EXHIBIT 10.1
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CYGNUS, INC.
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Interest Rate Protection. . . . . . . . . . . . . . . . . . . . . . 7
2.3 Interest Rates, Payments, and Calculations. . . . . . . . . . . . . 7
2.4 Crediting Payments. . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.7 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. CONDITIONS OF LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Conditions Precedent to Advance . . . . . . . . . . . . . . . . . . 9
4. CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . 10
4.1 Grant of Security Interest. . . . . . . . . . . . . . . . . . . . . 10
4.2 Delivery of Additional Documentation Required . . . . . . . . . . . 10
4.3 Right to Inspect. . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . 11
5.1 Due Organization and Qualification. . . . . . . . . . . . . . . . . 11
5.2 Due Authorization; No Conflict. . . . . . . . . . . . . . . . . . . 11
5.3 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Bona Fide Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 Merchantable Inventory. . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Name; Location of Chief Executive Office. . . . . . . . . . . . . . 11
5.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 No Material Adverse Change in Financial Statements. . . . . . . . . 12
5.9 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.10 Regulatory Compliance . . . . . . . . . . . . . . . . . . . . . . . 12
5.11 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . 12
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.13 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.14 Government Consents . . . . . . . . . . . . . . . . . . . . . . . . 12
5.15 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Government Compliance . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Adverse Information . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Financial Statements, Reports, Certificates . . . . . . . . . . . . 13
6.5 Inventory; Returns. . . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.8 Principal Depository. . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Debt-Net Worth Ratio. . . . . . . . . . . . . . . . . . . . . . . . 15
6.10 Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . 15
6.11 Minimum Liquidity and Debt Service Coverage.. . . . . . . . . . . . 15
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6.12 Registration of Intellectual Property Rights. . . . . . . . . . . . 15
6.13 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 16
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Change in Business. . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Mergers or Acquisitions . . . . . . . . . . . . . . . . . . . . . . 16
7.4 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.6 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.7 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.8 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . 16
7.9 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.10 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.11 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 Payment Default . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Covenant Default. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . 17
8.4 Attachment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.8 Adverse Legal Action/Judgments. . . . . . . . . . . . . . . . . . . 18
8.9 Misrepresentations. . . . . . . . . . . . . . . . . . . . . . . . . 18
8.10 FDA Determinations. . . . . . . . . . . . . . . . . . . . . . . . . 18
8.11 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Accounts Collection.. . . . . . . . . . . . . . . . . . . . . . . . 20
9.4 Bank Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.5 Bank's Liability for Collateral . . . . . . . . . . . . . . . . . . 20
9.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 20
9.7 Demand; Protest . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . . . . 21
12. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.1 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 21
12.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.4 Severability of Provisions. . . . . . . . . . . . . . . . . . . . . 22
12.5 Amendments in Writing, Integration. . . . . . . . . . . . . . . . . 22
12.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.7 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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This LOAN AND SECURITY AGREEMENT is entered into as of June 24, 1996, by
and between SILICON VALLEY BANK ("Bank") and CYGNUS, INC. ("Borrower").
RECITALS
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Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
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1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" means the Advance under the Term Loan Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date the conditions precedent set forth
in Section 3 are satisfied and the Advance is made.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached
hereto.
"Committed Loan Amount" means Eight Million Dollars ($8,000,000).
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"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold
with recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount equal
to the stated or determined amount of the primary obligation in respect of
which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith; provided, however, that such amount shall not
in any event exceed the maximum amount of the obligations under the guarantee
or other support arrangement.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Debt Service Coverage" means, as measured quarterly as of the
last day of each fiscal quarter of Borrower (unless measured monthly in
accordance with Section 6.11 herein), on a consolidated basis determined in
accordance with GAAP, the ratio of (a) an amount equal to the sum of (i) net
income, PLUS (ii) depreciation, amortization of intangible assets and other
non-cash charges to income to (b) an amount equal to the sum of all scheduled
repayments for such quarter (or month, as applicable) and mandatory
prepayments of principal on account of long-term Debt.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"FDA" means the Food and Drug Administration of the United States
government, and any successor regulatory body.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"GMP" has the meaning set forth in Section 6.2.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
2
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above,
and Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Liquidity" means, at any date of determination, the sum of
Borrower's cash, cash equivalents, and short term investments, less any cash
and cash equivalent balances that are held in a sinking fund for the
retirement of debt or capital stock or that are held in pledge for another
creditor.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to
repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means December 24, 1999.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and
Borrower's Books relating to any of the foregoing.
