EXHIBIT 10.3 ASSUMPTION AND AMENDMENT AGREEMENT

 

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                                                                    EXHIBIT 10.3

 

                       ASSUMPTION AND AMENDMENT AGREEMENT

 

      This Assumption and Amendment Agreement, dated as of September 28, 2005,

is entered into between SILICON VALLEY BANK ("Silicon"), on the one side, and

CARDIAC SCIENCE CORPORATION, a Delaware corporation formerly known as CSQ

HOLDING COMPANY (the "Surviving Company"), QUINTON CARDIOLOGY, INC., a

Washington corporation ("QCI") (jointly and severally, and effective upon the

effective date of the Merger (as defined below), Surviving Company and QCI are

referred to herein as the "Existing Borrower"), and CARDIAC SCIENCE OPERATING

COMPANY, a Delaware corporation formerly known as CARDIAC SCIENCE, INC. ("CSI")

hereinafter referred to as the "New Borrower"), on the other side, with

reference to the following facts:

 

      A. Silicon and Quinton Cardiology Systems, Inc., a Delaware corporation

("QCS") and QCI are parties to that certain Loan and Security Agreement dated

December 30, 2002 (as amended, the "Loan Agreement"). (The Loan Agreement and

all other documents, instruments and agreements evidencing, securing or

otherwise related to the obligations of QCS and QCI to Silicon, are hereinafter

collectively referred to as "Loan Documents". Capitalized terms used but not

defined in this Assumption Agreement shall have the meanings set forth in the

Loan Agreement.)

 

      B. Silicon and CSI and Cadent Medical Corporation ("CMC") are parties to

that certain Loan and Security Agreement dated February 6, 2004 (as amended, the

"CSI Loan Agreement"). The CSI Loan Agreement and all other documents,

instruments and agreements evidencing, securing or otherwise related to the

obligations of CSI and CMC to Silicon, are hereinafter collectively referred to

as the "CSI Loan Documents." CMC has subsequently been dissolved.

 

      C. Rhythm Acquisition Corporation, a Delaware corporation and a wholly

owned subsidiary of Surviving Company, has merged with and into QCS with QCS as

the surviving corporation (the "QCS Merger") in accordance with that certain

Agreement and Plan of Merger dated as of February 28, 2005, as amended by that

certain Amendment to Agreement and Plan of Merger dated as of June 23, 2005

(collectively, the "Merger Agreement").

 

      D. Immediately following the QCS Merger, QCS, as the surviving corporation

of the QCS Merger, has merged with and into the Surviving Company, in accordance

with the Merger Agreement (such merger transaction is referred to herein as the

"Merger"). As a result of the Merger, the Surviving Company is the surviving

corporation.

 

      E. Immediately following the Merger, (i) the name of the Surviving Company

was changed to Cardiac Science Corporation; (ii) Heart Acquisition Corporation,

a Delaware corporation and a wholly owned subsidiary of the Surviving Company,

merged

 

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with and into CSI with CSI as the surviving corporation (the "CSI Merger"), and

(iii) CSI changed its name to Cardiac Science Operating Company, all in

accordance with the Merger Agreement. As a result of the CSI Merger, CSI has

become a wholly owned subsidiary of the Surviving Company. In conjunction with

the CSI Merger, the indebtedness of CSI to Perseus Acquisition/Recapitalization

Fund, L.L.C., Perseus Market Opportunity Fund, L.P. and Cardiac Science

Co-Investment, L.P. (collectively, the "Subordinating Creditors") shall be

converted into a combination of equity of the Surviving Company and cash, and

all liens and security interests in favor of the Subordinating Creditors and

HSBC Bank USA (as agent for the Subordinating Creditors) will be terminated.

