EXHIBIT 10.17
[LETTERHEAD]
August 24, 1998 REVISION #2
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Mr. Michael Ostrach
Vice President - Corporate Development
Kosan Biosciences, Inc.
1450 Rollins Road
Burlingame, CA 94010
Dear Mr. Ostrach:
Subject to all the terms and conditions hereof and receipt by us of all
documents requested by us, in form and substance satisfactory to us and our
counsel, we are prepared to enter into the following loan transaction (the
"Loan").
BORROWER OR "YOU": Kosan Biosciences, Inc.
LENDER OR "WE" OR "US": FINOVA Technology Finance, Inc.
TERM OF LOANS: 48 consecutive months
MAXIMUM LOAN AMOUNT: $2,000,000 in one or more advances (each an
"Advance") to finance your purchase of
certain laboratory, office and production
equipment and tenant improvements acceptable
to us (the "Equipment"), plus softcosts
related thereto not to exceed 20% of the
amount of each Advance.
Not more than $773,116 in Advances may be
made unless and until receipt by us of
confirmation of a signed collaboration
agreement (in form and substance acceptable
to us) with Johnson & Johnson (or another
entity acceptable to us) which will provide
an aggregate of no less than $6,000,000 of
projected revenue. The initial Advance of
$484,116, plus $289,000 for a Varian NMR
when delivered and accepted shall comprise
the $773,116 total above referenced.
COLLATERAL: The due payment and performance of all
of your present and future obligations to us
shall be secured by a first and only
perfected security interest in and to all of
the Equipment, together with all proceeds
of, and accessions and additions to,
substitutions for, and all replacements of,
any of the foregoing, whether cash or
non-cash, including, but not limited to,
insurance proceeds (collectively, the
"Collateral")
COLLATERAL LOCATION: Burlingame, CA
ANTICIPATED CLOSING DATES: August 1998 through June 30, 1999
CLOSING DATE: The date on which all conditions to the Loan
for the Initial Advance and all future
Advances are satisfied by you and the Loan
proceeds are disbursed to you or to other
persons at your
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direction. The Initial Advance and all
further Advances shall be evidenced by one
or more promissory notes (each a "Note").
Each Advance shall not be less than $100,000
secured by delivered and accepted Equipment.
No Closing Dates shall occur after June 30,
1999.
MONTHLY LOAN PAYMENTS: Each Note shall be payable in 48 consecutive
monthly payments of principal and interest
each equal to 2.332% of the Advance, subject
to adjustment, payable monthly in advance,
and followed by one payment equal to 12.5%
of the Advance. The first Monthly Loan
Payment shall be payable on the Closing Date
of each Advance.
ADJUSTMENT TO MONTHLY
LOAN PAYMENTS: If, on the second business day preceding
the Closing Date for each Advance, the
highest yield for four-year U.S. Treasury
Notes as published in THE WALL STREET
JOURNAL is greater than the yield on June
23, 1998, the first 48 Monthly Loan Payments
shall be increased to reflect such change in
yield. The yield as of June 23, 1998 was
5.56%. As of the Closing Date for each
Advance, the Monthly Loan Payments shall be
fixed for the entire term.
INTERIM PAYMENTS: In addition to the Monthly Loan Payments,
interim payments shall accrue for each day
from each Closing Date until the
twenty-ninth day of the same month (27th day
of the month of each Advance in the case of
February) unless the Advance is made on the
thirtieth or thirty-first day of a month. If
the Closing Date is the thirty-first day of
a month, the interim payment shall accrue
from the Closing Date until the twenty-ninth
day of the next following month. If the
Closing Date is the thirtieth day of a
month, there shall be no interim payment.
The interim payment for each day shall be
1/30 of the adjusted interest rate
multiplied by the amount of the Advance and
shall be payable on the Closing Date.
DOCUMENTATION: All documentation shall be prepared and
reviewed by us or our counsel and shall be
in form and substance satisfactory to us and
our counsel in our and our counsel's sole
and absolute discretion, and shall include,
without limitation, the Notes, a loan and
security agreement, the Letter of Credit (if
required), landlord and mortgagee's waivers
and consents, assignments, insurance
policies, UCC Financing Statements, and such
other documents or other agreements and as
we and our counsel deem appropriate
(collectively, the "Loan Documents").
