicable to any Co-Borrower (ii) the General Corporation Law of the State of Delaware, or (iii) certain federal laws (which shall not include any federal securities laws) (collectively, such laws set forth in clauses (i) through and including (iii) shall be the “Applicable Laws”); and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other agreement or instrument of which any Co-Borrower is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person under any of the Applicable Laws.

 

 

 

 

EXHIBIT E

 

FORM OF OFFICER’S CERTIFICATE

 

 

	
			TO:

				
			HORIZON TECHNOLOGY FINANCE CORPORATION, as Lender

			
	 	 
	 	 
	
			FROM:

				
			CATASYS, INC., as Borrower Representative

			

 

The undersigned authorized officer (“Officer”) of CATASYS, INC., on behalf of itself and all other Borrowers under and as defined in the Loan Agreement (as defined herein below) (individually and collectively, jointly and severally, “Borrower”), hereby certifies that in accordance with the terms and conditions of the Venture Loan and Security Agreement dated as of [_________] by and among Borrower, Collateral Agent, and the Lender from time to time party thereto (the “Loan Agreement;” capitalized terms used but not otherwise defined herein shall have the meanings given them in the Loan Agreement),

 

(a)     Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below;

 

(b)     There are no Events of Default, except as noted below;

 

(c)     Except as noted below, all representations and warranties of Borrower stated in the Loan Documents are true and correct in all material respects on this date and for the period described in (a), above; 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.

 

(d)     Borrower, and each of Borrower’s Subsidiaries, has timely filed all required tax returns and reports, Borrower, and each of Borrower’s Subsidiaries, has timely paid all foreign, federal, state, and local taxes, assessments, deposits and contributions owed by Borrower, or Subsidiary, except as otherwise permitted pursuant to the terms of Section 5.8 of the Loan Agreement;

 

(e)     No Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Collateral Agent and the Lender.

 

Attached are the required documents, if any, supporting our certification(s). The Officer, on behalf of Borrower, further certifies that the attached financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes and except, in the case of unaudited financial statements, for the absence of footnotes and subject to year-end audit adjustments as to the interim financial statements.

 

 

 

 

Please indicate compliance status since the last Officer’s Certificate by circling Yes, No, or N/A under “Complies” column.

 

	 	
			Reporting Covenant

				
			Requirement

				
			Actual

				
			Complies

			
	
			1)

				
			Financial statements

				
			Quarterly within 45 days

				 	
			Yes

				
			No

				
			N/A

			
	
			2)

				
			Borrowing Base Certificate

				
			Monthly within 30 days

				 	
			Yes

				
			No

				
			N/A

			
	
			3)

				
			Annual (CPA Audited) statements

				
			Within 90 days after FYE

				 	
			Yes

				
			No

				
			N/A

			
	
			4)

				
			Annual Financial Projections/Budget (prepared on a monthly basis)

				
			Annually (within 30 days of the earlier of (i) FYE or (ii) BoD approval), and when revised

				 	
			Yes

				
			No

				
			N/A

			
	
			5)

				
			A/R & A/P agings

				
			Monthly within 30 days

				 	
			Yes

				
			No

				
			N/A

			
	
			6)

				
			8-K, 10-K and 10-Q Filings

				
			Within 5 days of filing

				 	
			Yes

				
			No

				
			N/A

			
	
			7)

				
			Officer’s Certificate

				
			Quarterly within 45 days

				 	
			Yes

				
			No

				
			N/A

			
	
			8)

				
			IP Report

				
			When required due to new IP filings

				 	
			Yes

				
			No

				
			N/A

			
	
			9)

				
			Net Revenue of Texas

			Integrated Health during the

			most recent measurement

			period

				
			$___________________

				 	 	 	 
	
			10)

				
			Management Fee paid to

			Borrower Representative

			pursuant to the Management

			Services Agreement dated as of

			April 2, 2018

				
			$___________________

				 	 	 	 
	
			11)

				
			Net Revenue of California

			Integrated Health during the

			most recent measurement

			period

				
			$___________________

				 	 	 	 
	
			12)

				
			Management Fee paid to

			Borrower Representative

			pursuant to the Management

			Services Agreement dated as of

			[__________]

				
			$___________________

				 	 	 	 
	
			13)

				
			Total amount of Borrower’s

			cash and cash equivalents at the

			last day of the measurement

			period

				
			$___________________

				 	 	 	 
	
			14)

				
			Total amount of Borrower’s

			Subsidiaries’ cash and cash

			equivalents at the last day of

			the measurement period

				
			$___________________

				 	 	 	 

 

 

 

 

Deposit and Securities Accounts: (Please list all accounts; attach separate sheet if additional space needed)

 

	 	
			Institution Name

				
			Account Number

				
			New Account?

				
			Account Control Agreement in place?

			
	
			1)

				 	 	
			Yes

				
			No

				
			Yes

				
			No

			
	
			2)

				 	 	
			Yes

				
			No

				
			Yes

				
			No

			
	
			3)

				 	 	
			Yes

				
			No

				
			Yes

				
			No

			
	
			4)

				 	 	
			Yes

				
			No

				
			Yes

				
			No

			

 

Financial Covenants

 

	 	
			Covenant

				
			Previous Quarter 

			Billings

				
			Current Quarter 

			Billings

				
			Compliance

			
	 	
			Increasing Billings Quarter over Quarter

				
			[$_________]

				
			[$________]

				
			Yes

				
			No

			

 

Other Matters

 

If the response to any of the below is “Yes”, please provide an explanation of the circumstances giving rise to such “Yes” response on an attachment hereto.

 

	
			1)

				
			Have there been any changes in senior management since the last Officer’s Certificate?

				
			Yes

				
			No

			
	
			2)

				
			Has there been any transfers/sales/disposals/retirement or relocation of Collateral or IP prohibited by the Loan Agreement?

				
			Yes

				
			No

			
	
			3)

				
			Have there been any new or pending claims or causes of action against Borrower that involve more than One Hundred Thousand Dollars ($100,000.00)?

				
			Yes

				
			No

			

 

 

 

 

	
			4)

				
			Has any IP been abandoned, forfeited or dedicated to the public since the last Officer’s Certificate?

				
			Yes

				
			No

			
	
			5)

				
			Has any Default or Event of Default occurred since the last Officer’s Certificate?

				
			Yes

				
			No

			
	
			6)

				
			Has Borrower sold new shares of equity or made adjustments to existing shares of equity? If yes, please provide applicable supporting documentation.

				
			Yes

				
			No

			
	
			7)

				
			Has any direct or indirect Subsidiary been formed since the last Officer’s Certificate?

				
			Yes

				
			No

			
	
			8)

				
			Has any piece of a Borrower’s property been subject to a Lien (other than the lien of Lender pursuant to the Loan Agreement) since the date of the last Officer’s Certificate?

				
			Yes

				
			No

			
	
			9)

				
			Has any Borrower or any Subsidiary incurred any Indebtedness since the date of the last Officer’s Certificate?

				
			Yes

				
			No

			
	
			10)

				
			Has Borrower or any Subsidiary made any Investment since the date of the last Officer’s Certificate?

				
			Yes

				
			No

			

 

Exceptions: Please explain any exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions.” Attach separate sheet if additional space needed.)

 

CATASYS, INC., on behalf of itself and all other Borrowers

 

 

By                                                        

 

Name:                                                  

 

Title:                                                    

 

Date: ___________________

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