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BIOSTAR, 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................................................................................8
2. LOAN AND TERMS OF PAYMENT................................................................................9
2.1 Bridge Facility.................................................................................9
2.2 Overadvances...................................................................................10
2.3 Interest Rates, Payments, and Calculations.....................................................10
2.4 Crediting Payments.............................................................................10
2.5 Fees...........................................................................................11
2.6 Additional Costs...............................................................................11
2.7 Term...........................................................................................12
3. CONDITIONS OF LOANS.....................................................................................12
3.1 Conditions Precedent to Initial Advance........................................................12
3.2 Conditions Precedent to All Advances...........................................................12
4. CREATION OF SECURITY INTEREST...........................................................................13
4.1 Grant of Security Interest.....................................................................13
4.2 Delivery of Additional Documentation Required..................................................13
4.3 Right to Inspect...............................................................................13
5. REPRESENTATIONS AND WARRANTIES..........................................................................13
5.1 Due Organization and Qualification.............................................................13
5.2 Due Authorization; No Conflict.................................................................13
5.3 No Prior Encumbrances..........................................................................14
5.4 Bona Fide Eligible Accounts....................................................................14
5.5 Merchantable Inventory.........................................................................14
5.6 Name; Location of Chief Executive Office.......................................................14
5.7 Litigation.....................................................................................14
5.8 No Material Adverse Change in Financial Statements.............................................14
5.9 Solvency.......................................................................................14
5.10 Regulatory Compliance..........................................................................14
5.11 Environmental Condition........................................................................15
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.12 Taxes..........................................................................................15
5.13 Subsidiaries...................................................................................15
5.14 Government Consents............................................................................15
5.15 Full Disclosure................................................................................15
6. AFFIRMATIVE COVENANTS...................................................................................16
6.1 Good Standing..................................................................................16
6.2 Government Compliance..........................................................................16
6.3 Financial Statements, Reports, Certificates....................................................16
6.4 Inventory; Returns.............................................................................17
6.5 Taxes..........................................................................................17
6.6 Insurance......................................................................................17
6.7 Principal Depositor............................................................................18
6.8 Profitability..................................................................................18
6.9 Registration of Intellectual Property Rights...................................................18
6.10 Further Assurances.............................................................................18
7. NEGATIVE COVENANTS......................................................................................18
7.1 Dispositions...................................................................................18
7.2 Change in Business.............................................................................18
7.3 Mergers or Acquisitions........................................................................19
7.4 Indebtedness...................................................................................19
7.5 Encumbrances...................................................................................19
7.6 Distributions..................................................................................19
7.7 Investments....................................................................................19
7.8 Transactions with Affiliates...................................................................19
7.9 Subordinated Debt..............................................................................19
7.10 Inventory......................................................................................19
7.11 Compliance.....................................................................................19
8. EVENTS OF DEFAULT.......................................................................................20
8.1 Payment Default................................................................................20
8.2 Covenant Default...............................................................................20
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TABLE OF CONTENTS
(CONTINUED)
PAGE
8.3 Material Adverse Changes.......................................................................20
8.4 Attachment.....................................................................................20
8.5 Insolvency.....................................................................................21
8.6 Other Agreements...............................................................................21
8.7 Subordinated Debt..............................................................................21
8.8 Judgments......................................................................................21
8.9 Misrepresentations.............................................................................21
9. BANK'S RIGHTS AND REMEDIES..............................................................................21
9.1 Rights and Remedies............................................................................21
9.2 Power of Attorney..............................................................................22
9.3 Accounts Collection............................................................................23
9.4 Bank Expenses..................................................................................23
9.5 Bank's Liability for Collateral................................................................23
9.6 Remedies Cumulative............................................................................23
9.7 Demand; Protest................................................................................24
10. NOTICES.................................................................................................24
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................................................24
12. GENERAL PROVISIONS......................................................................................25
12.1 Successors and Assigns.........................................................................25
12.2 Indemnification................................................................................25
12.3 Time of Essence................................................................................25
12.4 Severability of Provisions.....................................................................25
12.5 Amendments in Writing, Integration.............................................................25
12.6 Counterparts...................................................................................25
12.7 Survival.......................................................................................25
12.8 Confidentiality................................................................................25
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BIOSTAR, INC.
