Credit Agreement

EXHIBIT 10.13


CREDIT AGREEMENT


This Credit Agreement ("Agreement") is made and entered into on July 6, 1999, by and between PDF Solutions, Inc., a California corporation, ("Borrower") and Imperial Bank, a California banking corporation, ("Bank").


Subject to the terms and conditions of this Agreement, any security agreement(s) executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor of Bank, or any other agreements executed in conjunction therewith (collectively, the "Loan Documents"), Bank shall make the loans and or advances (individually a "Loan" and collectively "Loans") referred to below to Borrower.


In consideration of the mutual covenants and conditions hereof, the parties hereto agree as follows:


1. AMOUNT AND TERMS OF CREDIT


1.01 TERM LOAN COMMITMENT.


(a) COMMITMENT. Subject to all the terms and conditions of this Agreement, Bank hereby agrees to make loans (each a "Term Loan") to Borrower in such amounts as Borrower shall request provided that no Event of Default (as hereafter defined) then has occurred and is continuing at any time from the date hereof through June 30, 2000 (the "Term Availability End Date"), in an aggregate principal amount not to exceed $500,000 (the "Term Commitment"). Any commitment of Bank, pursuant to the terms of this Agreement, to make Term Loans shall expire on the Term Availability End Date. Term Loans which are repaid by Borrower may not be reborrowed. Borrower promises to pay to Bank the outstanding unpaid principal balance (and all accrued unpaid interest thereon) of the Term Loans in accordance with Section 1.01 (d) hereof.


(b) TERM LOANS. The Term Loans made by Bank to Borrower hereunder shall be evidenced by a single promissory note ( a "Term Note"). When Borrower desires to obtain a Term Loan, Borrower shall notify Bank (which notice shall be signed by an officer of Borrower and shall be irrevocable) to be received no later than 3:00 p.m. Pacific time one (1) Banking Day before the day on which the Term Loan is to be made. The notice shall be signed by an officer of Borrower and include a copy of the invoice for the item to be financed. Term Loans may only be used to purchase equipment, furniture and software (EFS Purchases"). Term Loans made through December 31, 1999, shall be for EFS Purchases made from November 1, 1998, through May 31, 1999, and will be limited to eighty percent (80%) of the invoice amount for such purchases approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and other soft costs. Term Loans made through December 31, 1999, which shall also be for EFS Purchases made after May 31, 1999, will be limited to one hundred percent (100%) of the invoice amount for such EFS Purchases approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and other soft costs. Term Loans made after December 31, 1999, and through June 30, 2000, which shall only be for EFS Purchases made after May 31, 1999, will be limited to one hundred percent (100%) of the invoice amount for such EFS Purchases approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and other soft costs.


1 2


(c) INTEREST PAYMENTS AND RATE. Borrower further promises to pay to Bank from the date of the advance of the initial Term Loan through the Term Loan Maturity Date, on or before the last day of each month, interest on the average daily unpaid balance of each Term Loan during the immediately preceding month at a rate of interest equal to one percent (1.00%) per annum in excess of the Prime Rate as specified below.


(d) PRINCIPAL REPAYMENT. For Term Loans made through December 31, 1999, Borrower further promises to pay to Bank, on or before the last day of each month commencing January 1, 2000, and continuing through December 31, 2002, the outstanding principal balance of each such Term Loan on December 31, 1999, in thirty six (36) equal monthly installments of principal plus interest on the average daily unpaid balance of each Term at the rate of interest and computed in accordance with the immediate preceding Section of this Agreement. For Term Loans made through from January 1, 2000, through June 30, 2000, Borrower further promises to pay to Bank, on or before the last day of each month commencing July 1, 2000, and continuing through December 31, 2002, the outstanding principal balance of each such Term Loan on June 30, 2000, in thirty (30) equal monthly installments of principal plus interest on the average daily unpaid balance of each Term Note at the rate of interest and computed in accordance with the immediate preceding Section of this Agreement.