"Net Cash Losses" means, with respect to any period of
determination, determined on a consolidated basis in accordance with GAAP for
such period for Borrower and its consolidated Subsidiaries, the sum of
(i) net income (loss), PLUS (ii) non-cash expenses, depreciation and
amortization, MINUS (iii) increases in gross fixed assets, PLUS (iv) increases
(decreases) in long term debt or capital leases excluding changes in deferred
revenue.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may
have obtained by assignment or otherwise.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
3
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the date of this Agreement and
disclosed in the Schedule;
(c) Indebtedness to trade creditors incurred in the ordinary
course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited hereby);
Indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited hereby);
and Contingent Obligations of the Borrower as a guarantor for obligations of
its Subsidiaries that (i) are existing on the date of this Agreement, or
(ii) have been approved by Bank in writing;
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such
equipment or the fair market value of such equipment on the date of
acquisition; and
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Date of this Agreement
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the
date of creation thereof and currently having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
and (iii) certificates of deposit maturing no more than one (1) year from the
date of investment therein issued by Bank, and (iv) any Investments permitted
by Borrower's investment policy, as amended from time to time, provided that
such investment policy (any such amendment thereto) has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable
instrument for deposit or collection or similar transactions in the ordinary
course of business;
(d) Investments accepted in connection with Transfers permitted
by Section 7.1;
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(e) Investments (whether consisting of the purchase of
securities, loans, capital contribution, or otherwise) of Borrower in
Subsidiaries and of Subsidiaries in or to other Subsidiaries or in Borrower;
(f) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board
of Directors of Borrower determines that such compensation is in the best
interests of Borrower, (ii) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, and
(iii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower's Board of Directors;
(g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers
and in settlement of delinquent obligations of, and other disputes with,
customers or suppliers arising in the ordinary course of business;
(i) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph
(i) shall not apply to Investments by Borrower in any Subsidiary;
(j) Investments constituting acquisitions permitted under
Section 7.3; and
(k) Deposit accounts of Borrower in which Bank has a Lien
prior to any other Lien.
"Permitted Liens" means the following:
(a) Any Liens existing on the date of this Agreement and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, PROVIDED the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, PROVIDED that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens referred to in UCC
financing statements regarding leases permitted by this Agreement);
(e) Leases or subleases and license and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as
a whole, and any interest or title of a lessor, licensor or under any lease
or license;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
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(h) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse
Effect;
(i) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payments of customs duties in connection with
the importation of goods;
(l) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (d), (e), (f) and (k) above, PROVIDED that any extension,
renewal or replacement Lien shall be limited to the property encumbered by
the existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase; and
(m) Liens on insurance proceeds in favor of insurance
companies granted solely as security for financed premiums.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Remaining Months Liquidity" means, at any time of
determination, the ratio of (i) Unrestricted Cash Reserves at such time to
(ii) the average of Net Cash Losses for the immediately preceding three month
period.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which
(i) any general partnership interest or (ii) more than 50% of the stock of
which by the terms thereof ordinary voting power to elect the Board of
Directors, managers or trustees of the entity shall, at the time as of which
any determination is being made, be owned by Borrower, either directly or
through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and
its Subsidiaries MINUS, without duplication, (i) the sum of any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights
and research and development expenses except prepaid expenses, and (c) all
reserves not already deducted from assets, AND (ii) Total Liabilities.
"Term Loan Facility" means the facility under which Borrower
may request Bank to loan the Committed Loan Amount as specified in
Section 2.1.
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"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
"Unrestricted Cash Reserves" means, at any time of
determination, the sum of Borrower's (i) cash balance of deposit accounts and
investment accounts, PLUS (ii) market value of all readily marketable
securities beneficially owned by Borrower, MINUS (iii) cash value of any
certificates of deposit or securities encumbered and/or restricted by any
Bank or any other Persons.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
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2.1 TERM LOAN.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank will loan to Borrower the Committed Loan Amount on the
Closing Date. The Term Loan Facility will be used to provide temporary
working capital to Borrower.
(b) Interest shall accrue on the Committed Loan Amount from
the Closing Date at the rate specified in Section 2.3(a), and shall be
payable monthly on the twenty-fourth day of the month through the month in
which the term of the Term Loan Facility expires. All outstanding
obligations under this Agreement, including, but not limited to, any accrued
and unpaid interest and other unpaid charges or principal balances, shall be
payable on the Maturity Date.
(c) When Borrower desires the Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m.
California time, on the Business Day that the Advance is to be made. Such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. Bank shall be entitled to rely
on any telephonic notice given by a person who Bank reasonably believes to be
a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank
will credit the amount of the Advance to Borrower's deposit account.