LETTER OF CREDIT,
OTHER LOAN PROVISIONS
AND COVENANTS: A. LOAN PROVISIONS. The Loan
Documents shall include the usual
provisions and covenants in our loan
agreements, cross default and cross
collateralization provisions to all
your Loans, and such other or
different provisions and covenants
that are customarily included in
agreements of this kind.
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B. MINIMUM CASH REQUIREMENT; LETTER OF
CREDIT. You shall at all times
maintain a minimum of unrestricted
cash or cash equivalents of at least
$5,000,000 (the "Minimum Cash
Requirement").
In the event you at any time fail to
maintain the Minimum Cash
Requirement, you shall open an
Irrevocable Letter of Credit, in
form and substance satisfactory to
us, issued by a Bank satisfactory to
us, in our favor as beneficiary (the
"Letter of Credit") , or provide us
as Collateral cash or cash
equivalents, acceptable to us, in an
amount equal to fifty (50%) percent
of the then current outstanding
principal balance of the Loan. The
failure to provide the Letter of
Credit or other Collateral shall be
an event of default. At month
twenty-four of the initial Loan, we
will review your current financial
condition and future outlook.
Following the review, we may in our
sole discretion, reduce or waive the
Minimum Cash Requirement for the
remainder of the term of the Loans.
C. INSURANCE. The Loan Documents shall
provide for you, at all times to
procure and maintain, or cause to be
procured and maintained, policies of
insurance, in such form, of such
type and with insurers satisfactory
to us.
D. FINANCIAL REPORTING. You shall
deliver to us or cause to be
delivered to us your quarterly
financial statements within 45 days
following the end of each respective
fiscal quarter and annual financial
statements for you within 90 days
following the end of each respective
fiscal year. All annual financial
statements shall be prepared in
accordance with GAAP and be audited
by a reputable firm of certified
public accountants acceptable to us,
and shall be accompanied by a
certificate executed by such
certified public accountants to the
effect that you have complied with
all covenants contained in the Loan
Documents and there are no events of
default thereunder ("Compliance
Certificate"). All quarterly
financial statements may be
internally prepared in accordance
with GAAP, and accompanied by a
Compliance Certificate executed by
the respective chief financial
officer.
E. ADDITIONAL REPRESENTATIONS. It shall
be a condition precedent to the
closing of each Advance that no
payment due us is past due, whether
as a lessee, a borrower, a guarantor
or in some other capacity; that the
you are in compliance with the
provisions of this Commitment; that
all information requested by us and
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all documentation then required by
our counsel has been received by us,
including resolutions of your Board
of Directors authorizing the
transactions contemplated by this
Commitment; that you are not in
default under any material contract
to which you are a party or by which
it or your property is bound; that
there has not been any material
adverse change or threatened
material adverse change in your
financial or other condition,
business, operations, properties,
assets or prospects since December
31, 1997 or from the written
information that has been supplied
to us by you or any manufacturer of
the Equipment prior to the date of
this Commitment; that there shall be
no actual or threatened conflict
with, or violation of, any
regulatory statute, standard or rule
relating to you, your present or
future operations, or the Equipment,
the violation of which would have a
material adverse effect on your
financial condition; and that we
receive an opinion of your counsel
satisfactory to us.
All information supplied by you
shall be correct in all material
respects and shall not omit any
statement necessary to make the
information supplied not be
misleading. There shall be no
material breach of the
representations and warranties by
you in the Loan Documents. The
representations shall include that
the cost of each item of the
Equipment does not exceed the fair
and usual price for like quantity
purchases of such item and reflects
all discounts, rebates and
allowances for the Equipment given
to you or any of your affiliate by
you by the manufacturer, supplier or
anyone else including, without
limitation, discounts for
advertising, prompt payment, testing
or other services.
FEES AND EXPENSES: You shall be responsible for our reasonable
fees and expenses in connection with the
transaction, including UCC filing, due
diligence search fees and the expenses of
our counsel to respond to any requested
modifications or changes to the Lender's
standard documentation. We shall use our
best efforts to notify you when the Fees and
Expenses reach $1,500; however, our failure
to do so is not intended to limit the fees
and expenses set forth herein.
COMMITMENT FEE: Simultaneously with the acceptance of this
Commitment, you shall pay us a
non-refundable Commitment Fee of $20,000.