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is entered into as of May 1, 1997, by and
between VENTURE LENDING, a division of Cupertino National Bank & Trust ("Bank")
and BIOSTAR, INC., a Delaware corporation ("Borrower").
RECITALS
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
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
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" or "ADVANCES" means a cash advance under the Bridge Loan
Facility or the Revolving 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
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operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.
"BORROWING BASE" has the meaning set forth in Section 2.1 hereof.
"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.
"BRIDGE FACILITY" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"BRIDGE LOAN MATURITY DATE" means October 30, 1997.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the property described on Exhibit A attached
hereto.
"COMMITTED BRIDGE LINE" means Two Million Dollars ($2,000,000).
"COMMITTED REVOLVING LINE" means One Million Dollars ($1,000,000).
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (a) 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; (b) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (c) 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.
"CURRENT ASSETS" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"CURRENT LIABILITIES" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included
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therein, all outstanding Advances made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at the
option of Borrower or any Subsidiary, to a date more than one year from the date
of determination, but excluding Subordinated Debt.
"DAILY BALANCE" means the amount of the Obligations owed at the
end of a given day.
"ELIGIBLE ACCOUNTS" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to progress billings or service
contracts, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States; except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or offices located in the United States of any account
debtor that does not have its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed thirty
percent (30%) of all Accounts,
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to the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank reasonably
believes that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines to
be doubtful.
"ELIGIBLE FOREIGN ACCOUNTS" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (a) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (b) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (c) that Bank approves on a
case-by-case basis.
"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.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"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.
"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
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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.
"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 (a)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (b) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"MATURITY DATE" means the day before the first anniversary of the
Closing Date.
"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.
"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.
"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 Closing Date and disclosed in the
Schedule;
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(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness of Borrower, not otherwise permitted hereunder,
not exceeding $100,000 in the aggregate outstanding at any time;
(f) Indebtedness with respect to capital lease obligations and
Indebtedness secured by Permitted Liens; and
(g) Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness (a)
through (f) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(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;
(c) Extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(d) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(e) 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;
(f) Investments consisting of (i) travel advances, employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower; and
(g) Investments of Borrower not otherwise permitted hereunder,
aggregating not in excess of $50,000 at any time.
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"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date 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 securing capital lease obligations on assets subject to
such capital leases;
(e) Liens on equipment leased by Borrower pursuant to an operating
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 arising from UCC financing statements regarding
leases permitted by this Agreement);
(f) Liens arising from judgment, decrees or attachments to the
extent and only so long as such judgment, decree or attachment has not caused or
resulted in an Event of Default;
(g) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar Liens affecting real
property not interfering in any material respect with the ordinary conduct of
the business of Borrower;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(i) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided such Liens are not prior to the Lien of Bank;
and
(j) 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) and (e) 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.
"PERSON" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation,
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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 set forth in the Western Edition of The Wall Street Journal as the
"prime rate," whether or not such announced rate is the lowest rate available
from Bank.
"QUICK ASSETS" mean, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed ninety (90) days, of
Borrower determined in accordance with GAAP.
"RESPONSIBLE OFFICER" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower or such other persons
of whom Borrower gives Bank written notice.
"REVOLVING FACILITY" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"SCHEDULE" means the schedule of exceptions attached hereto.
"SUBORDINATED DEBT" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank) including
specifically that debt incurred by Borrower which is the subject to that certain
Subordination Agreement dated May 3, 1995, as amended, between Borrower and
Comdisco, Inc. (the "Comdisco Subordination").
"SUBSIDIARY" means any corporation or partnership in which (a) any
general partnership interest or (b) 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.
"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.
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.
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2. LOAN AND TERMS OF PAYMENT
2.1 BRIDGE FACILITY. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower in an aggregate amount
not to exceed the lesser of Two Million Dollars ($2,000,000) or one and one-half
(1.5) times the net revenue of the three (3) months immediately prior to the
Advance (the "Bridge Borrowing Base"). Amounts borrowed under the Bridge
Facility may be repaid and reborrowed at any time prior to October 30, 1997. The
Bridge Facility shall terminate on October 30, 1997, on which date all Advances
made under this Section 2.1 shall be immediately due and payable.
