UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported): March 12, 2021

 

Genasys Inc.

(Exact name of registrant as specified in its charter)

 

        Delaware        

      000-24248      

      87-0361799      

(State or Other Jurisdiction of

Incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

 

16262 West Bernardo Drive

San Diego, California 92127

 

(Address of Principal Executive Offices)

 


 

858-676-1112

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14.a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $.00001 par value per share

GNSS

NASDAQ Capital Market

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On March 12, 2021, Genasys Inc. (the “Company”) entered into a Loan Agreement (the “Loan Agreement”) with MUFG Union Bank, N.A. (the “Lender”) for a $10.0 million secured term loan (the “Term Loan”). In connection with the Term Loan, the Company also entered into a Commercial Promissory Note (the “Note”) and a Security Agreement (the “Security Agreement”) in favor of the Lender. The Term Loan has a maturity date of March 31, 2023 and bears interest at the selected London Interbank Offered Rate (“LIBOR”) + 2.25% per annum. As collateral for the Term Loan, the Company granted to the Lender under the Security Agreement a first lien security interest in substantially all of the Company’s domestic assets, including intellectual property assets.

 

The Loan Agreement includes limitations on the Company’s ability (without prior consent from the Lender), to, among other things, grant certain liens, incur certain debt, make certain investments, engage in certain mergers and acquisitions, dispose of assets, establish new subsidiaries, make certain distributions, make certain capital expenditures, enter into certain affiliated transactions, make certain changes to its accounting practices or governing documents, and use of any funds in any way that result in any sanctions or violations of law by the Company. The Loan Agreement also requires the Company to take certain actions with the loan funds, to keep current on its payment obligations, to maintain its existence, to comply with applicable law and contractual obligations, to maintain its books and records and permit the Lender to make inspections of its books and records, to furnish quarterly and annual and other financial information, to maintain certain insurance coverage, and to cause its subsidiary to guaranty the indebtedness in certain circumstances. The Loan Agreement contains other customary covenants for an arrangement of its type, as well as minimum cash flow ratio and leverage ratio covenants.

 

The events of default under the Loan Agreement and Note include, among other things, payment defaults, breaches of covenants, default under other material indebtedness of the Company, and the occurrence of a change of control. In the event of certain events of default, the Lender may, among other remedies, declare all unpaid principal and interest immediately due and payable and exercise all other rights and remedies available to it under the Loan Agreement, Note and the Security Agreement.

 

The above description of the Loan Agreement, the Note and the Credit Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the full text of the Loan Agreement, the Note and the Credit Agreement, which are filed as Exhibits 10.1, 10.2 and 10.3 to this Current Report on Form 8-K and which are incorporated herein by reference.

 

Item 2.03           Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The disclosures under Item 1.01 of this Current Report on Form 8-K are also responsive to Item 2.03 of this Current Report on Form 8-K and are incorporated by reference into this Item 2.03.

 

Item 9.01           Financial Statements and Exhibits.

 

(d)         Exhibits

 

10.1         Loan Agreement, by and between the Company and MUFG Union Bank, N.A.

 

10.2         Commercial Promissory Note, of the Company in favor of MUFG Union Bank, N.A.

 

10.3         Security Agreement, by and between the Company and MUFG Union Bank, N.A.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: March 17, 2021

 

Genasys Inc.

 

 

 

 

 

 

By:

/s/ Dennis D. Klahn

 

 

 

Dennis D. Klahn

 

 

 

Chief Financial Officer

 

  

 

 

Exhibit 10.1

 

LOAN AGREEMENT

 

THIS LOAN AGREEMENT, dated as of March 8, 2021 (this “Agreement”), is made and entered into by and between Genasys Inc., a Delaware corporation (“Borrower”), and MUFG UNION BANK, N.A., a national banking association (“Bank”), with reference to the following facts:

 

A.         Borrower has requested that Bank make available to Borrower a $10,000,000 revolving credit facility.

 

B.         Bank is willing to make available to Borrower the requested credit facility on the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

SECTION 1. THE CREDIT

 

1.1    The Revolving Loan. Bank will loan to Borrower an amount not to exceed Ten Million and 00/100 Dollars ($10,000,000.00) outstanding in the aggregate at any one time (the “Revolving Loan”). The proceeds of the Revolving Loan shall be used for Permitted Acquisitions and Borrower’s general working capital purposes. Borrower may borrow, repay and reborrow all or part of the Revolving Loan in accordance with the terms of the Revolving Note (defined below). All borrowings of the Revolving Loan must be made before March 31, 2023 (the “Maturity Date”), at which time all unpaid principal and interest of the Revolving Loan shall be due and payable. The Revolving Loan shall be evidenced by Bank’s standard form of commercial promissory note (the “Revolving Note”). Bank shall enter each amount borrowed and repaid in Bank’s records and such entries shall be deemed correct. Omission of Bank to make any such entries shall not discharge Borrower of its obligation to repay in full with interest all amounts borrowed.

 

1.2    The Standby L/C Sublimit. As a sublimit under the Revolving Loan, Bank shall issue, for the account of Borrower, one or more irrevocable standby letters of credit (individually, a “Standby L/C” ). Standby L/Cs shall be issued only for providing performance guaranties and to support Borrower’s ongoing operations. The aggregate amount available to be drawn under all Standby L/Cs and the aggregate amount of unpaid reimbursement obligations under drawn Standby L/Cs shall not exceed Three Million and 00/100 Dollars ($3,000,000.00) and shall reduce, dollar for dollar, the maximum amount available under the Revolving Loan. All Standby L/Cs shall be drawn on terms and conditions acceptable to Bank and shall be governed by the terms of (and Borrower agrees to execute) Bank’s standard form of standby letter of credit application and reimbursement agreement. No Standby L/C shall expire more than one (1) year from the date of its issuance, and in no event later than the 10th business day immediately preceding the Maturity Date. If any Standby L/C is scheduled to expire later than the 10th business day immediately preceding the Maturity Date or otherwise remains outstanding after such date, (a) Borrower shall, upon demand by Bank, cash collateralize the aggregate amount available to be drawn on all such Standby L/Cs and all unpaid reimbursement obligations with respect thereto, (b) Bank shall hold all such funds in a noninterest bearing account as collateral for the Obligations, and (C) Borrower hereby grants to Bank a security interest in such funds and such account.

 

1.3    Terminology. The following words and phrases, whether used in their singular or plural form, shall have the meanings set forth below:

 

“Acquisition” means the acquisition by Borrower or any of its Subsidiaries, directly or indirectly, of (i) any going-concern business or all or substantially all of the assets of any Person or division, whether through purchase of assets, merger or otherwise or (ii) at least a majority of the Equity Securities (by percentage or voting power) of any Person

 

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“Anti-Corruption Laws” means the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder, and any other anti-corruption law applicable to Borrower and its Subsidiaries.

 

“Change of Control” shall mean any of the following:

 

(a)         Borrower ceases to own, directly or indirectly, one hundred percent (100%) of the Equity Securities of each of its direct and indirect Subsidiaries, subject only to liens, claims or restrictions that are in favor of Bank; or

 

(b)         any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 10% or more of the economic or voting interests of Borrower.

 

“Closing Date” means the date all conditions set forth in Section 2 are satisfied or waived by the Bank.

 

“Debtor Relief Laws” shall mean the United States Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect.

 

“Default” means the occurrence or existence of any condition, event or act which, with notice or lapse of time, or both, would constitute an Event of Default.

 

“Distribution” means, with respect to any Person, (i) the payment of any dividend or the making of any distribution on its Equity Securities (including any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such), (ii) the purchase, redemption, retirement, defeasance or other acquisition for value any of its Equity Securities, (iii) the return of any capital to any holder of its Equity Securities as such, or (iv) the setting apart of any sum for any such purpose.

 

“EBITDA” means, for any accounting period, Net Income for such period, (a) plus, without duplication, and to the extent deducted in calculating Net Income for such period, the sum of (i) interest expense, (ii) the sum of federal, state, local and foreign income taxes accrued or paid in cash during such period, (iii) the amount of depreciation and amortization expense, (iv) all extraordinary or non-recurring items reducing Net Income for such period, and (v) all non-cash items reducing Net Income for such period, and (b) minus, without duplication, and to the extent included in calculating Net Income for such period, (i) all extraordinary or non-recurring items increasing Net Income for such period, and (ii) all non-cash items increasing Net Income for such period.

 

“Equity Securities” of any Person shall mean (a) all common stock, preferred stock, participations, shares, partnership interests or other equity interests in and of such Person (regardless of how designated and whether voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.

 

“GAAP” means generally accepted accounting principles and practices consistently applied. Accounting terms used in this Agreement but not otherwise expressly defined have the meanings given them by GAAP.

 

“Guarantor” shall mean any Person that executes and delivers a Guaranty to Bank as of the Closing Date or at any time thereafter. There are no Guarantors as of the Closing Date.

 

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“Guaranty” shall mean each or any continuing guaranty, in each case as amended from time to time, together with any additional or replacement guaranty, given by a Guarantor to Bank guaranteeing the Obligations. There are no Guaranties as of the Closing Date.

 

“Indebtedness” of a Person means, without duplication, such Person’s (a) obligations for borrowed money (including the Obligations under this Agreement and the other Loan Documents), (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (d) obligations evidenced by notes, acceptances, or other instruments, (e) obligations to purchase securities or other property arising out of or in connection with the sale of the same or substantially similar securities or property, (f) capitalized lease obligations, (g) obligations as an account party with respect to standby and commercial letters of credit, (h) guaranties and other contingent obligations of such Person, and (i) any other obligation for borrowed money or other financial accommodation that in accordance with GAAP would be shown as a liability on the consolidated balance sheet of such Person.

 

“Investment” of a Person means (a) any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; (b) Equity Securities, bonds, mutual funds, notes, debentures or other securities (including warrants or options to purchase securities) owned by such Person; (c) any deposit accounts and certificates of deposit owned by such Person; (d) structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person; and (e) any Acquisition.