2.2 INTEREST RATE PROTECTION. Subject to the terms and
condition of this Agreement, Borrower may prepay the Advance, in whole or in
part, only upon payment in full of (i) all accrued but unpaid interest and
all outstanding obligations hereunder (or, if partial prepayment, an
applicable or proportionate amount of such obligations), and (ii), if
Borrower has elected the fixed rate option set forth in Section 2.3(a), a fee
as shall be determined by Bank in its reasonable discretion to provide for
interest rate protection in the event the fixed interest rate set forth in
Section 2.3(a) is lower than the then current fixed rate for the Term Loan
Facility.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), the
Advance shall bear interest, on the average daily balance thereof, at a rate
equal to, at Borrower's election, either (i) one percentage (1%) point above
the Prime Rate; or (ii) three and one-quarter percentage (3.25%) points above
the yield of the 42 month Treasury Note as reported in the Western edition of
THE WALL STREET JOURNAL, which rate shall be fixed at the time of Borrower's
election. Borrower shall give written notice to Bank of its interest rate
election on the day of the Advance concurrently with the
7
Payment/Advance form. If Borrower fails to give such notice, then the
applicable rate shall be the 42 month Treasury Note fixed rate described
herein.
(b) DEFAULT RATE. All Obligations shall bear interest, from
and after the occurrence and during the continuance of an Event of Default
(except for an Event of Default with respect to Section 6.11(b) only), at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on
the twenty-fourth calendar day of each month during the term hereof.
Borrower shall make payments of principal as follows: (i) beginning on
December 24, 1996 and continuing on the twenty-fourth day of each calendar
month for each of the eleven (11) months thereafter, Borrower shall make a
payment of principal to Bank in the amount of One Hundred Fifty Thousand
Dollars ($150,000), (ii) beginning on December 24, 1997 and continuing on the
twenty-fourth day of each calendar month for each of the twenty-three (23)
months thereafter, Borrower shall pay to Bank principal payments of Two
Hundred Fifty Eight Thousand Three Hundred Thirty Three Dollars ($258,333).
Bank shall, at its option, charge such interest, principal, all Bank
Expenses, and all Periodic Payments against any of Borrower's deposit
accounts, in which case those amounts shall thereafter accrue interest at the
rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate
is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of days
elapsed. Notwithstanding the foregoing, this Section 2.3(d) shall not apply
in the event the Borrower elects the fixed rate option as set forth in
Section 2.3(a).
2.4 CREDITING PAYMENTS. Prior to the occurrence and during the
continuance of an Event of Default, Bank shall credit a wire transfer of
funds, check or other item of payment to such deposit account or Obligation
as Borrower specifies. After the occurrence and during the continuance of an
Event of Default, the receipt by Bank of any wire transfer of funds, check,
or other similar item for the purpose of payment of Obligations shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately
available federal funds or unless and until such check or other item of
payment is honored when presented for payment. Notwithstanding anything to
the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon California time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of
such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to One Hundred
Thousand Dollars ($100,000), which fee shall be due on the date of this
Agreement, shall be fully earned and non-refundable, and shall be disbursed
by Bank in accordance with the Disbursement Request Form of even date
herewith;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral
8
and financial analysis and examination of Borrower performed from time to
time by Bank or its agents; and
(c) BANK EXPENSES. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 ADDITIONAL COSTS. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by
any court or any governmental authority charged with the administration
thereof or the compliance with any guideline or request of any central bank
or other governmental authority (whether or not having the force of law), in
each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of
America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets
held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank,
reduce the income receivable by Bank or impose any expense upon Bank with
respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to
pay to Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and
setting forth Bank's calculation thereof, all in reasonable detail which
statement shall be deemed true and correct absent manifest error; PROVIDED,
HOWEVER, that Borrower shall not be liable for any such amount attributable
to any period prior to the date one hundred and eighty (180) days prior to
the date of such certificate.
