Amendment No. 3 to Credit and Security Agreement (Term Loan), dated as of July 31, 2018, by and among the Company, MidCap Financial Trust, as Agent, and the lenders party thereto

Exhibit 10.1

Execution Version

AMENDMENT NO. 3 TO CREDIT AND SECURITY AGREEMENT (TERM LOAN)

This AMENDMENT NO. 3 TO CREDIT AND SECURITY AGREEMENT  (TERM LOAN) (this “Agreement”) is made as of this 31st day of July, 2018, by and among INVUITY, INC., a Delaware corporation (“Invuity”), MIDCAP FINANCIAL TRUST, as Agent (in such capacity, together with its successors and assigns, “Agent”), and the other financial institutions party hereto, each as a Lender.

RECITALS

A.          Agent, Lenders, and Borrowers have entered into that certain Credit and Security Agreement (Term Loan), dated as of March 10, 2017 (as amended by that certain Amendment No. 1 to Credit and Security Agreement (Term Loan), dated as of September 26, 2017, as amended by that certain Amendment No. 2 to Credit and Security Agreement (Term Loan), dated as of April 30, 2018, and as further amended, modified, supplemented, restated or otherwise modified prior to the date hereof, the “Original Credit Agreement”, and as the same is amended hereby and as it may be further amended, modified, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the Lenders have agreed to extend certain financial accommodations to Borrowers in the amounts and manner set forth in the Credit Agreement.

B.          Borrowers have requested, and Agent and Lenders have agreed, to amend certain provisions of the Original Credit Agreement relating to, among other things, (i) the financial covenants, and (ii) certain fees payable by Borrowers to Agent and the Lenders, in each case, on and subject to the conditions and terms set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders and Borrowers hereby agree as follows:

1.          Recitals.  This Agreement shall constitute a Financing Document and the Recitals and each reference to the Credit Agreement, unless otherwise expressly noted, will be deemed to reference the Credit Agreement as amended hereby.  The Recitals set forth above shall be construed as part of this Agreement as if set forth fully in the body of this Agreement and capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement (including those capitalized terms used in the Recitals hereto).

2.          Amendments to Original Credit Agreement.  Subject to the terms and conditions of this Agreement, including, without limitation, the conditions to effectiveness set forth in Section 4 below, the Original Credit Agreement is hereby amended as follows:

(a)         Section 1.1 of the Original Credit Agreement is hereby amended by adding the following definitions in the appropriate alphabetical order therein:

“Borrower Unrestricted Cash” has the meaning set forth in Section 6.1.

“Minimum Cash Period” has the meaning set forth in Section 6.1.

(b)         Section 2.2(h) of the Original Credit Agreement is hereby amended by replacing the phrase “six and one half percent (6.50%)” in its entirety with the phrase “seven percent (7.00%)”.

(c)         Section 6.1 of the Original Credit Agreement is hereby amended by adding the following definition in the appropriate alphabetical order therein:

“Borrower Unrestricted Cash” means the aggregate unrestricted cash and cash equivalents owned by Borrowers and that are (a) held in the name of a Borrower in a bank or financial institution located in the United States and subject to a Deposit Account Control Agreement or Securities Account Control Agreement, as applicable, in favor of Agent, (b) not subject to any Lien (other than Permitted Liens), (c) not pledged to or held by Agent to secure a specified Obligation, and (d) not drawn or committed but unpaid drafts, ACH or EFT transactions.

“Minimum Cash Period” means the period (a) commencing on the date (if any) on which  the Compliance Certificate Borrower is required to deliver, in accordance with Section 4.1, for the Defined Period ending December 31, 2018 fails to demonstrate to Agent’s reasonable satisfaction that Net Revenue is in excess of $45,000,000 for the Defined Period ending on December 31, 2018 and (b) ending on the date (if any) thereafter on which Borrower delivers a Compliance Certificate, in accordance with Section 4.1, demonstrating to Agent’s reasonable satisfaction that Net Revenue is in excess of $50,000,000 for the Defined Period for which such Compliance Certificate is delivered.