 

“Lien” means any voluntary or involuntary security interest, mortgage, pledge, claim, charge, encumbrance, title retention agreement, or third party interest, covering all or any part of the property of Borrower or any Guarantor.

 

“Loan” means all the credit facilities described above.

 

“Loan Documents” means this Agreement, the Note, the Security Agreement, and all other documents, instruments and agreements required by Bank and executed in connection with this Agreement, the Note, the Loans, and with all other credit facilities from time to time made available to Borrower by Bank.

 

“Net Income” means, for any reference period, the net income (or loss) of the Borrower, determined in accordance with GAAP.

 

“Note” means all the promissory notes described above.

 

“Obligations” means all loans, advances, debts, liabilities, and obligations of every kind and description, howsoever arising, owed by Borrower to Bank pursuant to the terms of this Agreement or any of the other Loan Documents (whether or not evidenced by any note or instrument and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including without limitation all interest, fees, charges, expenses, attorneys’ fees and accountants’ fees chargeable to Borrower or payable by Borrower hereunder or thereunder (including interest and fees that accrue after the commencement by or against Borrower of any proceeding under any Debtor Relief Laws naming Borrower as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding). If any amount previously paid to Bank on account of any Obligation is thereafter restored or returned by Bank, whether in an insolvency proceeding of Borrower or for any other reason, such Obligation shall be reinstated and revived automatically as though such amount had not been paid to Bank.

 

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“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control, and any successor thereto.

 

“Permitted Acquisition” means an Acquisition, provided that (a) no Default shall have occurred and be continuing at the time of such Acquisition or would result from the consummation of such Acquisition, (b) the property acquired (or the property of the Person acquired) in such Acquisition is used or useful in the same or a similar, ancillary or related line of business as Borrower and its Subsidiaries were engaged in on the Closing Date (or any reasonable extensions or expansions thereof), (c) in the case of an Acquisition of the Equity Securities of another Person, the board of directors (or other comparable governing body) of such other Person shall have duly approved such Acquisition, (d) Borrower shall have delivered to Bank a certificate of an officer authorized to act on behalf of Borrower demonstrating that (i) Borrower would be in compliance with the financial covenants set forth in Sections 4.7 and 4.8 recomputed as of the end of the period of the four fiscal quarters most recently ended for which Borrower has delivered financial statements pursuant to Section 4.6, and (ii) such Acquisition would have an accretive effect on Borrower’s EBITDA, in each case, after giving effect to such Acquisition on a pro forma basis, (e) the representations and warranties made by Borrower in this Agreement and each other Loan Document shall be true and correct in all material respects at and as if made as of the date of such Acquisition (after giving effect thereto), (f) (i) Borrower shall have delivered to Bank, at least five (5) business days prior to the consummation such Acquisition (or such shorter period as the Bank may accept), a due diligence package, together with, in reasonable detail, the terms and conditions of such Acquisition, and (ii) Borrower shall have delivered to Bank to the extent reasonably requested by Bank, as soon as available, executed counterparts of the material respective agreements, documents or instruments pursuant to which such Acquisition is to be consummated, any schedules to such agreements, documents or instruments and all other material ancillary agreements, instruments and documents to be executed or delivered in connection therewith, and such financial information with respect to the target as reasonably requested by Bank and available to Borrower without undue expense or delay; and (g) the aggregate cash and non-cash consideration (including assumed Indebtedness, the good faith estimate by Borrower of the maximum amount of any deferred purchase price obligations (including any earn out payments) and Equity Securities) for all such Acquisitions occurring during the term of this Agreement shall not exceed $20,000,000.

 

“Permitted Debt” means (i) the Obligations of Borrower under the Loan Documents; (ii) existing Indebtedness of Borrower as of the date hereof and listed on Schedule 5.2; (iii) Indebtedness arising from the endorsement of instruments for collection in the ordinary course of Borrower’s business; (iv) Indebtedness for trade accounts payable arising in the ordinary course of Borrower’s business; (v) Indebtedness under purchase money loans and capital leases incurred by Borrower solely to finance the purchase price of real property, fixtures or equipment, provided that (A) in each case, (x) such Indebtedness is incurred at the time of, or not later than 90 days after, the in-service date for the assets or property so financed, (y) such Indebtedness does not exceed the purchase price of the assets or property so financed and (z) the incurrence of such Indebtedness would not cause a violation of any covenant set forth in this Agreement, and (B) the aggregate outstanding amount of all such Indebtedness shall not exceed $2,000,000 at any time; (vi) Subordinated Debt, provided, that (A) all such Subordinated Debt shall be unsecured, (B) no Default has occurred and is continuing at the time such Subordinated Debt is to be incurred or would result from the incurrence of such Subordinated Debt, and (C) after giving effect to the incurrence of such Subordinated Debt, the ratio of the Borrower’s total liabilities (including all Subordinated Debt) to EBITDA of the Borrower for the most recently completed 12-month period would not be greater than 3.00:1.0 or less than 0.00:1.0; and (vii) Indebtedness with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business.

 

“Permitted Investments” means (i) cash and cash equivalents; (ii) existing Investments as of the date hereof and listed on Schedule 5.5; (iii) Investments received by Borrower in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iv) Investments between or among Borrower and its Subsidiaries (but subject to Sections 4.10, 5.6 and 5.8); (v) deposit accounts; and (vi) Permitted Acquisitions.

 

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“Permitted Liens” means (i) Liens in favor of Bank securing the Obligations; (ii) existing Liens as of the date hereof and listed in Schedule 5.1; (iii) Liens for taxes not yet delinquent or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with GAAP; (iv) Liens of carriers, warehousemen, mechanics, materialmen, vendors, and landlords and other similar Liens imposed by law incurred in the ordinary course of business for sums not overdue or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with GAAP; (v) deposits under workers’ compensation, unemployment insurance and social security laws or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or to secure statutory obligations of surety or appeal bonds or to secure indemnity, performance or other similar bonds in the ordinary course of business; (vi) banker’s Liens and similar Liens (including set-off rights) in respect of bank deposits; (vii) ordinary course purchase money Liens and rights of vendors or lessors under conditional sale agreements, capital leases or other title retention agreements, provided that, in each case, (A) such rights secure or otherwise relate to Permitted Debt, (B) such rights do not extend to any property other than property acquired with the proceeds of such Permitted Debt, and (C) such rights do not secure any Indebtedness other than such Permitted Debt; and (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of Borrower’s business.

 

“Person” means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any governmental authority.

 

“Sanctions” means sanctions administered or enforced from time to time by the U.S. government, including those administered by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority.

 

“Security Agreement” means that certain Security Agreement, dated as of the date hereof, executed by Borrower in favor of Bank.

 

“Subordinated Debt” shall mean indebtedness of Borrower that has been subordinated in right of payment to Borrower’s obligations owed to Bank (including, without limitation, the Loan) pursuant to a written agreement of subordination that is satisfactory in form and substance to Bank.

 

“Subsidiary” of a Person means any corporation, partnership, limited liability company, association, joint venture, or similar business organization more than 50% of the outstanding Equity Securities having ordinary voting power of which at the time is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. Unless otherwise expressly provided, “Subsidiary” means a Subsidiary of Borrower.

 

1.4    Prepayment. The Loan may be prepaid in full or in part but only in accordance with the terms of the Note, and any such prepayment shall be subject to any prepayment fee provided for therein.

 

1.5    Interest. The unpaid principal balance of the Loan shall bear interest at the rate or rates provided in the Note.

 

1.6    Upfront Commitment Fee. On or before the date of execution of this Agreement, Borrower shall pay to Bank a nonrefundable commitment fee of Twenty Five Thousand Dollars ($25,000).

 

1.7    Unused Fee. On March 31, 2021 and the last day of each calendar quarter thereafter, Borrower shall pay to Bank a fee of 0.25% per year on the unused portion of the Revolving Loan for the preceding quarter (or portion thereof), computed on the basis of a 360 day year for actual days elapsed.

 

1.8    Balances. Borrower shall maintain its major depository accounts with Bank until all Obligations have been indefeasibly paid and satisfied in full.

 

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1.9    Disbursement. Bank shall disburse the proceeds of the Loan as provided in Bank’s standard form Authorization(s) to Disburse executed by Borrower.

 

1.10    Security. Prior to any Loan disbursement, Borrower shall execute one or more security agreements on Bank’s standard form, and Bank shall file one or more financing statements in the official records of the appropriate state government and/or any other location required by Bank, granting to Bank a first priority security interest in such of Borrower’s property as is described in said security agreement(s). Any exceptions to Bank’s first priority Lien are permitted only as provided in this Agreement. At Bank’s request, Borrower will obtain executed landlord’s and mortgagee’s waivers, each on Bank’s form, covering all of Borrower’s property located on leased or encumbered real property.

 

SECTION 2. CONDITIONS PRECEDENT

 

Bank shall not be obligated to disburse all or any portion of the Loans unless at or prior to the time of each such disbursement, the following conditions have been fulfilled to Bank’s satisfaction:

 

2.1    Compliance. Borrower shall have performed and complied with all terms and conditions required by this Agreement to be performed or complied with, and shall have executed and delivered to Bank the Note and all other Loan Documents.

 

2.2    Authorization to Obtain Credit. Borrower shall have provided Bank with an executed copy of Bank’s form Authorization to Obtain Credit, authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, and designating the persons who are authorized to act on Borrower’s behalf in connection with this Agreement to do the things required of Borrower pursuant to this Agreement.

 

2.3    Continuing Compliance. At the time any disbursement is to be made and immediately thereafter, there shall not exist any Default or Event of Default (as hereinafter defined).

 

SECTION 3. REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants that:

 

3.1    Business Activity. Borrower’s principal business is the design, manufacturing and sales of critical communications systems.