2.7 TERM. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect
for a term ending on the Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make the Advance under
this Agreement immediately and without notice upon the occurrence and during
the continuance of an Event of Default. Notwithstanding termination, Bank's
Lien on the Collateral shall remain in effect for so long as any Obligations
(other than inchoate indemnity obligations) are outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO ADVANCE. The obligation of Bank to make
the Advance is subject to the conditions precedent that:
(a) Bank shall have received, in form and substance satisfactory
to Bank, the following:
(i) this Agreement;
(ii) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery
of this Agreement;
9
(iii) certificates of good standing from the Secretaries
of State of California, Delaware and any other state in which the Borrower is
required to be qualified to do business;
(iv) a collateral assignment and patent mortgage;
(v) financing statements (Forms UCC-1);
(vi) insurance certificate;
(vii) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof;
(viii) timely receipt of the Payment/Advance Form as
provided in Section 2.1;
(ix) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
the Payment/Advance Form and on the effective date of the Advance, and no
Event of Default shall have occurred and be continuing, or would result from
the Advance. The making of the Advance shall be deemed to be a representation
and warranty by Borrower on the date of the Advance as to the accuracy of the
facts referred to in this Section 3.1(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof, in each case, to the extent that a security interest in such
Collateral can be perfected by the filing of a financing statement or, in the
case of Collateral consisting of instruments, documents, chattel paper or
certificated securities, to the extent that Bank takes possession of such
Collateral. Bank agrees to execute and deliver to Borrower from time to time
such Lien releases as Borrower may request and as are necessary to give to
other lenders which finance new Equipment for Borrower a first priority
security interest in the new Equipment financed so long as the Liens and the
Indebtedness incurred with respect to such Equipment financing are permitted
under this Agreement.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
10
4.4 REQUIREMENT FOR CASH COLLATERAL. Borrower shall pledge cash or
a certificate of deposit to Bank as follows:
(a) If Borrower does not comply with Sections 6.9, 6.10 or
6.11 herein (except for six (6) months Remaining Months Liquidity of Section
6.11), then Borrower shall pledge cash or a certificate of deposit to the
Bank in an amount equal to fifty-five percent (55%) of the outstanding loan
balance. Bank agrees to release the cash pledged pursuant to this Section
4.4(a) upon Borrower achieving compliance with Sections 6.9, 6.10 or 6.11.
(b) If at any time the Liquidity of Borrower is less than
(i) Twelve Million Dollars ($12,000,000), or (ii) three (3) times Remaining
Months Liquidity, then Borrower shall pledge cash or a certificate of deposit
to the Bank in an amount equal to one hundred and five percent (105%) of the
outstanding loan balance. Bank agrees to release the cash collateral pledged
pursuant to this Section 4.4(b) upon Borrower achieving Liquidity greater
than (i) Twelve Million Dollars ($12,000,000), or (ii) three (3) times
Remaining Months Liquidity.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except to the extent that failure to
so qualify would not have a Material Adverse Effect on the Borrower provided
that any such failure has been disclosed to Bank.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ACCOUNTS. The Accounts are bona fide existing
obligations. The property giving rise to such Accounts has been delivered to
the account debtor or to the account debtor's agent for immediate shipment to
and unconditional acceptance by the account debtor. Borrower has not received
notice of actual or imminent Insolvency Proceeding of any account debtor.
5.5 MERCHANTABLE INVENTORY. All Inventory, net of reserves in
accordance with GAAP, is in all material respects of good and marketable
quality, free from all material defects.
5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
11
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof
and Borrower's consolidated results of operations for the period then ended.
There has not been a material adverse change in the consolidated financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank.
5.9 SOLVENCY. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result
in Borrower's incurring any liability that could have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940. Borrower is not engaged principally, or as one of the important
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations G, T and U of the
Board of Governors of the Federal Reserve System). Borrower has complied
with all the provisions of the Federal Fair Labor Standards Act and Borrower
has not violated any statutes, laws, ordinances or rules applicable to it,
noncompliance with or which violation of which could have a Material Adverse
Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release,
or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower's knowledge, none of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste
or hazardous substance disposal site, or a candidate for closure pursuant to
any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, except
for taxes the amount or validity of which the Borrower is contesting in good
faith by appropriate proceedings and with respect to which the Borrower has
taken adequate reserves in accordance with GAAP.
5.13 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted. Except as disclosed in writing to Bank, Borrower has not been
denied an Investigational New Drug status nor has any application for New
Drug Approval been denied, nor has Borrower received any information
indicating that the FDA is unlikely to issue an approval letter in response
to such application for any products material to Borrower's business.
12
5.15 FULL DISCLOSURE. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished
to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE.
(a) ERISA. Borrower shall meet, and shall cause each Subsidiary
to meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA.
(b) FDA. To the extent required by law, Borrower shall cause
its, and each of its Subsidiaries', manufacturing and quality control to conform
in all material respects to FDA Good Manufacturing Practices ("GMP") regulations
and such other regulations applicable to Borrower and its Subsidiaries with
respect to advertising, labeling and reporting, product testing, design, safety
and labeling of products except where the failure to so conform is not
reasonably likely to have a Material Adverse Effect. To the extent necessary to
the conduct of its and its Subsidiaries' business, Borrower shall register, and
shall cause each of its Subsidiaries to register, with the Food and Drug Branch
of the California Department of Health Services and the FDA, and Borrower shall
register its, and shall cause each of its Subsidiaries to register their,
manufacturing facilities in accordance with GMP regulations.