1.02 REVOLVING CREDIT COMMITMENT.


(a) REVOLVING LINE OF CREDIT. Subject to the terms and conditions of this Agreement, provided that no Event of Default then has occurred and is continuing, Bank shall, upon Borrower's request make advances ("Revolving Loans") to Borrower, for general corporate purposes, in an amount not to exceed $500,000 (the "Revolving Line of Credit") until June 30, 2000 (the "Revolving Line of Credit Maturity Date"). Revolving Loans may be repaid and reborrowed, provided that all outstanding principal and accrued interest on the Revolving Loans shall be payable in full on the Revolving Line of Credit Maturity Date.


(b) REVOLVING NOTE. The interest rate, principal and interest payments, maturity date and certain other terms of the Revolving Loan will be contained in a promissory note dated the date of this agreement, as such may be amended or replaced from time to time.


1.03 DOMESTIC ASSET BASED LINE OF CREDIT COMMITMENT (ABL LINE OF CREDIT)


(a) LINE OF CREDIT - ACCOUNTS RECEIVABLE BORROWING BASE CONSTRAINED. Subject to all the terms and conditions of this Agreement, provided that no Event of Default then has occurred and is continuing, Bank shall upon Borrower's request, make advances ("ABL Loans") to Borrower, from time to time and in such amounts as Borrower shall request up to an aggregate principal amount outstanding not to exceed:


(1) Seventy Five percent (75%) of Eligible Accounts, not to exceed $500,000 as such Eligible Accounts may be adjusted from time to time as provided for under 4.15 hereof (the "Borrowing Base") and in no event more than $500,000 (the "ABL Line of Credit").


2 3


If at any time or for any reason, the outstanding principal amount of the ABL Loan Account (as defined below) is greater than the lessor of: (x) the Borrowing Base or (y) the ABL Line of Credit, Borrower shall, upon Bank's request, immediately pay to Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to the terms of this Agreement, to make ABL Loans shall expire on the ABL Maturity Date (as hereinafter defined), subject to Bank's right to renew said commitment in its sole and absolute discretion at Borrower's request. Any such renewal of said commitment shall not be binding upon Bank unless it is in writing and signed by an officer of Bank. Provided that no Event of Default (as hereinafter defined) has occurred and is continuing, all or any portion of the ABL Loans advanced by Bank which are repaid by Borrower shall be available for reborrowing in accordance with the terms hereof. Borrower promises to pay to Bank the entire outstanding unpaid principal balance (and all accrued unpaid interest thereon) of the ABL Loan Account on the earlier of demand by Bank or June 30, 2000 ("ABL Maturity Date").


(b) LIMITATION ON ADVANCE OF ANY ABL LOANS. Notwithstanding any of the provisions contained in Section 1.03 (a) hereof, prior to inital ABL Loan, a representative of Bank shall have conducted an audit of Borrower's books and records relating to the Accounts and any other Collateral for the ABL Loans and made extracts therefrom, and arranged for verification of the Accounts, directly with the account debtors or otherwise, all with results satisfactory to Bank, the reasonable cost of such audit of which shall be at Borrower's sole expense. Based on Bank's review of such audit, and prior to the advance of an ABL Loan in accordance with the terms of this Agreement hereof, Bank may adjust the Borrowing Base percentage, in its sole and reasonable discretion, as provided for under Section 4.15 hereof.


(c) LOAN LEDGER ACCOUNT. The amount of each ABL Loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank for the ABL Line of Credit (herein called the "ABL Loan Account") and Bank shall credit the ABL Loan Account with all loan repayments in respect thereof made by Borrower. ABL Loans may only be used for general corporate purposes.


(d) ABL LOANS INTEREST. Borrower further promises to pay to Bank from the date of the advance of the initial ABL Loan through the ABL Maturity Date, on or before the thirtieth (30) day of each month, interest on the unpaid balance of the ABL Loan Account at a rate of interest equal to three quarters of one percent (3/4%) per annum in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in the Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the ABL Loans are outstanding divided by 360, which shall for interest computation purposes be considered one (1) year.


(e) CERTAIN DEFINITIONS. As used herein the following terms shall have the following meanings:


"Accounts" means any right to payment for goods sold or leased, or rented, or to be sold or to be leased, or to be rented, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables.