 

3.2    Affiliates and Subsidiaries. Borrower’s affiliates and subsidiaries (those entities in which Borrower has either a controlling interest or a twenty-five percent (25%) or more ownership interest) and their addresses, and the names of the persons or entities owning five percent (5%) or more of the Equity Securities of Borrower, are as provided on a schedule delivered to Bank on or before the date of this Agreement.

 

3.3    Organization and Qualification. Borrower is duly organized and existing under the laws of the state of its organization, is duly qualified and in good standing in any jurisdiction where such qualification is required, and has the power and authority to carry on the business in which it is engaged and/or proposes to engage.

 

3.4    Power and Authorization. Borrower has the power and authority to enter into this Agreement and to execute and deliver the Note and all other Loan Documents. This Agreement and all things required by this Agreement and the other Loan Documents have been duly authorized by all requisite action of Borrower.

 

3.5    Authority to Borrow. The execution, delivery and performance of this Agreement, the Note and all other Loan Documents are not in contravention of any of the terms of any indenture, agreement or undertaking to which Borrower is a party or by which it or any of its property is bound or affected.

 

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3.6    Compliance with Laws. Borrower is in compliance in all material respects with all applicable laws, rules, ordinances or regulations which materially affect the operations or financial condition of Borrower.

 

3.7    Title. Except for assets which may have been disposed of in the ordinary course of business, Borrower has good and marketable title to all property reflected in its financial statements delivered to Bank and to all property acquired by Borrower since the date of said financial statements, free and clear of all Liens, except Permitted Liens.

 

3.8    Financial Statements. Borrower’s financial statements, including both a balance sheet at June 30, 2020, together with supporting schedules, and an income statement for the nine months ended June 30, 2020, have heretofore been furnished to Bank, are true and complete, and fairly represent Borrower’s financial condition for the period covered thereby. Since September 30, 2019, there has been no material adverse change in Borrower’s financial condition or operations.

 

3.9    Litigation. There is no litigation or proceeding pending or threatened against Borrower or any of its property which is reasonably likely to affect the financial condition, property or business of Borrower in a materially adverse manner or result in liability in excess of Borrower’s insurance coverage.

 

3.10    ERISA. Borrower’s defined benefit pension plans (as defined in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), 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.

 

3.11    Regulation U. No action has been taken or is currently planned by Borrower, or any agent acting on its behalf, which would cause this Agreement or the Note to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System, or to violate the Securities and Exchange Act of 1934, in each case as in effect now or as the same may hereafter be in effect. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock as one of its important activities and, except as may be expressly agreed to and documented between Borrower and Bank, none of the proceeds of the Loan will be used directly or indirectly for such purpose.

 

3.12    Anti-Corruption Laws; Sanctions; Anti-Terrorism Laws. Borrower and its Subsidiaries and their respective directors, officers, and employees and, to the knowledge of Borrower, the agents of Borrower and its Subsidiaries are in compliance with Anti-Corruption Laws and all applicable Sanctions in all material respects. Borrower and its Subsidiaries have implemented and maintain in effect policies and procedures designed to ensure compliance with Anti-Corruption Laws and applicable Sanctions. None of Borrower and its Subsidiaries nor any their respective directors, officers, employees, agents, or affiliates is an individual or entity that is, or is 50% or more owned (individually or in the aggregate, directly or indirectly) or controlled by individuals or entities (including any agency, political subdivision or instrumentality of any government) that are (a) the target of any Sanctions or (b) located, organized or resident in a country or territory that is the subject of Sanctions (currently Crimea, Cuba, Iran, North Korea and Syria).

 

3.13    No Default. Borrower is not now in default in the payment of any of its material obligations, and there exists no Default or Event of Default.

 

3.14    Continuing Representations and Warranties. The foregoing representations and warranties shall be considered to have been made again at and as of the date of each and every Loan disbursement and shall be true and correct as of each such date.

 

SECTION 4. AFFIRMATIVE COVENANTS

 

Until all sums payable pursuant to this Agreement, the Note and the other Loan Documents have been paid in full, unless Bank otherwise consents in writing, Borrower agrees that:

 

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4.1    Use of Proceeds. Borrower will, and will cause each Subsidiary to, use the proceeds of the Loan only as provided in Section 1 above.

 

4.2    Payment of Obligations. Borrower will, and will cause each Subsidiary to, pay and discharge promptly all taxes, assessments and other governmental charges and claims levied or imposed upon it or its property, or any part thereof; provided, however, that Borrower and each such Subsidiary shall have the right in good faith to contest any such taxes, assessments, charges or claims and, pending the outcome of such contest, to delay or refuse payment thereof provided that adequately funded reserves are established by it to pay and discharge any such taxes, assessments, charges and claims.

 

4.3    Maintenance of Existence. Borrower will, and will cause each Subsidiary to, maintain and preserve its existence, its assets, and all rights, franchises, licenses and other authority necessary for the conduct of its business, and will maintain and preserve its property, equipment and facilities in good order, condition and repair, ordinary wear and tear excepted.

 

4.4    Compliance with Laws and Material Contractual Obligations. Borrower will, and will cause each Subsidiary to, (a) comply in all material respects with all applicable laws and (b) perform in all material respects its obligations under material agreements to which it is a party. Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by Borrower and its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.

 

4.5    Records; Inspection of Property. Borrower will and will cause each Subsidiary to: (a) keep and maintain full and accurate accounts and records of its operations in accordance with GAAP, and (b) permit Bank to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and, to make examination and photocopies thereof, all at Borrower’s expense.

 

4.6    Information Furnished. Borrower will furnish to Bank:

 

(a)    Within 60 days after the close of each fiscal quarter, except for the final quarter of each fiscal year, its unaudited consolidated balance sheet as of the close of such fiscal quarter, its unaudited consolidated income and expense statement with year-to-date totals and supportive schedules, and its consolidated statement of retained earnings for that fiscal quarter, all prepared in accordance with GAAP.

 

(b)    Within 120 days after the close of each fiscal year, a copy of its consolidated statement of financial condition including at least its consolidated balance sheet as of the close of such fiscal year and its consolidated income and expense statement, and its consolidated retained earnings statement for such fiscal year, examined and prepared on an audited basis by independent certified public accountants selected by Borrower and reasonably satisfactory to Bank, in accordance with GAAP, along with any management letter provided by such accountants.

 

(c)    As soon as available, copies of such financial statements and reports as Borrower may file with any state or federal agency, including all state and federal income tax returns and all supporting schedules.

 

(d)    Within 60 days after the close of each fiscal quarter (except for the final quarter of each fiscal year), and within 120 days after the close of each fiscal year, a certification of compliance with all covenants under this Agreement, executed by Borrower’s Chief Financial Officer (or other authorized representative satisfactory to Bank), in form acceptable to Bank.

 

(e)    Prompt written notice to Bank of any Default or Event of Default or breach under any of the terms or provisions of this Agreement or any other Loan Document, any litigation which would have a material adverse effect on Borrower’s financial condition, and any other matter which has resulted in, or is likely to result in, a material adverse change in Borrower’s financial condition or operations.

 

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(f)    Prior written notice to Bank of any change in Borrower’s executive officers and other senior management, Borrower’s name or state of organization, and the location of Borrower’s assets.

 

(g)    Within fifteen (15) days after Borrower knows or has reason to know that any Reportable Event or Prohibited Transaction (as defined in ERISA) has occurred with respect to any defined benefit pension plan of Borrower, a statement of an authorized officer of Borrower describing such event or condition and the action, if any, which Borrower proposes to take with respect thereto.

 

(h)    Such other financial statements and information as Bank may reasonably request from time to time.

 

4.7    Quick Ratio. Borrower will at all times maintain a ratio of (x) unrestricted and unencumbered cash, accounts receivable and marketable securities to (y) current liabilities, of not less than 1.25:1.0.

 

4.8    Senior Leverage Ratio. Borrower will at all times maintain a ratio of total liabilities (excluding Subordinated Debt) to EBITDA of not greater than 2.00:1.0; provided, that such ratio shall not be less than 0.00:1.0.

 

4.9    Insurance. Borrower will keep all of its insurable property, whether real, personal or mixed, insured by companies approved by Bank, against fire and such other risks, and in such amounts as is customarily obtained by companies conducting similar business with respect to like properties. Borrower will furnish to Bank statements of its insurance coverage, will promptly upon Bank’s request furnish other or additional insurance deemed necessary by Bank to the extent that such insurance may be available, and hereby assigns to Bank, as security for the Obligations, the proceeds of any such insurance. Prior to any Loan disbursement, Bank will be named loss payee under all policies insuring the Collateral (as defined in the Security Agreement). Borrower will maintain adequate worker’s compensation insurance and adequate insurance against liability for damage to persons or property. All policies shall require at least ten (10) days’ written notice to Bank before alteration or cancellation.

 

4.10    Subsidiaries. If, at any time, the gross revenue generated by any direct or indirect subsidiary of Borrower equals or exceeds 15% of Borrower’s total consolidated revenue on a trailing 12-month basis, then, upon request by Bank, (a) Borrower shall cause such Subsidiary to execute and deliver to Bank (i) a Guaranty in form and substance satisfactory to Bank, (ii) a security agreement, in form and substance satisfactory to Bank, granting to Bank a security interest in all of the personal property assets of such Subsidiary, and (iii) such other agreements, instruments and certificates as may be reasonably requested by Bank to ensure that Bank obtains a first priority Lien (subject to Permitted Liens) in and to substantially all of the assets of such Subsidiary, (b) Borrower shall provide or cause to be provided to Bank a pledge agreement, in form and substance satisfactory to Bank, and appropriate certificates and powers, to pledge all of the direct ownership interest in such Subsidiary to Bank as collateral for the Obligations, and (c) Borrower shall provide to Bank all other documentation, including one or more opinions of counsel reasonably satisfactory to Bank, which Bank deems necessary or appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 5.6 shall constitute a Loan Document.