 

      NOW, THEREFORE, the parties hereto agree as follows:

 

      1. ASSUMPTION BY SURVIVING COMPANY. Effective as of the effective time of

the Merger, the Surviving Company, without any further action, hereby assumes

and agrees to perform for the benefit of Silicon all of the "Obligations" (as

defined in the Loan Agreement) of QCS, and the Surviving Company agrees to

honor, perform and in all respects comply with all terms and provisions of all

of the Loan Documents, to the same extent as though the Surviving Company were

named therein in place of QCS. All references in the Loan Agreement to

"Collateral" and "Obligations" shall be deemed to refer to all present and

future Collateral and Obligations (as therein defined) of the Surviving Company

as well as QCS. The Surviving Company acknowledges that QCS's Accounts, General

Intangibles, Inventory, Equipment and all other Collateral have been transferred

to the Surviving Company as a result of the Merger, subject in all respects to

the continuing security interest in favor of Silicon, and, as security for all

of the Obligations, the Surviving Company hereby grants Silicon a security

interest in all of its present and future Collateral, including, without

limitation, all present and future Accounts, General Intangibles, Inventory,

Equipment and all other Collateral. The Surviving Company acknowledges that,

effective as of the effective date of the Merger, all of the Obligations are

owing to Silicon from the Surviving Company.

 

      2. ASSUMPTION BY NEW BORROWER. Effective as of the effective date of the

CSI Merger, New Borrower hereby assumes and agrees to pay and perform when due

all present and future indebtedness, liabilities and obligations of Existing

Borrower under, based upon, or arising out of the Loan Agreement and any and all

documents, instruments and agreements relating thereto, including without

limitation all of the "Obligations" as defined in the Loan Agreement. Existing

Borrower shall remain as an obligor with respect to all of the Obligations, and

Existing Borrower and New Borrower shall be jointly and severally liable for all

of the Obligations. All references in the Loan Agreement, and in all related

documents, to "Borrower" shall be deemed to refer, jointly and severally, to

Existing Borrower and New Borrower.

 

      3. GRANT OF SECURITY INTEREST BY NEW BORROWER. Without limiting the

generality of the provisions of Section 2 above, as security for all

Obligations, New Borrower hereby grants Silicon a continuing security interest

in all of New Borrower's interest in the "Collateral" (as defined in the Loan

Agreement) including, without limitation, the types of property described below,

whether now owned or hereafter acquired and wherever located:

 

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(a) All accounts, contract rights, chattel paper, letters of credit, documents,

securities, money, and instruments, and all other obligations now or in the

future owing to New Borrower; (b) All inventory, goods, merchandise, materials,

raw materials, work in process, finished goods, farm products, advertising,

packaging and shipping materials, supplies, and all other tangible personal

property which is held for sale or lease or furnished under contracts of service

or consumed in the New Borrower's business, and all warehouse receipts and other

documents; and (c) All equipment, including without limitation all machinery,

fixtures, trade fixtures, vehicles, furnishings, furniture, materials, tools,

machine tools, office equipment, computers and peripheral devices, appliances,

apparatus, parts, dies, and jigs; (d) All general intangibles including, but not

limited to, deposit accounts, goodwill, names, trade names, trademarks and the

goodwill of the business symbolized thereby, trade secrets, drawings,

blueprints, customer lists, patents, patent applications, copyrights, security

deposits, loan commitment fees, federal, state and local tax refunds and claims,

all rights in all litigation presently or hereafter pending for any cause or

claim (whether in contract, tort or otherwise), and all judgments now or

hereafter arising therefrom, all claims of New Borrower against Silicon, all

rights to purchase or sell real or personal property, all rights as a licensor

or licensee of any kind, all royalties, licenses, processes, telephone numbers,

proprietary information, purchase orders, and all insurance policies and claims

(including without limitation credit, liability, property and other insurance),

and all other rights, privileges and franchises of every kind; (e) All books and

records, whether stored on computers or otherwise maintained; and (f) All

substitutions, additions and accessions to any of the foregoing, and all

products, proceeds and insurance proceeds of the foregoing, and all guaranties

of and security for the foregoing; and all books and records relating to any of

the foregoing. By the execution hereof, New Borrower hereby authorizes Silicon

to prepare and file UCC-1 Financing Statements listing New Borrower as the

debtor therein and in such form as Silicon shall specify.