The $20,000 Application Fee, previously paid
shall be applied towards the Commitment Fee.
The Commitment Fee shall be first applied to
the Fees and Expenses due hereunder. Any
remainder shall be applied to the second
Monthly Loan Payment due under each Advance
on a pro-rata basis.
In the event that we are unable to receive
confirmation of a signed collaboration
agreement (in form and substance acceptable
to us) with Johnson & Johnson (or another
entity acceptable to us) which will provide
an aggregate of no less than
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$6,000,000 of projected revenue, we will
credit the unused portion of the Commitment
Fee to your account within thirty days of
your written request to us.
SURVIVAL: This Commitment Letter shall survive the
closing. However, if there is any conflict
between the terms and conditions of the Loan
Documents and those of this Commitment
Letter, the Loan Documents shall control.
This Commitment and the Closing of the transaction contemplated herein are
subject, amongst other things, to receipt by us, in form and substance
satisfactory to us and our counsel, at or prior to Closing, of:
(i) all documentation and other requirements set forth herein
including but not limited to the Loan Documents and other
requirements set forth herein and as may be required by our
counsel; and
(ii) our receipt, in form and substance satisfactory to us, of all
financial and credit information requested by us, (including,
but not limited to, your audited financial statements for the
year ended 1997), which reflects no material adverse change in
your or condition, business, financial or otherwise; and
(iii) evidence that the Equipment is owned by you, free and clear of
all liens and encumbrances; and
(iv) a completed year 2000 compliance form satisfactory to us; and
(v) evidence of such insurance required by us, written by insurers
and in amounts satisfactory to us; and
(vi) such opinions of your counsel, certificates, waivers,
releases, Uniform Commercial Code Financing Statements, due
diligence searches, and further documents as may be required
by us or our counsel.
In addition to all other conditions and requirements set forth herein, this
Commitment and the closing of the transaction contemplated hereunder shall be
subject, in our sole judgment, that there be no material adverse change in your
financial, business or other condition. This Commitment is not assignable
without our prior written consent. We reserve the right to cancel this
Commitment in the event you or any of your officers, employees, agents or
representatives has made any misrepresentation to us or has withheld any
information from us with regard to the transaction contemplated hereby.
As used in this Commitment, the terms "satisfactory to us" or "acceptable to us"
or "satisfactory to our counsel" or "acceptable to our counsel" or terms of
similar import mean satisfactory or acceptable to us or our counsel in our or
its sole judgment and discretion.
This Commitment and the Loan Documents shall be governed by the laws of the
State of Arizona. Any dispute arising under this Commitment shall be litigated
by you only in any federal or state court located in the State of Arizona, or
any state court located in Maricopa
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County, Arizona; and you hereby irrevocably submit to the personal jurisdiction
of such courts and waive any objection that may exist as to venue or convenience
of such forums. Nothing contained herein shall preclude us from commencing any
action in any court having jurisdiction thereof.
In the event that the Initial Advance does not close prior to December 31, 1998
because of your failure to satisfy the conditions for the closing, or because of
a material adverse change in your financial, business or other condition, this
Commitment shall terminate and we shall have no liability to you and we shall
retain, as earned, the Commitment Fee.
In the event we fail to complete this transaction and such failure is not
because of your inability to satisfy all the conditions for closing or a
material adverse change in your financial, business or other condition, our
liability shall be limited to a return of the Commitment Fee, less Fees and
Expenses due hereunder.
Please execute the copy of this letter acknowledging your acceptance of the
terms hereof and return it to us. If a copy of this Commitment is not executed
and returned by you by August 28, 1998, this offer shall be deemed withdrawn.
This Commitment supersedes, replaces and terminates all previous proposals
and/or agreements including, but not limited to, our proposal dated June 23,
1998 which shall be null and void.
Should you have any questions, please call me. If you wish to accept this
Commitment, please sign and return the enclosed duplicate letter to the
undersigned by August 28, 1998.
Sincerely,
FINOVA TECHNOLOGY FINANCE, INC.
By /s/ Linda A. Moschitto
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Linda A. Moschitto
Director - Contract Administration
Accepted this 25 day of August, 1998
KOSAN BIOSCIENCES, INC.
By: /s/ Michael Ostrach
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Michael Ostrach
Vice President - Corporate Development
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