 

4.11    Additional Requirements. Upon Bank’s demand, Borrower will promptly take such further action and execute all such additional documents and instruments in connection with this Agreement and the other Loan Documents as Bank in its reasonable discretion deems necessary, and promptly supply Bank with such other information concerning its affairs as Bank may request from time to time.

 

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4.12    Litigation and Attorneys Fees. Upon Bank’s demand, Borrower will promptly pay to Bank reasonable attorneys’ fees, including the reasonable estimate of the allocated costs and expenses of in-house legal counsel and staff, and all costs and other expenses paid or incurred by Bank in collecting, modifying or compromising the Loan or in enforcing or exercising its rights or remedies created by, connected with or provided for in this Agreement and the other Loan Documents. If any judicial action, arbitration or other proceeding is commenced, only the prevailing party shall be entitled to attorneys’ fees and court costs.

 

4.13    Bank Expenses. Upon Bank’s request, Borrower will pay or reimburse Bank for all costs, expenses and fees incurred by Bank in preparing and documenting this Agreement and the Loan, and all amendments and modifications to any Loan Documents, including but not limited to all filing and recording fees, costs of appraisals, insurance and attorneys’ fees, including the reasonable estimate of the allocated costs and expenses of in-house legal counsel and staff.

 

SECTION 5. NEGATIVE COVENANTS

 

Until all sums payable pursuant to this Agreement, the Note and the other Loan Documents have been paid in full, unless Bank otherwise consents in writing, Borrower agrees that:

 

5.1    Liens. Borrower will not, and will not permit any Subsidiary to, create, assume or suffer to exist any Lien on any of its property, whether real, personal or mixed, now owned or hereafter acquired, or upon the income or profits thereof, except for Permitted Liens.

 

5.2    Indebtedness. Borrower will not, and will not permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except for Permitted Indebtedness.

 

5.3    Dispositions. Borrower will not, and will not permit any Subsidiary to, lease, sell, transfer, or otherwise dispose of its property to any other Person, except for: (a) sales of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment (i) in exchange for credit against the purchase price of similar replacement equipment, or (ii) the proceeds of which are applied with reasonable promptness to the purchase price of similar replacement equipment; and (c) any other disposition of property the fair market value of which, together with the fair market value of all other property disposed of pursuant to this Section 5.3 during the 12-month period ending with the month in which such disposition occurs, does not exceed $3,000,000.

 

5.4    Liquidation or Merger. Borrower will not, and will not permit any Subsidiary to, liquidate, dissolve or enter into any consolidation, merger, division, partnership or other combination.

 

5.5    Investments. Borrower will not, and will not permit any Subsidiary to, make or suffer to exist any Investments, or commitments therefor, or become or remain a partner in any partnership or joint venture, except for Permitted Investments.

 

5.6    Subsidiaries. Borrower will not, and will not permit any Subsidiary to, form any direct or indirect Subsidiary, or acquire any direct or indirect Subsidiary.

 

5.7    Distributions. Borrower will not, and will not permit any Subsidiary to, make any Distribution, if a Default or Event of Default has occurred and is continuing at such time or if the making of such Distribution would cause Borrower to not be in compliance with any of its covenants set forth in this Agreement or otherwise give rise to any Default or Event of Default.

 

5.8    Affiliate Transactions. Borrower will not, and will not permit any Subsidiary to, transfer any property to any affiliate, except for value received in the normal course of business and for an amount, including any management or service fee(s), as would be conducted and charged with an unrelated or unaffiliated entity.

 

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5.9    Capital Expenditures. Borrower and its Subsidiaries, on a consolidated basis, will not purchase fixed assets in the form of property, plant, equipment or fixtures in excess of $500,000 in any single fiscal year of Borrower. For purposes of calculating such expenditures to determine compliance with the above limitation, the amount shall be that represented as purchase of such items on the Consolidated Statement of Cash Flows of the Borrower’s consolidated fiscal year-end financial statement.

 

5.10    Accounting Changes, Organizational Documents. Borrower will not, and will not permit any Subsidiary to, (a) make any material change in accounting treatment or reporting practices or change its fiscal year or (b) amend any of its organizational documents.

 

5.11    Sanctions. Borrower will not, and will not permit any Subsidiary to, directly or indirectly, use the proceeds of any Loan, or lend, contribute or otherwise make available such proceeds to any other Person, (a) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or (b)(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 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 a lender, underwriter, advisor, investor, or otherwise).

 

SECTION 6. EVENTS OF DEFAULT

 

The occurrence of any of the following events (each an “Events of Default”) shall terminate any obligation of Bank to make or continue the Loan and shall automatically, unless otherwise provided under the Note, make all sums of interest and principal and any other amounts owing under the Loan immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or any other notices or demands:

 

6.1    Borrower shall default in the due and punctual payment of the principal of or the interest on the Note or on any amounts owing under any of the Loan Documents.

 

6.2    Any default shall occur under the Note.

 

6.3    Borrower shall fail to observe or perform any covenant, obligation, condition or agreement set forth in Section 4.1, 4.3, 4.6, 4.7, 4.8 or 4.9 or Section 5.

 

6.4    Borrower shall fail to observe or perform any other covenant, obligation, condition or agreement contained in this Agreement or any of the other Loan Documents and such failure shall remain unremedied for 30 days after the earlier of (i) Borrower’s knowledge of such failure or (ii) the date Bank notifies Borrower of such failure.

 

6.5    (a) Borrower shall fail to make any payment when due on account of any Indebtedness (excluding the Obligations) and such failure shall continue beyond any period of grace or period to cure or remedy provided with respect thereto, if the amount of such Indebtedness exceeds $1,000,000 or the effect of such failure is to cause, or permit the holder or holders thereof to cause, Indebtedness of Borrower (excluding the Obligations) in an aggregate amount exceeding $1,000,000 to become due (and/or secured by cash collateral), or (b) Borrower shall otherwise fail to observe or perform any agreement, term or condition contained in any agreement or instrument relating to any Indebtedness (excluding the Obligations) and such failure shall continue beyond any period of grace or period to cure or remedy provided with respect thereto, or any other event shall occur or condition shall exist, if the effect of such failure, event or condition is to cause, or permit the holder or holders thereof to cause, Indebtedness of Borrower and its Subsidiaries (excluding the Obligations) in an aggregate amount exceeding $1,000,000 to become due (and/or to be secured by cash collateral), or (c) Borrower shall be in default under the terms of any Indebtedness (excluding the Obligations) owing by Borrower to Bank and such default shall continue beyond any period of grace or period to cure or remedy provided with respect thereto.

 

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6.6    Any guaranty or subordination agreement required hereunder shall be breached or becomes ineffective, or any Guarantor or subordinating creditor shall die, disavow or attempt to revoke or terminate such guaranty or subordination agreement.

 

6.7    A Change of Control shall occur.

 

SECTION 7. GENERAL PROVISIONS

 

7.1    Additional Remedies. The rights, powers and remedies given to Bank hereunder shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Bank by law against Borrower or any other person or entity including but not limited to Bank’s rights of setoff and banker’s lien.

 

7.2    Nonwaiver. Any forbearance or failure or delay by Bank in exercising any right, power or remedy hereunder shall not be deemed a waiver thereof and any single or partial exercise of any right, power or remedy shall not preclude the further exercise thereof. No waiver shall be effective unless it is in writing and signed by an officer of Bank.

 

7.3    Inurement. The benefits of this Agreement and the other Loan Documents shall inure to the successors and assigns of Bank and the permitted successors and assigns of Borrower, but any attempted assignment by Borrower without Bank’s prior written consent shall be null and void.

 

7.4    Applicable Law. This Agreement and the other Loan Documents shall be governed by and construed according to the internal laws of the State of California.

 

7.5    Severability. Should any one or more provisions of this Agreement or any other Loan Document be determined to be illegal or unenforceable, all other provisions of such document shall nevertheless be effective.

 

7.6    Controlling Document. In the event of any inconsistency between the terms of this Agreement and any other Loan Document, the terms of the other Loan Document shall prevail.

 

7.7    USA Patriot Act Notice. Bank is subject to the USA Patriot Act and hereby notifies Borrower that pursuant to the requirements of that Act, Bank is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Bank to identify Borrower in accordance with that Act.

 

7.8    Construction. The section and subsection headings herein are for convenient reference only and shall not limit or otherwise affect the interpretation of this Agreement.

 

7.9    Amendments. This Agreement may be amended only in writing signed by all parties hereto.

 

7.10    Counterparts/Electronic Signatures. This document may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. Delivery of a signature page to, or an executed counterpart of, this document by facsimile, email transmission of a scanned image, or other electronic means, shall be effective as delivery of an originally executed counterpart. The words “execution,” “signed,” “signature,” and words of like import in this document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity, or enforceability as a manually executed signature or the use of a paper-based record keeping system, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, Electronic Signatures in Global and National Commerce Act, any other similar state laws based on the Uniform Electronic Transactions Act or the Uniform Commercial Code, and the parties hereto hereby waive any objection to the contrary.

 

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7.11    Notices. Any notices or other communications provided for or allowed hereunder shall be effective only when given by one of the following methods and addressed to the parties at their respective addresses and shall be considered to have been validly given (a) upon delivery, if delivered personally, (b) upon receipt, if mailed, first class postage prepaid, with the United States Postal Service, (c) on the next business day, if sent by overnight courier service of recognized standing, or (d) upon telephoned confirmation of receipt, if telecopied or e-mailed. The addresses to which notices or demands are to be given may be changed from time to time by notice delivered as provided above.

 

7.12    Integration Clause. Except for the other Loan Documents, this Agreement constitutes the entire agreement between Bank and Borrower regarding the Loan, and all prior oral or written communications between Borrower and Bank shall be of no further effect or evidentiary value.