3 4


"Collateral" means any and all property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest.


"Eligible Accounts" Eligible Accounts shall only include such Accounts as Bank in its sole discretion shall determine are eligible from time to time. "Eligible Accounts" shall also NOT include any of the following:


(1) All Accounts under which payment is not received within 90 days from any invoice date or 60 days from any due date;


(2) All Accounts against which the account debtor or any other person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Account;


(3) Any Accounts if the account debtor or any other person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower.


(4) Account balances over 90 days from invoice date or 60 days past the due date, no more than 90 days from invoice date. Foreign accounts covered by foreign credit insurance or Commercial Letters of Credit that allow more extended terms may be considered on a case by case basis.


(5) Credit balances greater than 90 days from invoice date or 60 days past the due date.


(6) Accounts due from a debtor if 25% or more of the aggregate amount of accounts of such debtor have at that time remained unpaid for more then 90 days from invoice date or 60 days past the due date.


(7) For accounts representing more than 25% of Borrower's total accounts receivable, the balance in excess of the 25% is not eligible. However, Bank may deem, in its sole discretion, the entire amount, or any portion thereof, eligible.


(8) Accounts with respect to international transactions unless insured by an insurance company acceptable to the Bank or covered by letters of credit issued or confirmed by a bank acceptable to the Bank. Bank, in its sole discretion, may deem as eligible amounts due from major, publicly owned foreign companies.


(9) Accounts with respect to which the account debtor is an officer, director, shareholder, employee, subsidiary or affiliate of Borrower.


(10) Accounts where the account debtor is a seller to Borrower, whereby a potential offset (contra) exists.


(11) Consignment or guaranteed sales.


(12) Bill and hold accounts.


4 5


(13) Collection accounts.


(14) C.O.D. accounts.


(15) Salesmen's accounts for promotional purposes.


(16) All United States Government receivables, unless formally assigned to the Bank.


(17) Accounts representing billings for service or maintenance contracts or for inventory or equipment on rent to the account debtor.


(18) Deferred revenues.


(19) Pre-billings.


(f) REQUESTS FOR ABL LOANS. Requests for ABL Loans hereunder shall be in writing duly executed by Borrower in a form satisfactory to Bank and shall contain a certification setting forth the matters referred to in Section 1, which shall disclose that Borrower is entitled to the amount of loan being requested.


(g) LATE CHARGE. If any installment payment, interest payment, principal payment or principal balance due under the ABL Line of Credit is delinquent twenty (20) or more days, Borrower agrees to pay Bank a late charge in the amount of three percent (3%) of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of Bank to accept payment of any payment past due or less than the total unpaid principal balance after maturity. All payments, at Bank's sole discretion, shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal.


(h) DEFAULT RATE. If an Event of Default occurs hereunder, then during the continuance thereof at Bank's option, the interest rate shall be five percent (5%) per year in excess of the rate otherwise applicable.


(i) INTEREST CALCULATIONS. The term "Prime Rate" shall mean the rate that the Bank has announced as its prime rate, which shall vary concurrently with any change in the Prime Rate. Interest based on the Prime Rate shall vary concurrently with any change in the Prime Rate. All interest shall be computed at the rate specified in any note on the basis of the actual number of days during which the principal balance of the corresponding Loans are outstanding divided by 360, which shall for interest computation purposes be considered one (1) year.


1.04 LOAN FEES. In addition to any other amounts due, or to become due, concurrent with the execution hereof, in connection with: (a) the Revolving Line of Credit, Borrower shall pay to Bank a loan fee Zero Dollars ($0.00), (b) the Term Loan Borrower shall pay to Bank a loan fee in the amount of Fifteen Hundred Dollars ($1,500.00).


5 6


1.05 DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other amounts due, or to become due, concurrently with the execution hereof, Borrower agrees to pay to Bank a documentation fee in the amount of $250, and all other reasonable costs and expenses incurred by Bank in the preparation of this Agreement, the other Loan Documents and the perfection of any security interest granted to Bank by Borrower.