(c) STATUTORY COMPLIANCE. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which is reasonably likely to have a Material Adverse Effect, including without
limitation, compliance in all material respects with the Federal Food, Drug, and
Cosmetics Act, the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, and all other applicable
federal, state and local laws, orders and regulations.
6.3 ADVERSE INFORMATION. Borrower shall immediately notify Bank upon
receipt of any information that indicates that (a) the FDA has denied, or has
stated that it is likely to deny, any of Borrower's, or its Subsidiaries',
Investigational New Drug Applications or New Product Application, (b) Borrower
or a Subsidiary has elected not to proceed with clinical trials for any of
Borrower's or Subsidiary's products for which Borrower or any Subsidiary has
filed an Investigational New Drug Application with the FDA, or (c) the FDA or
other governmental agency has advised Borrower that it found material
deficiencies in Borrower's or a Subsidiary's compliance with applicable
regulations.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower shall deliver to Bank: (i) as soon as available,
but in any event within ninety (90) days after the end of Borrower's fiscal
year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified
13
opinion on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (ii) within five (5) days upon
becoming available, copies of all statements, reports and notices sent or
made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed with
the Securities and Exchange Commission; (iii) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (iv) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
(b) Borrower shall deliver to Bank with the quarterly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto.
(c) If at any time and during such time that Borrower's
Liquidity is less than Twenty Five Million Dollars ($25,000,000), or if an
Event of Default occurs and is continuing, Borrower shall deliver a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations for the relevant month, certified by a Responsible
Officer and a Compliance Certificate (as referenced above) to Borrower within
thirty (30) days after the last day of each calendar month. Borrower shall
deliver to Bank with such monthly financial statements and Compliance
Certificate a monthly liquidity and average cash burn report in a form and
substance satisfactory to Bank.
6.5 INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on
the same basis and in accordance with the usual customary practices of
Borrower, as they exist at the time of the execution and delivery of this
Agreement. Borrower shall promptly notify Bank of all returns and recoveries
and of all disputes and claims, where the return, recovery, dispute or claim
involves more than Fifty Thousand Dollars ($50,000).
6.6 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments
and withholding taxes required of it by applicable laws, including, but not
limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish Bank
with proof satisfactory to Bank indicating that Borrower or a Subsidiary has
made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is contested
in good faith by appropriate proceedings and is reserved against (to the
extent required by GAAP) by Borrower.
6.7 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against
by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the Collateral
in amounts and of a type that are customary to businesses similar to
Borrower's. Nothing herein shall be construed as requiring the Borrower to
maintain credit insurance with respect to its accounts receivable.
(b) All such policies of insurance shall be in such form, with
such companies and in such amounts as reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing
14
Bank as an additional loss payee thereof and all liability insurance policies
shall show the Bank as an additional insured, and shall specify that the
insurer must give at least twenty (20) days notice to Bank before canceling
its policy for any reason. Upon Bank's request, Borrower shall deliver to
Bank certified copies of such policies of insurance and evidence of the
payments of all premiums therefor. All proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank for application to
the Obligations.
6.8 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.9 DEBT-NET WORTH RATIO. Subject to the last sentence of this
Section, Borrower shall maintain, as of the last day of each of Borrower's
fiscal quarters, a ratio of Total Liabilities (excluding deferred revenue) less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than
1.50 to 1.00. If at any time and during such time Borrower's Liquidity is less
than Twenty Five Million Dollars ($25,000,000), Borrower shall maintain, as of
the last day of each calendar month, a ratio of Total Liabilities (excluding
deferred revenue) less Subordinated Debt to Tangible Net Worth plus Subordinated
Debt of not more than 1.50 to 1.00.
6.10 TANGIBLE NET WORTH. Subject to the last sentence of this
Section, Borrower shall maintain, as of the last day of each of Borrower's
fiscal quarters, a Tangible Net Worth of not less than Twelve Million Dollars
($12,000,000). If at any time and during such time Borrower's Liquidity is less
than Twenty Five Million Dollars ($25,000,000), Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net Worth of not less than
Twelve Million Dollars ($12,000,000).
6.11 MINIMUM LIQUIDITY AND DEBT SERVICE COVERAGE. Subject to the
remainder of this Section, Borrower shall maintain, as of the last day of each
of Borrower's fiscal quarters, a minimum Liquidity of (a) two (2) times the
amount of Obligations, AND (b) six times (6x) the average of net cash losses for
the immediately preceding three (3) month period. Notwithstanding the
foregoing, from and after the time Borrower achieves a Debt Service Coverage for
two consecutive fiscal quarters of at least 1.50 to 1.00, and for so long as
Borrower maintains as of the last day of each fiscal quarter thereafter, a Debt
Service Coverage of at least 1.50 to 1.00, Borrower shall not be subject to the
minimum required Liquidity set forth above. If at any time and during such time
Borrower's Liquidity is less than Twenty Five Million Dollars ($25,000,000),
Borrower shall maintain the minimum Liquidity and Debt Service Coverage
covenants contained herein as of the last day of each calendar month.