 

7.13    Disputes. To the fullest extent permitted by law, in connection with any claim, cause of action, proceeding or other dispute concerning this Agreement (each, a “Claim”), Borrower expressly, intentionally and deliberately waives any right Borrower may otherwise have to trial by jury. In the event that the waiver of jury trial set forth in the preceding sentence is not enforceable under applicable law, Borrower agrees that any Claim, including any question of law or fact relating thereto, shall, at the written request of Bank, be determined by judicial reference pursuant to California Code of Civil Procedure Sections 638, et seq. Borrower and Bank shall select a single neutral referee, who shall be a retired state or federal judge. In the event that Borrower and Bank cannot agree upon a referee, the court shall appoint the referee. The referee shall report a statement of decision to the court. Nothing in this Section 7.13 shall limit the right of Bank at any time to exercise self-help remedies, foreclose against collateral or obtain provisional remedies. Borrower and Bank shall each bear one-half of the fees and expenses of the referee, unless the referee orders otherwise. The referee shall also determine all issues relating to the applicability, interpretation and enforceability of this Section 7.13. Borrower acknowledges that if a referee is selected to determine the Claims, then the Claims will not be decided by a jury.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized representatives as of the date first above written.

   
 

“Borrower”

 

GENASYS INC.,
a Delaware corporation

 

 

By:       /s/ Dennis Klahn                                                              
Name:  Dennis Klahn
Title:     CFO

 

Address for Notices:

 

Genasys Inc.
16262 W. Bernardo Drive
San Diego, CA 92127
Attention: Chief Financial Officer
Email: dklahn@genasys.com
Fax:                                                                               

 

 

“Bank”

 

MUFG UNION BANK, N.A.,
a national banking association

 

 

By:       /s/ Anthony Friel                                         
Name:  Anthony Friel
Title:    Vice President

 

Address for Notices:

 

MUFG Union Bank, N.A.
4660 La Jolla Village Drive, Suite 400
San Diego, CA 92122
Attention: Anthony Friel
Email: anthony.friel@unionbank.com
Fax: (858) 909-0452

 

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SCHEDULE 5.1

 

Existing Liens

 

None

 

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SCHEDULE 5.2

 

Existing Indebtedness

 

None

 

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SCHEDULE 5.5

 

Existing Investments

 

None

 

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Exhibit 10.2

 

LOGO.JPG
COMMERCIAL PROMISSORY NOTE
(BASE RATE)

 

 

 

Borrower Name

Genasys Inc.

Borrower Address

16262 W. Bernardo Drive

San Diego, CA 92127

Office Number

San Diego Commercial Banking 40067

Loan Number

 

Maturity Date

March 31, 2023

Amount

$10,000,000.00

 

Date: March 8, 2021 $10,000,000.00

      

FOR VALUE RECEIVED, on March 31, 2023 (the “Maturity Date”), the undersigned (“Debtor”) promises to pay to the order of MUFG Union Bank, N.A. (“Bank”), as indicated below, the principal sum of Ten Million and 00/100 Dollars ($10,000,000.00), or so much thereof as is disbursed, together with interest on the balance of such principal from time to time outstanding, at the per annum rate or rates and at the times set forth below. Any letter of credit issued and outstanding in connection with this note shall result in reduction of the amount available to Debtor.

 

1.            INTEREST PAYMENTS. Debtor shall pay interest on the last day of each month commencing February 28, 2021. Should interest not be paid when due, it shall become part of the principal and bear interest as herein provided. All computations of interest under this note shall be made on the basis of a year of 360 days, for actual days elapsed; provided that if an Interest Rate Hedge is outstanding, then interest on this note shall be computed on the basis of a year of 360 days, actual days elapsed. Whenever any payment required hereunder falls due on a day other than a Business Day, such payment shall be made on the first succeeding Business Day, unless, in the case of amounts accruing interest based on the LIBOR Rate, that day falls in a new calendar month, in which event such payment day shall be the next preceding Business Day. Subject to the provisions set forth in Exhibit A, if any interest rate defined in this note ceases to be available from Bank for any reason, then said interest rate shall be replaced by the rate then offered by Bank, which, in the sole discretion of Bank, most closely approximates the unavailable rate (the “Replacement Rate”).

 

(a)    BASE INTEREST RATE. At Debtor’s option, amounts outstanding hereunder in minimum amounts of $200,000 shall bear interest at a rate, based on an index selected by Debtor, which is 2.25% per annum in excess of the LIBOR Rate for the Interest Period selected by Debtor, acceptable to Bank. There shall be no more than 25 such Base Interest Rate Loans outstanding at any one time. Notwithstanding the foregoing, if an Interest Rate Hedge is outstanding, then Debtor shall be deemed to have selected the LIBOR Rate for each relevant Interest Period.

 

No Base Interest Rate may be changed, altered or otherwise modified until the expiration of the Interest Period selected by Debtor. The exercise of interest rate options by Debtor shall be as recorded in Bank’s records, which records shall be prima facie evidence of the amount borrowed under either interest option and the interest rate; provided, however, that failure of Bank to make any such notation in its records shall not discharge Debtor from its obligations to repay in full with interest all amounts borrowed. In no event shall any Interest Period extend beyond the Maturity Date.

 

To exercise this option, Debtor may, from time to time with respect to principal outstanding on which a Base Interest Rate is not accruing, and on the expiration of any Interest Period with respect to principal outstanding on which a Base Interest Rate has been accruing, select an index offered by Bank for a Base Interest Rate Loan and an Interest Period by telephoning an authorized lending officer of Bank located at the banking office identified below prior to 10:00 a.m., Pacific time, on any Business Day and advising that officer of the selected index, the Interest Period and the Origination Date selected (which Origination Date, for a Base Interest Rate Loan based on the LIBOR Rate, shall follow the date of such selection by no more than two (2) Business Days).

 

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Bank will mail a written confirmation of the terms of the selection to Debtor promptly after the selection is made. Failure to send such confirmation shall not affect Bank’s rights to collect interest at the rate selected. If, on the date of the selection, the index selected is unavailable for any reason, the selection shall be void. Bank reserves the right to fund the principal from any source of funds notwithstanding any Base Interest Rate selected by Debtor.

 

(b)    VARIABLE INTEREST RATE. All principal outstanding hereunder which is not bearing interest at a Base Interest Rate shall bear interest at the Reference Rate, which rate shall vary as and when the Reference Rate changes.

 

(c)    ALTERNATE RATE. Subject to the provisions set forth in Exhibit A, notwithstanding anything contained in this note, if Bank determines that with respect to the LIBOR Rate (the “Applicable LIBOR Rate”), relevant deposits are not being offered to banks in the London interbank Eurodollar market for the relevant amounts and relevant maturities for a loan; adequate and reasonable means do not exist for ascertaining the Applicable LIBOR Rate, or the Applicable LIBOR Rate does not adequately and fairly reflect the cost to Bank of funding a loan, then Bank shall give Debtor notice thereof, and Bank shall be under no obligation to maintain the relevant loan as an Applicable LIBOR Rate based loan, and the relevant loan shall be continued bearing interest at the Replacement Rate (plus any applicable margin or spread as set forth in this note) and payable at the end of each calendar month or as otherwise may be agreed by Bank and Debtor. The provisions set forth in Exhibit A attached hereto are made a part hereof and shall apply to this note.

 

(d)    REVOLVING FEATURE. At any time prior to the Maturity Date, subject to the provisions of paragraph 5 below, Debtor may borrow, repay and reborrow hereunder so long as the total outstanding at any one time does not exceed the principal amount of this note.

 

2.            PLACE AND MANNER OF PAYMENT. Debtor shall pay all amounts due under this note in lawful money of the United States at Bank’s San Diego Commercial Office, or such other office as may be designated by Bank, from time to time.

 

3.            LATE PAYMENTS. If any payment required by the terms of this note shall remain unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee of $100 to Bank.

 

4.            INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of Bank, and, to the extent permitted by law, interest shall be payable on the outstanding principal under this note at a per annum rate equal to five percent (5%) in excess of the interest rate specified in paragraph 1(b) above, calculated from the date of default until all amounts payable under this note are paid in full.

 

5.            PREPAYMENT

 

(a)    Amounts outstanding under this note bearing interest at a rate based on the Reference Rate may be prepaid in whole or in part at any time, without penalty or premium. Debtor may prepay amounts outstanding under this note bearing interest at a Base Interest Rate in whole or in part provided Debtor has given Bank not less than five (5) Business Days prior written notice of Debtor’s intention to make such prepayment and pays to Bank the prepayment fee due as a result. The prepayment fee shall also be paid, if Bank, for any other reason, including acceleration or foreclosure, receives all or any portion of principal bearing interest at a Base Interest Rate prior to its scheduled payment date. The prepayment fee shall be an amount equal to the present value of the product of: (i) the difference (but not less than zero) between (a) the Base Interest Rate applicable to the principal amount which is being prepaid, and (b) the return which Bank could obtain if it used the amount of such prepayment of principal to purchase at bid price regularly quoted securities issued by the United States having a maturity date most closely coinciding with the relevant Base Rate Maturity Date and such securities were held by Bank until the relevant Base Rate Maturity Date (“Yield Rate”); (ii) a fraction, the numerator of which is the number of days in the period between the date of prepayment and the relevant Base Rate Maturity Date and the denominator of which is 360; and (iii) the amount of the principal so prepaid (except in the event that principal payments are required and have been made as scheduled under the terms of the Base Interest Rate Loan being prepaid, then an amount equal to the lesser of (A) the amount prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the amount of principal scheduled under the terms of the Base Interest Rate Loan being prepaid to be outstanding at the relevant Base Rate Maturity Date). Present value under this note is determined by discounting the above product to present value using the Yield Rate as the annual discount factor.

 

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(b)    In no event shall Bank be obligated to make any payment or refund to Debtor, nor shall Debtor be entitled to any setoff or other claim against Bank, should the return which Bank could obtain under this prepayment formula exceed the interest that Bank would have received if no prepayment had occurred. All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of interest before application to principal. A determination by Bank as to the prepayment fee amount, if any, shall be conclusive.