 

      4. AMENDMENT TO CSI LOAN DOCUMENTS. New Borrower acknowledges that the

present unpaid principal balance of the New Borrower's indebtedness, liabilities

and obligations to Silicon under the CSI Loan Documents, including interest

accrued through the date hereof is $0.00, with certain Letters of Credit

outstanding (the "Present CSI Loan Balance"), and that said sum is owing without

any defense, offset, or counterclaim of any kind. The CSI Loan Documents are

hereby amended in their entirety to read as set forth in the Loan Agreement, and

related documents. New Borrower acknowledges that the Present CSI Loan Balance

shall, for all purposes, be deemed to be Loans made by Silicon to the New

Borrower pursuant to the Loan Documents. Notwithstanding the assumption of the

Loan Documents, the following CSI Loan Documents shall continue in full force

and effect and shall continue to secure all present and future indebtedness,

liabilities, guarantees and other Obligations (as defined in the Loan

Documents): All standard documents of Silicon entered into by the New Borrower

in connection with Letters of Credit and/or Foreign Exchange Contracts; all

security agreements, collateral assignments and mortgages, including but not

limited to those relating to patents, trademarks, copyrights and other

intellectual property; all lockbox agreements and/or blocked account agreements;

and all UCC-1 financing statements and other documents filed with governmental

offices which

 

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perfect liens or security interests in favor of Silicon. In addition, in the

event the New Borrower has previously issued any stock options, stock purchase

warrants or securities to Silicon, the same and all documents and agreements

relating thereto shall also continue in full force and effect.

 

      5. AMENDMENT TO SCHEDULE. The Schedule to Loan and Security Agreement is

hereby deleted and replaced with the Amended Schedule being executed

concurrently herewith.

 

      6. AMENDMENT TO LOAN AGREEMENT. The following provisions of the Loan

Agreement are hereby amended as set forth below:

 

            a. MODIFIED AUDIT PROVISION. Section 5.4 of the Loan Agreement is

hereby amended to read as follows:

 

               5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times,

               and on one Business Day's notice, Silicon, or its agents, shall

                have the right to inspect the Collateral, and the right to audit

               and copy Borrower's books and records. After an initial audit to

               be conducted in conjunction herewith (which Silicon acknowledges

               has been completed), the parties contemplate that such audits

               will be performed no more frequently than annually, but nothing

               herein restricts Silicon's right to conduct such audits more

               frequently if (i) Silicon believes that it is advisable to do so

               in Silicon's good faith business judgment, or (ii) Silicon

               believes in good faith that a Default or Event of Default has

               occurred. Silicon shall take reasonable steps to keep

                confidential all information obtained in any such inspection or

               audit, but Silicon shall have the right to disclose any such

               information to its auditors, regulatory agencies, and attorneys,

               and pursuant to any subpoena or other legal process. The

               foregoing inspections and audits shall be at Borrower's expense

               and the charge therefor shall be $750 per person per day (or such

               higher amount as shall represent Silicon's then current standard

               charge for the same), plus reasonable out-of-pocket expenses. In

               the event Borrower and Silicon schedule an audit more than 10

               days in advance, and Borrower seeks to reschedule the audit with

               less than 10 days written notice to Silicon, then (without

               limiting any of Silicon's rights or remedies), Borrower shall pay

               Silicon a cancellation fee of $1,000 plus any out-of-pocket

               expenses incurred by Silicon, to compensate Silicon for the

               anticipated costs and expenses of the cancellation.