6.12 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Borrower shall
register or cause to be registered (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Collateral Assignment, Patent Mortgage and Security Agreement
delivered to Bank by Borrower in connection with this Agreement within
thirty (30) days of the date of this Agreement, as is material to the Borrower's
business. Borrower shall register or cause to be registered with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to any third party, including without limitation
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C, as is material to the Borrower's business. Borrower shall
execute and deliver such additional instruments and documents from time to time
as Bank shall reasonably request to perfect Bank's security interest in such
additional intellectual property rights.
6.13 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further
action as may reasonably be requested by Bank to effect the purposes of this
Agreement.
15
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make the Advance, Borrower will
not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment or new Equipment
financed by other vendors; or (iv) Transfers which constitute liquidation of
Investments permitted under Section 7.7.
7.2 CHANGE IN BUSINESS. Engage in any business, or permit any of
its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto). Borrower will not, without thirty
(30) days prior written notification to Bank, relocate its chief executive
office.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; PROVIDED
that this Section 7.3 shall not apply to (i) transactions among Subsidiaries or
among Borrower and its Subsidiaries in which Borrower is the surviving entity,
or (ii) such transactions that do not involve an amount that, in the aggregate,
exceeds Five Million Dollars ($5,000,000) during the term of this Agreement as
long as giving effect to such transactions will not cause the Borrower to
violate Sections 6.9, 6.10 or 6.11 herein.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock; PROVIDED, that Borrower may convert any of its convertible securities
into other securities pursuant to the terms of such convertible securities or
otherwise in exchange therefor.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm's length transaction
with a nonaffiliated Person and except for transactions with a Subsidiary
that are upon fair and reasonable terms and transactions constituting
Permitted Investments.
7.9 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the
Subordinated Debt without Bank's prior written consent.
16
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section
10 hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 COMPLIANCE. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance or Loan for such
purpose. Fail to (i) comply in all material respects with FDA's GMP
regulations and registration requirements; (ii) comply in all material
respects with Federal Food, Drug and Cosmetics Act, the Occupational Safety
and Health Act, the Environmental Protection Act, and the Toxic Substances
Control Act; (iii) meet the minimum funding requirements of ERISA, permit a
reportable event or prohibited transaction, as defined in ERISA, to occur;
(iv) comply with the Federal Fair Labor Standards Act in all material
respects; or (v) violate any law or regulation, in each case which violation
could have a Material Adverse Effect.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal of, or
any interest on, the Advance when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation
under Section 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants contained
in Article 7 of this Agreement, or fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advance will be
required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any
17
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice thereof,
provided that none of the foregoing shall constitute an Event of Default
where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Advance will be
required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advance will be made prior to the dismissal of such Insolvency
Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 ADVERSE LEGAL ACTION/JUDGMENTS. If there occurs any adverse
legal decision, determined in Bank's sole and independent discretion, that
represents a potential judgment in an amount representing liability to the
Borrower (whether contingent or otherwise) greater than Three Million Dollars
($3,000,000); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
8.10 FDA DETERMINATIONS. If the FDA takes one or more of the
following actions with respect to all or substantially all of Borrower's or a
Subsidiary's products: (a) withdraws Investigational New Drug status for any
such product that is undergoing clinical trials as the result of a determination
by the FDA that such product exposes subjects or patients to an unacceptable
health risk; (b) suspends clinical trials of any such product as the result of a
determination that such product is not reasonably likely to be demonstrated to
be safe and efficacious; (c) withdraws product approval of any such product as
the result of any failure to comply with regulatory standards; or (d) determines
that such products are not safe or efficacious.
8.11 CHANGE OF CONTROL. If any "person" or "group" (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of a sufficient number of shares
of all classes of stock then outstanding of Borrower ordinarily entitled to vote
in the election of directors, empowering such "person" or "group" to elect a
majority of the Board of Directors of Borrower.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
18
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and, in connection with Bank's exercise of its rights under
this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification
of Accounts or notify account debtors of Bank's security interest in the
Accounts; (b) endorse Borrower's name on any checks or other forms of payment
or security that may come into Bank's possession; (c) sign Borrower's name on
any invoice or bill of lading relating to any Account, drafts against account
debtors, schedules and assignments of Accounts, verifications of Accounts,
and notices to account debtors; (d) make, settle, and adjust all claims under
and decisions with respect to
19
Borrower's policies of insurance; and (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; provided Bank may exercise
such power of attorney to sign the name of Borrower on any of the documents
described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. After the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement,
and take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any
payments made by Bank shall not constitute an agreement by Bank to make
similar payments in the future or a waiver by Bank of any Event of Default
under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
Section 9207 of the Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
20
delivery service, certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its
addresses set forth below:
If to Borrower: Cygnus, Inc.