 

(c)    Bank shall provide Debtor a statement of the amount payable on account of prepayment. Debtor acknowledges that (i) Bank establishes a Base Interest Rate upon the understanding that it apply to the Base Interest Rate Loan for the entire Interest Period, and (ii) Bank would not lend to Debtor without Debtor’s express agreement to pay Bank the prepayment fee described above.

 

(d)    If Debtor has entered into an Interest Rate Hedge, Debtor acknowledges and agrees that (i) Bank (or its affiliate) has the right, but not the obligation, under the Swap Documents (defined below) governing such Interest Rate Hedge, to compel an early termination, in full or in part, of such Interest Rate Hedge as a result of any unscheduled prepayment under this note, (ii) any such early termination may result in payment obligations (which may be substantial in amount) being owed by Debtor to Bank (or any affiliate of Bank) as early termination, close-out or settlement amounts, which amounts shall be determined in accordance with the Swap Documents governing such Interest Rate Hedge and shall be in addition to any prepayment fee and other charges specified herein, and (iii) if such full or partial early termination of the Interest Rate Hedge results in an amount owing by Bank or its affiliate to Debtor, then Bank may in its discretion apply such amount to prepayment of principal hereunder, together with accrued interest on such principal and any resulting prepayment fee. Debtor further acknowledges and agrees that neither Bank nor any of its affiliates is under any obligation to enter into Interest Rate Hedges with Debtor and that such Interest Rate Hedges will be governed by documentation separate from this note.

 

DEBTOR INITIALS HERE: __RD___ __DK___ ________ ________ ________ ________

 

6.             DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not be limited to, any of the following: (a) the failure of Debtor to make any payment required under this note when due; (b) any breach, misrepresentation or other default by Debtor, any guarantor, co maker, endorser, or any person or entity other than Debtor providing security for this note (hereinafter individually and collectively referred to as the “Obligor”) under any security agreement, guaranty or other agreement between Bank and any Obligor, together with and including any document or agreement evidencing or governing any Interest Rate Hedge, or any other swap, option, forward or similar transaction entered into between Debtor and Bank or any affiliate of Bank (“Swap Document”); (c) the insolvency of any Obligor or the failure of any Obligor generally to pay such Obligor’s debts as such debts become due; (d) the commencement as to any Obligor of any voluntary or involuntary proceeding under any laws relating to bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor relief; (e) the assignment by any Obligor for the benefit of such Obligor’s creditors; (f) the appointment, or commencement of any proceeding for the appointment of a receiver, trustee, custodian or similar official for all or substantially all of any Obligor’s property; (g) the commencement of any proceeding for the dissolution or liquidation of any Obligor; (h) the termination of existence or death of any Obligor; (i) the revocation of any guaranty or subordination agreement given in connection with this note; (j) the failure of any Obligor to comply with any order, judgement, injunction, decree, writ or demand of any court or other public authority; (k) the filing or recording against any Obligor, or the property of any Obligor, of any notice of levy, notice to withhold, or other legal process for taxes other than property taxes; (l) the default by any Obligor personally liable for amounts owed hereunder on any obligation concerning the borrowing of money; (m) the issuance against any Obligor, or the property of any Obligor, of any writ of attachment, execution, or other judicial lien; or (n) the deterioration of the financial condition of any Obligor which results in Bank deeming itself, in good faith, insecure. Upon the occurrence of any such default, Bank, in its discretion, may cease to advance funds hereunder and may declare all obligations under this note immediately due and payable; however, upon the occurrence of an event of default under d, e, f, or g, all principal and interest hereunder shall automatically become immediately due and payable.

 

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7.             ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not paid when due, Debtor promises to pay all costs and expenses, including reasonable attorneys’ fees, (including the allocated costs of Bank’s in-house counsel and legal staff) incurred by Bank in the negotiation, documentation and modification of this note and all related documents and in the collection or enforcement of any amount outstanding hereunder. Debtor and any Obligor, for the maximum period of time and the full extent permitted by law, (a) waive diligence, presentment, demand, notice of nonpayment, protest, notice of protest, and notice of every kind; (b) waive the right to assert the defense of any statute of limitations to any debt or obligation hereunder; and (c) consent to renewals and extensions of time for the payment of any amounts due under this note. If this note is signed by more than one party, the term “Debtor” includes each of the undersigned and any successors in interest thereof; all of whose liability shall be joint and several. Any married person who signs this note agrees that recourse may be had against the separate property of that person for any obligations hereunder. The receipt of any check or other item of payment by Bank, at its option, shall not be considered a payment on account until such check or other item of payment is honored when presented for payment at the drawee bank. Bank may delay the credit of such payment based upon Bank’s schedule of funds availability, and interest under this note shall accrue until the funds are deemed collected. In any action brought under or arising out of this note, Debtor and any Obligor, including their successors and assigns, hereby consent to the jurisdiction of any competent court within the State of California, as provided in any alternative dispute resolution agreement executed between Debtor and Bank, and consent to service of process by any means authorized by said state’s law. The term “Bank” includes, without limitation, any holder of this note. This note shall be construed in accordance with and governed by the laws of the State of California. This note hereby incorporates any alternative dispute resolution agreement previously, concurrently or hereafter executed between Debtor and Bank, other than any such provision contained in a Swap Document.

 

8.             DEFINITIONS. As used herein, the following terms shall have the meanings respectively set forth below: “Base Interest Rate” means a rate of interest based on the LIBOR Rate. “Base Interest Rate Loan” means amounts outstanding under this note that bear interest at a Base Interest Rate. “Base Rate Maturity Date” means the last day of the Interest Period with respect to principal outstanding under a Base Interest Rate Loan. “Business Day” means a day on which Bank is open for business for the funding of corporate loans, and, with respect to the rate of interest based on the LIBOR Rate, on which dealings in U.S. dollar deposits are carried out in the London interbank market. “Interest Period” means with respect to funds bearing interest at a rate based on the LIBOR Rate, a calendar period of one (1) month. In determining an Interest Period, a month means a period that starts on one Business Day in a month and ends on and includes the day preceding the numerically corresponding day in the next month. For any month in which there is no such numerically corresponding day, then as to that month, such day shall be deemed to be the last calendar day of such month. Any Interest Period which would otherwise end on a non-Business Day shall end on the next succeeding Business Day unless that day falls in a new calendar month, in which event such Interest Period shall end on the next preceding Business Day. “Interest Rate Hedge” means any interest rate swap, forward swap or swaption, or interest rate cap or collar transaction now or hereafter entered into between Debtor and Bank or any affiliate of Bank for purposes of hedging or mitigating, fully or partially, interest rate risk under this note. “LIBOR Rate” means, for any specified Interest Period, a per annum rate of interest determined by Bank as equal to the rate for deposits in US Dollars for a period comparable to the Interest Period which appears on the Reuters Screen LIBOR 01 Page (or any replacement or successor page or service) as of 11:00 a.m., London time, on the day that is two (2) Business Days preceding the first day of such Interest Period. For the avoidance of doubt, if the LIBOR Rate as so determined herein would be less than zero percent (0%), the LIBOR Rate shall be deemed to be zero percent (0%) for the purposes of this note. “Origination Date” means the first day of the Interest Period. “Reference Rate” means the rate announced by Bank from time to time at its corporate headquarters as its Reference Rate. The Reference Rate is an index rate determined by Bank from time to time as a means of pricing certain extensions of credit and is neither directly tied to any external rate of interest or index nor necessarily the lowest rate of interest charged by Bank at any given time.

 

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9.             COUNTERPARTS/ELECTRONIC SIGNATURES. This document may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. Delivery of a signature page to, or an executed counterpart of, this document by facsimile, email transmission of a scanned image, or other electronic means, shall be effective as delivery of an originally executed counterpart. The words “execution,” “signed,” “signature,” and words of like import in this document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity, or enforceability as a manually executed signature or the use of a paper-based record keeping system, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, Electronic Signatures in Global and National Commerce Act, any other similar state laws based on the Uniform Electronic Transactions Act or the Uniform Commercial Code, and the parties hereto hereby waive any objection to the contrary.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the undersigned Debtor has caused this note to be executed and delivered by its duly authorized representative as of the date first above written.

 

 

“Debtor”

 

GENASYS INC.,
a Delaware corporation

 

 

By:        /s/ Dennis Klahn                                             
Name:   Dennis Klahn
Title:     CFO

 

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EXHIBIT A

 

BENCHMARK REPLACEMENT SETTING

 

The following provisions of this Exhibit A (this “Exhibit”) shall be effective notwithstanding anything to the contrary in the note to which this Exhibit is attached (the “Note”) or in any other document related to the Note (and any Swap Document shall be deemed not to be a document related to the Note for purposes of this Exhibit).

 

(a)         BENCHMARK REPLACEMENT. If a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any document related to the Note in respect of such Benchmark setting and subsequent Benchmark settings. Any replacement of a Benchmark with a Benchmark Replacement pursuant to this Exhibit shall be effective without any amendment to, or further action or consent of any other party to, the Note or any document related to the Note. Bank will have the right to make any changes (“Benchmark Replacement Conforming Changes”) to the Note that Bank decides may be appropriate to reflect the adoption and implementation of any such Benchmark Replacement and to permit the administration thereof by Bank from time to time and any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of Debtor.

 

(b)         STANDARDS. Any determination, decision or election that may be made by Bank pursuant to this Exhibit, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in Bank’s sole discretion and without consent from Debtor. Bank does not warrant or accept responsibility for, and shall not have any liability to Debtor under the Note or otherwise for, any loss, damage or claim arising from or relating to (i) any matter related to the Benchmark, any component definition thereof or rates referred to in the definition thereof or any alternative, comparable or successor rate thereto (including any then-current Benchmark or any Benchmark Replacement), including whether any such alternative, comparable or successor rate (including any Benchmark Replacement) will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the then-current Benchmark, (ii) the effect or implementation of any Benchmark Replacement Conforming Changes or (iii) any mismatch between the Benchmark or the Benchmark Replacement and any of Debtor’s other financing instruments (including those that are intended as hedges).