(d)         Schedule 2.1 of the Original Credit Agreement is hereby amended by replacing such schedule in its entirety with the new Schedule 2.1 attached hereto.

(e)         Schedule 6.2 of the Original Credit Agreement is hereby amended by replacing such schedule in its entirety with the new Schedule 6.2 attached hereto.

(f)         Article 6 of the Original Credit Agreement is hereby amended by adding a new Section 6.3 and renumbering the existing Section 6.3 to Section 6.4:

Section 6.3        Minimum Cash.  Borrower shall ensure that Borrower Unrestricted Cash is in excess of $5,000,000 at all times during the Minimum Cash Period.

3.            Representations and Warranties; Reaffirmation of Security Interest.  Each Borrower hereby confirms that all of the representations and warranties set forth in the Credit Agreement and the other Financing Documents are true, correct and complete in all material respects on and as of the date of such borrowing or issuance, except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct in all material respects as of such earlier date; provided, however, in each case, such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof.  Nothing herein is intended to impair or limit the validity, priority or extent of Agent’s security interests in and Liens on the Collateral.  Each Borrower acknowledges and agrees that the Credit Agreement, the other Financing Documents and this Agreement constitute the legal, valid and binding obligation of such Borrower, and are enforceable against such Borrower in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

4.          Conditions to Effectiveness.  This Agreement shall become effective as of the date on which each of the following conditions has been satisfied, as determined by Agent and each Lender in its sole discretion:

(a)         Borrowers shall have delivered to Agent this Agreement, executed by an authorized officer of each Borrower;

(b)         Borrowers shall have delivered to Agent a copy of that certain Amendment No. 3 to Credit and Security Agreement (Revolving Loan), executed by an authorized officer of each Borrower;

(c)         Agent shall have received from each Borrower a secretary’s certificate of such Borrower certifying as to (i) the names and signatures of each officer of such Borrower authorized to execute and deliver this Agreement and all documents executed in connection therewith, (ii) the Organizational Documents of such Borrower attached to such certificate are complete and correct copies of such Organizational Documents as in effect on the date of such certification, (iii) the resolutions of such Borrower’s board of directors or other appropriate governing body approving and authorizing the execution, delivery and performance of this Agreement and the other documents executed in connection therewith, and (iv) certificates attesting to the good standing of such Borrower in its jurisdiction of organization, together with, if applicable, related tax certificates;

(d)         all representations and warranties of Borrowers contained herein are true, correct and complete in all material respects on and as of the date of such borrowing or issuance, except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct in all material respects as of such earlier date; provided,  however, in each case, such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof); and

(e)         prior to and after giving effect to the agreements set forth herein, no Default or Event of Default has occurred and is continuing.

5.          Release.  In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Borrower, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of its respective current and former directors, officers, shareholders, agents, and employees, and each of its respective predecessors, successors, heirs, and assigns (individually and collectively, the “Releasing Parties”) does hereby fully and completely release, acquit and forever discharge each of Agent, Lenders, and each of their respective parents, subsidiaries, affiliates, members, managers, shareholders, directors, officers and employees, and each of their respective predecessors, successors, heirs, and assigns (individually and collectively, the “Released Parties”), of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Released Parties or any of them (whether directly or indirectly), based in whole or in part on facts, whether or not now known, existing on or before the date hereof, that relate to, arise out of or otherwise are in connection with: (i) any or all of the Financing Documents or transactions contemplated thereby or any actions or omissions in connection therewith or (ii) any aspect of the dealings or relationships between or among a Borrower, on the one hand, and any or all of the Released Parties, on the other hand, relating to any or all of the documents, transactions, actions or omissions referenced in clause (i) hereof.  Each Borrower acknowledges that the foregoing release is a material inducement to Agent’s and Lender’s decision to enter into this Agreement and agree to the modifications contemplated hereunder, and has been relied upon by Agent and Lenders in connection therewith.  Notwithstanding anything contained in this Agreement, the general release set forth in this Section 5 shall not extend to, and shall not include, any obligations of Agent and the Lenders to make extensions of credit after the date of this Agreement to Borrower in accordance with the terms of the Financing Documents.