400 Penobscot Drive
Redwood City, CA 94063
Attn: Mr. John C. Hodgman
FAX: (415) 599-3972
If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Mr. Chris Coleman
FAX: (415) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; PROVIDED,
HOWEVER, that neither this Agreement nor any rights hereunder may be assigned
by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participations in all or any part of, or any interest in Bank's
obligations, rights and benefits hereunder subject to the provisions of this
Section 12.1.
(b) Bank may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of
Borrower; PROVIDED that any such sale, negotiation or participation shall be in
compliance with the applicable federal and state securities laws and the other
requirements of this Section 13.1. Notwithstanding the sale, negotiation or
grant of participations, Bank shall remain solely responsible for the
performance of its obligations under this Agreement, and Borrower shall continue
to deal solely and directly with Bank in connection with this Agreement and the
other Loan Documents.
21
(c) The grant of a participation interest shall be on such
terms as Bank determines are appropriate, provided only that (1) the holder
of such a participation interest shall not have any of the rights of Bank
under this Agreement except, if the participation agreement so provides,
rights to demand the payment of costs of the type described in Section 2.6,
(ii) extend the term of this Agreement, (iii) decrease the rate of interest
or the amount of any fee or any other amount payable to Bank under this
Agreement, (iv) reduce the principal amount payable under this Agreement, or
(v) extend the date fixed for the payment of principal or interest or any
other amount payable under this Agreement.
(d) Bank may assign, from time to time, all or any portion of
its pro rata share of the Committed Loan Amount to an Affiliate of the Bank
or to the Federal Reserve Bank or, subject to the prior written approval of
Borrower (which approval will not be unreasonably withheld), to any other
financial institution; provided, that the parties to each such assignment
shall execute and deliver to Borrower an assignment agreement in a form
renewable acceptable to each. Upon such execution and delivery, from and
after the effective date specified in such assignment agreement (x) the
assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such
assignment agreement, have the rights and obligations of a Bank hereunder and
(y) Bank shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such assignment agreement, relinquish its rights
and be released from its obligations under this Agreement (other than
pursuant to this Section 12.1(d)), and, in the case of an assignment
agreement covering all or the remaining portion of Bank's rights and
obligations under this Agreement, Bank shall cease to be a party hereto. In
the event of an assignment hereunder, the parties agree to amend this
Agreement to the extent necessary to reflect the mechanical changes which are
necessary to document such assignment and which are standard for a multi-bank
credit facility.
12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this
Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this
Agreement, or otherwise (including without limitation reasonable attorneys
fees and expenses), except for losses caused by Bank's gross negligence or
willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and
22
liabilities described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run, provided that so long as the obligations set forth in
the first sentence of this Section 12.7 have been satisfied, and Bank has no
commitment to make any Advance or to make any other loans to Borrower, Bank
shall release all security interests granted hereunder and redeliver all
Collateral held by it in accordance with applicable law.
12.8 CONFIDENTIALITY. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its
own proprietary information of the same types to maintain the confidentiality
of any non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made (i) to the
subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, provided that they have entered
into a comparable confidentiality agreement in favor of Borrower and have
delivered a copy to Borrower, (iii) as required by law, regulations, rule or
order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and
(v) as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information
that either: (a) is in the public domain or in the knowledge or possession of
Bank when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a
third party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information.
23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CYGNUS, INC.
By: /s/ John C. Hodgman
----------------------------------------
Title: Chief Financial Officer
--------------------------------------
SILICON VALLEY BANK
By: /s/ Chris Coleman
-----------------------------------------
Title: Senior Vice President
--------------------------------------
-24-
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above,
and Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and
Borrower's Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
25
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX#: (408) 496-2426 TIME: _______________________
- ------------------------------------------------------------------------------
FROM: _______________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY: _______________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
_____________________________________________________________________________
PHONE NUMBER: _______________________________________________________________
FROM ACCOUNT #__________________ TO ACCOUNT # _____________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $ _________________________________________
PRINCIPAL PAYMENT (ONLY) $ _________________________________________
INTEREST PAYMENT (ONLY) $ _________________________________________
PRINCIPAL AND INTEREST (PAYMENT) $ _________________________________________
OTHER INSTRUCTIONS: _________________________________________________________
_____________________________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the
date of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in
all material respects as of such date.