 

(c)         UNAVAILABILITY OF TENOR OF BENCHMARK. At any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including USD LIBOR), then Bank may remove any tenor of such Benchmark that is unavailable or non-representative for Benchmark (including Benchmark Replacement) settings and (ii) Bank may reinstate any such previously removed tenor for Benchmark (including Benchmark Replacement) settings.

 

(d)         CERTAIN DEFINED TERMS. As used in this Exhibit:

 

“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (x) if the then-current Benchmark is a term rate, any tenor for such Benchmark or (y) otherwise, any payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an interest period pursuant to the Note as of such date.

 

“Benchmark” means, initially, USD LIBOR; provided that if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to USD LIBOR or the then-current Benchmark, then “Benchmark” means the Benchmark Replacement that has replaced such prior benchmark rate.

 

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“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the following order that can be determined by Bank for the applicable Benchmark Replacement Date: (1) the sum of (A) Daily Simple SOFR and (B) the related Benchmark Replacement Adjustment or (2) the sum of (A) the alternate benchmark rate that has been selected by Bank as the replacement for the then-current Benchmark for the applicable Corresponding Tenor and (B) the related Benchmark Replacement Adjustment. If the Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than the benchmark rate floor, if any, provided in the Note initially (as of the execution of the Note, the modification, amendment or renewal of the Note or otherwise) with respect to USD LIBOR (the “Floor”), the Benchmark Replacement will be deemed to be such Floor for the purposes of the Note and the documents related to the Note.

 

“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable interest period and Available Tenor for any setting of such Unadjusted Benchmark Replacement, (1) for purposes of clause (1) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such interest period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Available Tenor of such Benchmark with the applicable Unadjusted Benchmark Replacement and (2) for purposes of clause (2) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by Bank; provided that, if the then-current Benchmark is a term rate, more than one tenor of such Benchmark is available as of the applicable Benchmark Replacement Date and the applicable Unadjusted Benchmark Replacement that will replace such Benchmark in accordance with this Exhibit will not be a term rate, the Available Tenor of such Benchmark for purposes of this definition of “Benchmark Replacement Adjustment” shall be deemed to be, with respect to each Unadjusted Benchmark Replacement having a payment period for interest calculated with reference thereto, the Available Tenor that has approximately the same length (disregarding business day adjustments) as such payment period.

 

“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark: (1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or (2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein. For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).

 

“Benchmark Transition Event” means, with respect to the then-current Benchmark, a public statement or publication of information: (a) by or on behalf of the administrator of such Benchmark announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark, (b) by the regulatory supervisor for the administrator of such Benchmark, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark, a resolution authority with jurisdiction over the administrator for such Benchmark or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark, which states that the administrator of such Benchmark has ceased or will cease to provide all Available Tenors of such Benchmark permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark, or (c) by the regulatory supervisor for the administrator of such Benchmark announcing that all Available Tenors of such Benchmark are no longer representative. For the avoidance of doubt, (i) a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark and (ii) each reference in this definition to a Benchmark shall also include any published component used in the calculation thereof.

 

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“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.

 

“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by Bank in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for bilateral business loans; provided, that if Bank decides that any such convention is not administratively feasible for Bank, then Bank may establish another convention.

 

Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is USD LIBOR, 11:00 a.m. (London time) on the day that is two Business Days preceding the date of such setting, and (2) if such Benchmark is not USD LIBOR, the time determined by Bank.

 

“Relevant Governmental Body” means the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto.

 

“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published on the immediately succeeding Business Day by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate) on its website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by such administrator from time to time.

 

“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.

 

“USD LIBOR” means the London interbank offered rate for U.S. dollars.

 

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Exhibit 10.3

 

LOGO.JPG

 

SECURITY AGREEMENT

 

 

 

 

THIS SECURITY AGREEMENT, dated as of March 8, 2021 (this “Agreement”), is made and given by Genasys Inc., a Delaware corporation (herein called “Debtor”), in favor of MUFG Union Bank, N.A., a national banking association (“Bank”).

 

As security for the payment and performance of all of Debtor’s obligations to Bank, including under that certain Loan Agreement dated as of the date hereof (“Loan Agreement”) between Debtor and Bank, regardless of the manner in which or the time at which such obligations arose or shall arise, whether direct or indirect, alone or with others, or absolute or contingent, Debtor hereby grants a continuing security interest in, and assigns and transfers to Bank, the following personal property, whether or not delivered to or in the possession or control of Bank or its agents, and whether now or hereafter owned or in existence, and all proceeds thereof (hereinafter called the “Collateral”):

 

All present and hereafter acquired personal property including but not limited to all accounts, chattel paper, Swap Contract (as defined herein), instruments, contract rights, general intangibles, goods, equipment, inventory, documents, certificates of title, deposit accounts, returned or repossessed goods, fixtures, commercial tort claims, insurance claims, rights and policies, letter of credit rights, investment property, supporting obligations, and the proceeds, products, parts, accessories, attachments, accessions, replacements, substitutions, additions, and improvements of or to each of the foregoing.

 

All patents patent applications and like protections including without limitation improvements divisions, continuations, renewals, reissues, extensions and continuations in part of the same, including without limitation the patents and patent applications set forth on Schedule I attached hereto (“Patents”); all 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 Debtor connected with and symbolized by such trademarks, including without limitation those set forth on Schedule II attached hereto (“Trademarks”); all amendments, renewals and extensions of any of the Copyrights, Patents, or Trademarks; all supporting obligations; and all proceeds, including insurance proceeds, of any of the foregoing.

 

In addition to the foregoing, “Collateral” shall include all accounts, general intangibles and all rights to payment of any kind relating to or otherwise arising in connection with or derived from any Swap Contract. As used herein, “Swap Contract” shall mean any swap, option, forward, spot or similar contract or agreement (or any combination thereof) relating to interest rates, foreign currencies or exchange rates, commodities, equities or securities, debt obligations or credit attributes, or other financial or economic measures or quantities, heretofore or hereafter entered into between Debtor and Bank or an affiliate of Bank that (x) is subject to the same master agreement or netting agreement as any Interest Rate Hedge, or (y) is subject to an instrument or agreement which recites that the obligations thereunder are secured hereby; together with and including any and all modifications, replacements, extensions and renewals thereof. As used herein, “Interest Rate Hedge” shall mean any interest rate swap, forward swap or swaption, or interest rate cap or collar transaction, or similar transaction, heretofore or hereafter entered into between Debtor and Bank or any affiliate of Bank with respect to all or any part of the indebtedness now or hereafter secured hereby in connection with or for the purpose of hedging or mitigating, fully or partially, interest rate risk under any debt instrument secured hereby.

 

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Debtor agrees not to change its state of organization or name, as identified in the preamble to this Agreement, without Bank’s prior written consent.

 

1.    The term “credit” or “indebtedness” is used throughout this Agreement in its broadest and most comprehensive sense. Credit may be granted at the request of any one Debtor without further authorization by or notice to any other Debtor. Collateral shall be security for all nonconsumer indebtedness of Debtor to Bank in accordance with the terms and conditions herein. Any capitalized terms used but not defined herein shall have the meaning given to such term in the Loan Agreement.

 

2.    Debtor will: (a) pay when due all indebtedness to Bank; (b) execute such other documents and do such other acts and things as Bank may from time to time require to establish and maintain a valid perfected security interest in Collateral, including payment of all costs and fees in connection with any of the foregoing when deemed necessary by Bank; (c) furnish Bank such information concerning Debtor and Collateral as Bank may from time to time request, including but not limited to current financial statements; (d) keep Collateral separate and identifiable where such Collateral is currently located and permit Bank and its representatives to inspect Collateral and/or records pertaining thereto from time to time during normal business hours; (e) not sell, assign or create or permit to exist any lien on or security interest in Collateral in favor of anyone other than Bank unless Bank consents thereto in writing and at Debtor’s expense upon Bank’s request remove any unauthorized lien or security interest and defend any claim affecting the Collateral; (f) pay all charges against Collateral prior to delinquency including but not limited to taxes, assessments, encumbrances, insurance and diverse claims, and upon Debtor’s failure to do so Bank may pay any such charge as it deems necessary and add the amount paid to the indebtedness of Debtor hereunder; (g) protect, defend and maintain the Collateral and the perfected security interest of Bank and initiate, commence and maintain any action or proceeding to protect the Collateral; (h) reimburse Bank for any expenses, including but not limited to reasonable attorneys’ fees and expenses (including the allocated costs of Bank’s in-house counsel and legal staff) incurred by Bank in seeking to protect, collect or enforce any rights in Collateral; (i) when required, provide insurance in form and amounts and with companies acceptable to Bank and when required, assign the policies or the rights thereunder to Bank; (j) maintain Collateral in good condition and not use Collateral for any unlawful purpose; (k) perform all of the obligations of the Debtor under the Collateral and save Bank harmless from the consequence of any failure to do so; and (l) at its own expense, upon request of Bank, notify any parties obligated to Debtor on any Collateral to make payment to Bank upon the occurrence and during the continuation of an Event of Default, and Debtor hereby irrevocably grants Bank power of attorney to make said notifications and collections. Debtor hereby appoints Bank the true and lawful attorney of Debtor and authorizes Bank to perform any and all acts which Bank in good faith deems necessary for the protection and preservation of Collateral or its value or Bank’s perfected security interest therein, including, upon the occurrence and during the continuation of an Event of Default, transferring any Collateral into its own name and receiving the income thereon as additional security hereunder. Bank does not assume any of the obligations arising under the Collateral. Bank shall not be liable to Borrower (a) for any loss or damage sustained by Borrower or (b) for any loss, damage, depreciation or other diminution in the value of any of any Collateral that may occur as a result of or in connection with or that is in any way related to any exercise by Bank of any right or remedy under this Agreement, any failure to demand, collect or realize upon any of the Collateral or any delay in doing so, or any other act or failure to act on the part of Bank, except, in each case, to the extent that the same is caused by its own gross negligence or willful misconduct.