6.          No Waiver or Novation.

(a)         The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing.  Nothing herein is intended or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or the other Financing Documents or any of Agent’s rights and remedies in respect of such Defaults or Events of Default.  Notwithstanding the foregoing, Agent and the Lenders hereby agree that any failure of Borrower to comply with Section 6.2 of the Original Credit Agreement for the Defined Period ending June 30, 2018 (without giving effect to terms of this Agreement) shall not constitute a breach or Event of Default under the Credit Agreement (as amended by this Agreement).  The parties agree that the foregoing sentence shall not be deemed to (i) be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement (as amended by this Agreement) or of any other Financing Document; (ii) prejudice any right that Agent or Lenders have or may have in the future under or in connection with the Credit Agreement (including with respect to Section 6.2, as amended pursuant to the terms of this Agreement) or any other Financing Document; (iii) except as expressly stated in the immediately preceding sentence, constitute a consent to or waiver of any past, present or future Default or Event of Default or other violation of any provisions of the Credit Agreement or any other Financing Documents; (iv) create any obligation to forbear from taking any enforcement action, or to make any further extensions of credit; or (v) establish a custom or course of dealing among any of the Credit Parties, on the one hand, or Agent or any Lender, on the other hand.

(b)        This Agreement (together with any other document executed in connection herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.

7.          Affirmation.  Except as specifically amended pursuant to the terms hereof, each Borrower hereby acknowledges and agrees that the Credit Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are hereby ratified and confirmed in all respects by such Borrower.  Each Borrower covenants and agrees to comply with all of the terms, covenants and conditions of the Credit Agreement and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and conditions.

8.          Miscellaneous.

(a)         Reference to the Effect on the Credit Agreement.  Upon the effectiveness of this Agreement, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Credit Agreement, as amended by this Agreement.  Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by each Borrower.

(b)         GOVERNING LAW.   THIS AGREEMENT AND ALL DISPUTES AND OTHER MATTERS RELATING HERETO OR THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).

(c)         EACH BORROWER, AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE

TRANSACTIONS CONTEMPLATED HEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH BORROWER, AGENT AND EACH LENDER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS.  EACH BORROWER, AGENT AND EACH LENDER WARRANTS AND REPRESENTS THAT IT HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

(d)         Incorporation of Credit Agreement Provisions.  The provisions contained in Section 11.6 (Indemnification) and Section 12.9 (Waiver of Jury Trial) of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety.

(e)         Headings.  Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

(f)         Counterparts.  This Agreement may be signed in any number of counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same instrument.  Delivery of an executed counterpart of this Agreement by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif file) of an executed signature page shall be effective as delivery of an original executed counterpart hereof and shall bind the parties hereto.

(g)         Entire Agreement.          This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

(h)         Severability.  In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in any applicable jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

(i)          Successors/Assigns.  This Agreement shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the parties hereto, subject to the provisions of the Credit Agreement and the other Financing Documents.

[SIGNATURES APPEAR ON FOLLOWING PAGES]

IN WITNESS WHEREOF, intending to be legally bound, the undersigned have executed this Agreement as of the day and year first hereinabove set forth.

Schedule 2.1 - Amortization

Commencing on the January 1, 2019 and continuing on the first day of each calendar month thereafter, Borrower shall pay to Agent as a principal payment on the Term Loans an amount equal to (a) the total principal amount of Term Loans made to Borrower,  divided by (b) thirty-nine (39), for a thirty-nine (39) month straight-line amortization of equal monthly principal payments.  Notwithstanding the foregoing, the entire remaining outstanding principal balance under the Term Loans shall mature and be due and payable upon the Termination Date.

Schedule 6.2 – Minimum Net Revenue Schedule