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BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
______________________________________ __________________________________
Authorized Requester Phone #
______________________________________ __________________________________
Received By (Bank) Phone #
___________________________________
Authorized Signature (Bank)
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-26-
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: CYGNUS, INC.
The undersigned authorized officer of Cygnus, Inc. hereby certifies that
in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ________________ with all required
covenants except as noted below and (ii) all representations and warranties
of Borrower stated in the Agreement are true and correct in all material
respects as of the date hereof. Attached herewith are the required documents
supporting the above certification. The Officer further certifies that these
are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) and are consistently applied from one period to the next except as
explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
Financial statements* 10-K 10-Q within 5 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Liquidity/Cash Burn Report** Monthly within 30 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
Maintain on a Quarterly*** Basis:
Debt/Tangible Net Worth**** 1.50:1.00 _____:1.0 Yes No
Tangible Net Worth**** $12,000,000 $_______ Yes No
Liquidity/Debt Service Coverage 2x Obligations _____:1.0 Yes No
plus 6 RML*****
*Monthly if Liquidity below $25,000,000. **Only required if Liquidity below
$25,000,000. ***Tested monthly if Liquidity is less than $25,000,000. ****Minus
deferred revenue.*****Debt Service Coverage of 1.5:1.0 upon two consecutive
quarters of Liquidity.
- ---------------------------------------------
BANK USE ONLY
Received by:_______________________________
AUTHORIZED SIGNER
Date:_____________________________________
Verified:_________________________________
AUTHORIZED SIGNER
Date:_____________________________________
Compliance Status: Yes No
- ----------------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
____________________________________________
SIGNATURE
____________________________________________
TITLE
____________________________________________
DATE
27
DISBURSEMENT REQUEST AND AUTHORIZATION
BORROWER: Cygnus, Inc. BANK: Silicon Valley Bank
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LOAN TYPE. This is a Variable/Fixed Rate, Term Loan Facility of a principal
amount up to $8,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
TERM LOAN
---------
Amount paid to Borrower directly: $
--------
Undisbursed Funds $
--------
Principal $
--------
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $100,000
$60,000 Silicon Valley Bank Loan Fee
$40,000 Meier Mitchell Loan Fee
$
--------
Other Charges Paid in Cash: $
--------
$ TBD UCC Search Fees
--------
$ TBD UCC Filing Fees
--------
$ TBD Patent Filing Fees
--------
$ TBD Trademark Filing Fees
--------
$ TBD Copyright Filing Fees
--------
$ TBD Outside Counsel Fees and Expenses (Estimate)
--------
Total Charges Paid in Cash $
---------
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF JUNE 24, 1996.
BORROWER:
___________________________
___________________________
Authorized Officer
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AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Cygnus, Inc. BANK: Silicon Valley Bank
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INSURANCE REQUIREMENTS. Cygnus, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or
the providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral
(the "Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished without a
minimum of twenty (20) days' prior written notice to
Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of June 24, 1996, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in
the Loan and Security Agreement. The cost of such insurance, at the option
of Bank, shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,
THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 24,
1996.
GRANTOR:
CYGNUS, INC.
x _____________________________________
Authorized Officer
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FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: _________________ PHONE: ___________
AGENT'S NAME: _________________________________________________________________
INSURANCE COMPANY: ____________________________________________________________
POLICY NUMBER: ________________________________________________________________
EFFECTIVE DATES: ______________________________________________________________
COMMENTS: _____________________________________________________________________
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CORPORATE RESOLUTIONS TO BORROW
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BORROWER: Cygnus, Inc.
- -------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Cygnus, Inc. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
________________ ___________________ __________________________
________________ ___________________ __________________________
________________ ___________________ __________________________
________________ ___________________ __________________________
________________ ___________________ __________________________
acting for an on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers,
employees, or agents and Bank, such sum or sums of money as in their judgment
should be borrowed, without limitation, including such sums as are specified
in that certain Loan and Security Agreement dated as of June 24, 1996 (the
"Loan Agreement").
EXECUTE NOTES. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Lender's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Bank, and also to execute and deliver
to Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion
of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of
the Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation or in which the Corporation may
have an
1
interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Bank, or to
cause such other disposition of the proceeds derived therefrom as they may
deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Bank may rely on these Resolutions until written notice
of their revocation shall have been delivered to and received by Bank. Any
such notice shall not affect any of the Corporation's agreements or
commitments in effect at the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the
case may be, and occupy the positions set forth opposite their respective
names; that the foregoing Resolutions now stand of record on the books of the
Corporation; and that the Resolutions are in full force and effect and have
not been modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on June 24, 1996 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X _______________________________________
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Attachments:
1. Certificate of Incorporation
2. By-Laws
2