1.06 COLLATERAL. Borrower shall grant or cause to be granted to Bank a first priority lien on any and all personal property assets of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest or pursuant to the terms of any security agreement, an intellectual property security agreement or otherwise as security for all of Borrower's obligations to Bank, all as may be subject to Section 5.03 herein.


1.07 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest, fees, costs, and/or expenses due under this Agreement by charging Borrower's demand deposit account number ___________ with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. Bank agrees to promptly notify Borrower after any such charge, provided that the failure to give such notice shall not affect the validity of such charge.


2. REPRESENTATIONS OF BORROWER


Borrower represents and warrants that:


2.01 EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of California, Borrower is authorized and in good standing to do business in the state of its incorporation; Borrower has the appropriate powers and adequate authority, rights and franchises to own its property and to carry on its business as now conducted, and is duly qualified and in good standing in each state in which the character of the properties owned by it therein or the conduct of its business makes such qualification necessary; and Borrower has the power and adequate authority to make and carry out this Agreement. Borrower has no investment in any other business entity unless specified in writing to Bank.


2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this Agreement and the Loan Documents are duly authorized and do not require the consent or approval of any governmental body or other regulatory authority; are not in contravention of or in conflict with any law or regulation or any term or provision of Borrower's articles of incorporation, or similar document as the case may be, and this Agreement is the valid, binding and legally enforceable obligation of Borrower in accordance with its terms; subject only to bankruptcy, insolvency or similar laws affecting creditors rights generally.


2.03 NO CONFLICT. The execution, delivery and performance of this Agreement and the other Loan Documents are not in contravention of or in conflict with any material agreement, indenture or undertaking to which Borrower is a party or by which it or any of its property may be bound or affected, and do not cause any lien, charge or other encumbrance to be created or imposed upon any such property by reason thereof.


6 7


2.04 LITIGATION. Except as disclosed in writing to bank by Borrower, there is no litigation or other proceeding pending or, to Borrower's knowledge, threatened against or affecting Borrower which if determined adversely to Borrower or its interest would have a material adverse effect on the financial condition of Borrower, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority.


2.05 FINANCIAL CONDITION. The balance sheet of Borrower as of December 31, 1998, and the related profit and loss statement for the same period ended as of that date, a copy of which has heretofore been delivered to Bank by Borrower, and all other statements and data submitted in writing by Borrower to Bank in connection with this request for credit are true and correct in all material respects, and said balance sheet truly presents the financial condition of Borrower as of the date thereof, and has been prepared in accordance with generally accepted accounting principles on a basis consistently maintained. Since such date there have been no material adverse changes in the financial condition or business of Borrower. Borrower has no knowledge of any liabilities, contingent or otherwise, at such date not reflected in said balance sheet, and Borrower has not entered into any special commitments or substantial contracts which are not reflected in said balance sheet, other than in the ordinary and normal course of its business, which may have a materially adverse effect upon its financial condition, operations or business as now conducted.


2.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are not subject to any liens or encumbrances other than those permitted by Section 5.03 hereof.


2.07 TAX STATUS. Borrower has no liability for any delinquent state, local or federal taxes except such taxes which are being contested in good faith and as to which adequate reserves has been establihed, and, if Borrower has contracted with any government agency, Borrower has no liability for renegotiation of profits.


2.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with the valid trademarks, trade names, copyrights, patents and license rights of others.


2.09 REGULATION U. None of the proceeds of any Loan shall be used to purchase or carry margin stock (as defined within Regulation U of the Board of Governors of the Federal Reserve system).


2.10 ERISA. All defined benefit pension plans as defined in the Employees Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet, as of the date hereof, the minimum funding standards of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in ERISA has occurred with respect to any such plan.


2.11 YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable, have reviewed the areas within their operations and business which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the Year 2000 Problem and have made related appropriate inquiry of material suppliers and vendors, and based on such review and program, the Year 2000 Problem will not have a material adverse effect upon its financial condition,


7 8


operations or business as now conducted. "Year 2000 Problem" means the possibility that any computer applications or equipment used by Borrower may be unable to recognize and properly perform date sensitive functions involving certain dates prior to and any dates on or after December 31, 1999.