 

3.    Debtor warrants that: (a) it is and will be the lawful owner of all Collateral free of all claims, liens, encumbrances and setoffs whatsoever, other than Permitted Liens; (b) it has the capacity to grant a security interest in Collateral to Bank; (c) all information furnished by Debtor to Bank heretofore or hereafter, whether oral or written, is and will be correct and true as of the date given; and (d) if Debtor is an entity, the execution, delivery and performance hereof are within its powers and have been duly authorized.

 

4.    The term “Event of Default” shall mean the occurrence of any of the following events: (a) an Event of Default as defined in the Loan Agreement; (b) material deterioration or impairment of the value of any of the Collateral; or (c) the deterioration of financial condition of Debtor which results in Bank deeming itself, in good faith and in its reasonable business judgment, insecure.

 

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5.    Whenever an Event of Default exists, Bank, at its option, may: (a) without notice accelerate the maturity of any part or all of the indebtedness and terminate any agreement for the granting of further credit to Debtor; (b) sell, lease or otherwise dispose of Collateral at public or private sale; (c) transfer any Collateral into its own name or that of its nominee; (d) retain Collateral in satisfaction of obligations secured hereby, with notice of such retention sent to Debtor as required by law; (e) notify any parties obligated on any Collateral consisting of accounts, instruments, chattel paper, choses in action or the like to make payment to Bank and enforce collection of any Collateral; (f) file any action or proceeding which Bank may deem necessary or appropriate to protect and preserve the right, title and interest of the Bank in the Collateral; (g) require Debtor to assemble and deliver any Collateral to Bank at a reasonably convenient place designated by Bank; (h) apply all sums received or collected from or on account of Collateral, including the proceeds of any sale thereof, to the payment of the costs and expenses incurred in preserving and enforcing rights of Bank, including reasonable attorneys’ fees (including the allocated costs of Bank’s in-house counsel and legal staff), and indebtedness secured hereby in such order and manner as Bank in its sole discretion determines; Bank shall account to Debtor for any surplus remaining thereafter, and shall pay such surplus to the party entitled thereto, including any second secured party who has made a proper demand upon Bank and has furnished proof to Bank as requested in the manner provided by law; in like manner, Debtor agrees to pay to Bank without demand any deficiency after any Collateral has been disposed of and proceeds applied as aforesaid; and (i) exercise its banker’s lien or right of setoff in the same manner as though the credit were unsecured. Bank shall have all the rights and remedies of a secured party under the Uniform Commercial Code, as in effect in the State of Delaware, and in any jurisdiction where enforcement is sought, whether in said state or elsewhere. All rights, powers and remedies of Bank hereunder shall be cumulative and not alternative. No delay on the part of Bank in the exercise of any right or remedy shall constitute a waiver thereof and no exercise by Bank of any right or remedy shall preclude the exercise of any other right or remedy or further exercise of the same remedy.

 

6.    Debtor waives: (a) all right to require Bank to proceed against any other person including any other Debtor hereunder or to apply any Collateral Bank may hold at any time or to pursue any other remedy; Collateral, endorsers or guarantors may be released, substituted or added without affecting the liability of Debtor hereunder; (b) the defense of the Statute of Limitations in any action upon any obligations of Debtor secured hereby; (c) any right of subrogation and any right to participate in Collateral until all obligations secured hereby have been paid in full; and (d) to the fullest extent permitted by law, any right to oppose the appointment of a receiver or similar official to operate Debtor’s business.

 

7.    The right of Bank to have recourse against Collateral shall not be affected in any way by the fact that the credit is secured by a mortgage, deed of trust or other lien upon real property.

 

8.    The security interest granted herein is irrevocable and shall remain in full force and effect until there is payment in full of the indebtedness or the security interest is released in writing by Bank.

 

9.    Upon payment of all of the Indebtedness and performance of all of the Obligations, Bank shall execute UCC termination statements and such other documents as Borrower shall reasonably request to evidence the release of Bank’s lien relating to the Collateral.

 

10.    If more than one Debtor executes this Agreement, the obligations hereunder are joint and several. All words used herein in the singular shall be deemed to have been used in the plural when the context and construction so require. Any married person who signs this Agreement expressly agrees that recourse may be had against his/her separate property for all of his/her obligations to Bank.

 

11.    This Agreement shall inure to the benefit of and bind Bank, its successors and assigns and each of the undersigned, their respective heirs, executors, administrators and successors in interest. Upon transfer by Bank of any part of the obligations secured hereby, Bank shall be fully discharged from any liability with respect to Collateral transferred therewith.

 

12.    Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but, if any provision of this Agreement shall be prohibited or invalid under applicable law, such provisions shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such or the remaining provisions of this Agreement.

 

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13.    This document may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. Delivery of a signature page to, or an executed counterpart of, this document by facsimile, email transmission of a scanned image, or other electronic means, shall be effective as delivery of an originally executed counterpart. The words “execution,” “signed,” “signature,” and words of like import in this document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity, or enforceability as a manually executed signature or the use of a paper-based record keeping system, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, Electronic Signatures in Global and National Commerce Act, any other similar state laws based on the Uniform Electronic Transactions Act or the Uniform Commercial Code, and the parties hereto hereby waive any objection to the contrary.

 

14.    The grant of a security interest in proceeds does not imply the right of Debtor to sell or dispose of any Collateral, except as permitted in the Loan Agreement.

 

15.    To the fullest extent permitted by law, in connection with any claim, cause of action, proceeding or other dispute concerning this Agreement (each, a “Claim”), Debtor expressly, intentionally and deliberately waives any right Debtor may otherwise have to trial by jury. In the event that the waiver of jury trial set forth in the preceding sentence is not enforceable under applicable law, Debtor agrees that any Claim, including any question of law or fact relating thereto, shall, at the written request of Bank, be determined by judicial reference pursuant to California Code of Civil Procedure Sections 638, et seq. Debtor and Bank shall select a single neutral referee, who shall be a retired state or federal judge. In the event that Debtor and Bank cannot agree upon a referee, the court shall appoint the referee. The referee shall report a statement of decision to the court. Nothing in this Section 15 shall limit the right of Bank at any time to exercise self-help remedies, foreclose against collateral or obtain provisional remedies. Debtor and Bank shall each bear one-half of the fees and expenses of the referee, unless the referee orders otherwise. The referee shall also determine all issues relating to the applicability, interpretation and enforceability of this Section 15. Debtor acknowledges that if a referee is selected to determine the Claims, then the Claims will not be decided by a jury.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the undersigned Debtor has caused this Agreement to be executed and delivered by its authorized representative as of the date first above written.

 

 

“Debtor”

 

GENASYS INC.,
a Delaware corporation

 

 

By:        /s/ Dennis Klahn                                                             
Name:   Dennis Klahn
Title:     CFO

 

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SCHEDULE I

 

Patents

 

Acoustic hailing device

 

Patent number: 9,693,148

 

Abstract: An acoustic hailing device includes an outer housing and a pair of compression drivers oriented in the outer housing adjacent one another. Each of the compression drivers includes two diaphragms oriented facewise relative to one another within each compression driver. One or more waveguide housings are coupled to the outer housing, the one or more waveguide housings forming a portion of a waveguide associated with each of the compression drivers. A pair of driver covers are each coupleable to one of the compression drivers, each of the driver covers forming another portion of the waveguide associated with each of the compression drivers.

 

Type: Grant

 

Filed: August 10, 2015

 

Date of Patent: June 27, 2017

 

Assignee: LRAD Corporation

 

Inventor: Hernan Lopez

 

 

Variable directivity loud hailing device

 

Patent number: 8,194,502

 

Abstract: A system and method for varying the directionality of an acoustic output of a loud hailing and warning device is disclosed. The method includes the operation of placing a sliding high-pass filter in a signal path of a transducer array having a frequency-dependant dispersion characteristic. A control is provided that varies a lower cutoff frequency of the sliding high-pass filter. The lower cutoff frequency of an electronic audio signal is variably controlled and sent to the transducer array to variably control the directionality of the acoustic output of the loud hailing and warning device.

 

Type: Grant

 

Filed: April 9, 2008

 

Date of Patent: June 5, 2012

 

Assignee: LRAD Corporation

 

Inventor: James J. Croft, III

 

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Directional acoustic device

 

Patent number: 7,551,062

 

Abstract: A directional acoustic device configured for producing a directional output along an acoustic axis, including at least one transducer configured to create at least two wave trains which are directed along differing pathways by at least one wave guide, and so disposed that in directions more than ninety degrees off the acoustic axis the SPL of the output is greatly diminished by cancellation effects between the wave trains; improvement over previous gradient and quarter-wave pipe directional systems being enabled.

 

Type: Grant

 

Filed: September 14, 2007

 

Date of Patent: June 23, 2009

 

Assignee: American Technology Corporation

 

Inventors: James J. Croft, III, Wensen Liu, Clifton Wynn Thompson

 

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SCHEDULE II

 

Trademarks

 

Mark: LRAD

 

Filed: September 24, 2003

 

Owned by: GENASYS INC.

 

Serial Number: 78304629

 

 

Mark: SOUNDSABER

 

Owned by: LRAD CORPORATION

 

Serial Number: 77002136

 

 

Mark: LONG RANGE ACOUSTIC DEVICE

 

Filed: August 13, 2008

 

Owned by: GENASYS INC.

 

Serial Number: 77546441

 

 

Mark: LRAD-RX

 

Owned by: LRAD CORPORATION

 

Serial Number: 77548433

 

 

Mark: ONE VOICE

 

Owned by: LRAD CORPORATION

 

Serial Number: 86194576

 

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Mark: SOUND SHIELD

 

Filed: October 13, 2016

 

Owned by: GENASYS INC.

 

Serial Number: 87201969

 

 

 

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