 

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            b. MODIFIED ACQUISITION PROVISION. The single asterisk (*) insert at

the end of Section 5.5(i) is hereby amended to read as follows:

 

                  ; provided however, notwithstanding anything to the contrary

                  in this Section 5.5, Borrower will be permitted to merge or

                  consolidate with another corporation or entity without the

                  prior written consent of Silicon if such acquisition satisfies

                  each of the following requirements: (a) the acquired entity is

                  in the same or similar line of business as Borrower, (b) the

                  acquisition is a non-hostile acquisition (as determined by

                  Silicon in its good faith business judgment), (c) no Default

                  or Event of Default exists both before such acquisition and

                  after giving effect to such acquisition, (d) the acquired

                  entity must show a positive trailing twelve month EBITDA, (e)

                  the total cash consideration paid by Borrower in each such

                  acquisition cannot exceed $10,000,000 and (f) the Borrower

                  must be the surviving corporation of such merger or

                  consolidation.

 

            c. MODIFIED PREPAYMENT PROVISION. Section 6.2 of the Loan Agreement

is hereby amended to read as follows:

 

                  6.2 EARLY TERMINATION. This Agreement may be terminated prior

                  to the Maturity Date as follows: (i) by Borrower, effective

                  three Business Days after written notice of termination is

                  given to Silicon; or (ii) by Silicon at any time after the

                  occurrence and during the continuance of an Event of Default,

                  without notice, effective immediately. If this Agreement is

                   terminated by Borrower or by Silicon under this Section 6.2,

                  Borrower shall pay to Silicon a termination fee in an amount

                  equal to the following: (a) 1.0% of the Maximum Credit Limit

                  if terminated before December 31, 2005; (b) 0.875% of the

                  Maximum Credit Limit if terminated after December 31, 2005 but

                  before March 31, 2006; (c) 0.75% of the Maximum Credit Limit

                  if terminated after March 31, 2006 but before June 30, 2006;

                  (d) 0.625% of the Maximum Credit Limit if terminated after

                  June 30, 2006 but before September 30, 2006; (e) 0.50% of the

                  Maximum Credit Limit if terminated after September 30, 2006

                  but before December 31, 2006; (f) 0.375% of the Maximum Credit

                  Limit if terminated after December 31, 2006 but before March

                  31, 2007; (g) 0.25% of the Maximum Credit Limit if terminated

                   after March 31, 2007 but before June 30, 2007; and (h) 0.125%

                  of the Maximum Credit Limit if terminated after June 30, 2007

                  but before the Maturity Date. Notwithstanding the

 

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                  foregoing, no termination fee shall be charged if the credit

                  facility hereunder is replaced with a new facility from

                  another division of Silicon Valley Bank. The termination fee

                   shall be due and payable on the effective date of termination

                  and thereafter shall bear interest at a rate equal to the

                  highest rate applicable to any of the Obligations.

 

            d. ADDING DEFINITION OF FOREIGN ACCOUNTS. Subclause (viii) of the

Minimum Eligibility Requirements set forth in the definition of "Eligible

Accounts" set forth in Section 8 of the Loan Agreement is hereby amended to read

as follows:

 

                  (viii) the Account must not be owing from an Account Debtor

                  located outside the United States or Canada (each a "Foreign

                  Account") (unless pre-approved by Silicon in its discretion in

                  writing, or backed by a letter of credit satisfactory to

                  Silicon, or FCIA insured satisfactory to Silicon),

 

            e. MODIFIED DEFINITION OF ELIGIBLE ACCOUNTS REGARDING DEFERRED

REVENUE. The following sentences at the end of the definition of "Eligible

Accounts" set forth in Section 8 of the Loan Agreement that read as follows:

 

                  Without limiting the generality of the foregoing, deferred

                  revenue shall be reviewed by Silicon monthly and associated

                  potential offsets by Account Debtors will be deducted from the

                  Accounts owing from such Account Debtors; provided, however,

                  the foregoing clause will not be applicable once Borrower

                  achieves, and as long as Borrower maintains, an Adjusted Quick

                  Ratio of not less than 0.60 to 1.0 (provided, further, that

                  the foregoing will not limit Silicon's rights to establish

                  reserve