3. CONDITIONS PRECEDENT TO LOAN.


Prior to Bank being obligated to make any Loan pursuant to this Agreement, Bank must receive all of the following, each of which must be in form and substance satisfactory to Bank:


3.01 PROMISSORY NOTE(S). Original, executed promissory note(s).


3.02 SECURITY AGREEMENT. Original, executed security agreement(s) covering the personal property collateral securing the Loan(s).


3.03 FINANCING STATEMENT. Financing statement(s) executed by Borrower.


3.04 INSURANCE. Borrower shall have delivered to Bank evidence of insurance coverage required pursuant to that Agreement to Provide Insurance executed by Borrower, in form, substance, amounts, covering risks and issued by companies reasonably satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank.


3.05 ORGANIZATIONAL DOCUMENTS. Copies of the charter/articles of incorporation, or similar document as the case may be, of Borrower.


3.06 AUTHORIZATIONS. Certified copies of all action taken by the Borrower to authorize the execution, delivery and performance of the Loan Documents.


3.07 GOOD STANDING. Good standing certificates from the appropriate secretary of state of the state in which Borrower is organized and in each state in which it is required to be qualified to do business.


3.08 ADDITIONAL DOCUMENTS. Such other documents as Bank may reasonably deem necessary.


4. AFFIRMATIVE COVENANTS OF BORROWER


Borrower agrees that so long as it is indebted to Bank, under borrowings, or other indebtedness, or so long as Bank has any obligation to extend credit to Borrower it will, unless Bank shall otherwise consent in writing:


4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and other authority adequate for the conduct of its business; maintain its properties, equipment and facilities in good order and repair; conduct its business in an orderly manner without voluntary interruption and, if a corporation or partnership, maintain and preserve its existence.


8 9


4.02 USE OF PROCEEDS. Use the proceeds of the Loans only for purposes specified in Section 1 of this Agreement.


4.03 INSURANCE. Maintain public liability, property damage and workers' compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses and/or in the exercise of good business judgment, and as required by that Agreement to Provide Insurance executed by Borrower, with the Bank to be shown as Lenders Loss Payee on such policies.


4.04 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and governmental charges upon or against it or any of its properties, and all its other liabilities at any time existing, except to the extent and so long as:


(a) The same are being contested in good faith and by appropriate proceedings in such manner as not to cause any materially adverse effect upon its financial condition or the loss of any right of redemption from any sale thereunder; and


(b) It shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting practice) deemed by it to be adequate with respect thereto.


4.05 RECORDS AND REPORTS. Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles on a basis consistently maintained; permit Bank's representatives to have access to, and to examine its properties, books and records at all reasonable times and upon reasonable notice during normal business hours; and furnish Bank:


(a) MONTHLY FINANCIAL STATEMENT. As soon as available, and in any event within Thirty (30) days after the close of each month, a balance sheet, profit and loss statement and reconciliation of Borrower's capital balance accounts as of the close of such period and covering operations for the portion of Borrower's fiscal year ending on the last day of such period, all in reasonable detail and reasonably acceptable to Bank, in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower.


(b) ANNUAL FINANCIAL STATEMENT. As soon as available, and in any event within One Hundred Twenty (120) days after and as of the close of each fiscal year of Borrower commencing on fiscal year end December 31, 1999, report of audit of Borrower, all in reasonable detail, unqualified audit by an independent certified public accountant selected by Borrower and reasonably acceptable to Bank, in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower;


(c) OFFICER'S CERTIFICATE. Within Thirty (30) days after the end of each month, a certificate of the corporate officer of Borrower, stating that Borrower has performed and observed each and every covenant contained in this Agreement to be performed by it and that no event has occurred and no condition then exists which constitutes an event of default hereunder or would constitute such an Event of Default upon the lapse of time or upon the giving of notice and the lapse of time specified herein; or,


9 10


if any such event has occurred or any such condition exists, specifying the nature thereof [in the form of exhibit 4.05 (c) attached hereto];


(d) A ...