(a) REVOLVING FACILITY. Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower under the
Revolving Facility, in an aggregate amount not to exceed the lesser of One
Million Dollars ($l,000,000) or seventy-five percent (75%) of Eligible Accounts.
Subject to the terms and conditions of this Agreement, amounts borrowed under
the Revolving Facility may be repaid and reborrowed at any time during the term
of this Agreement.
(b) REQUESTS FOR ADVANCE. Whenever Borrower desires an 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.
Each such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer, or without instructions if in Bank's discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. 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 Advances made under this Section
2.1 to Borrower's deposit account.
(c) LOCKBOX. Borrower shall open and maintain with Bank an account
(the "Account") into which all funds received by Borrower from any source shall
immediately be deposited. Borrower shall direct all account debtors to mail or
deliver all checks or other forms of payment for amounts owing to Borrower to a
post office box designated by Bank, over which Bank shall have exclusive and
unrestricted access. Bank shall collect the mail delivered to such post office
box, open such mail, and endorse and credit all items to the Account. Borrower
shall direct all account debtors or other persons owing money to Borrower who
make payments by electronic transfer of funds to wire such firms directly to the
Account. Borrower shall hold in trust for Bank all amounts that Borrower
receives despite the directions to make payments to the post office box or
Account, and immediately deliver such payments to Bank in their original form as
received from the account debtor with proper endorsements for deposit into the
Account. Notwithstanding any provision of this Section 2.1(c), Borrower shall
have the right to use the funds deposited into the Account in the ordinary
course of business unless an Event of Default shall have occurred and be
continuing. Borrower shall enter into a lockbox agreement with Bank in
substantially the form attached hereto.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than
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the lesser of (i) the Committed Bridge Line or (ii) the Bridge Borrowing Base,
Borrower shall immediately pay to Bank, in cash, the amount of such excess. If
at any time or for any reason the amount of the Obligations owed by Borrower to
Bank pursuant to Section 2.1(a) of this Agreement is greater than the lesser of
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances under the Bridge Loan Facility, shall bear interest, on the average
Daily Balance, at a rate equal to three (3) percentage points above the Prime
Rate; and any advances under the Revolving Facility, shall bear interest, on the
average Daily Balance, at a rate equal to two (2) percentage points above the
Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, 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
last Business Day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, 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.
2.4 CREDITING PAYMENTS. Prior to the occurrence 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
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment 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 2:00 p.m. 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.
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2.5 FEES. Borrower shall pay to Bank the following:
(a) COMMITMENT FEE. A Facility Fee equal to Twenty Thousand
Dollars ($20,000) for the Bridge Loan Facility, and (b) Ten Thousand Dollars
($10,000) for the Revolving Facility, which fees are due and payable on or
before the Closing Date and which have been fully earned and are nonrefundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and reasonable out-of-pocket expenses for Bank's audits of Borrower's
Accounts (not to exceed $2,000 per audit).
(c) BANK EXPENSES. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (not to exceed $8,000) 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 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):
(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.
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 Advances 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 are outstanding.
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3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following.
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency, and resolutions authorizing the execution and delivery of this
Agreement;
(c) an Intellectual Property Security Agreement;
(d) a subordination agreement with Comdisco, Inc.;
(e) a lock box agreement executed by Borrower;
(f) an audit of Borrower's existing Accounts;
(g) financing statements (Forms UCC-1);
(h) insurance certificate
(i) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(j) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to
make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided
in Section .1; 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 such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. Except as otherwise disclosed in
writing to Bank, the making of each Advance shall be deemed to be a
representation and warranty by Borrower on the date of such Advance as to the
accuracy of the facts referred to in this Section 3.2(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.
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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.
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 interest 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.
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 and where failure to so qualify,
could have a Material Adverse Effect.
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 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible 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 or as
otherwise instructed by Account Debtor. Borrower has not received notice of
actual or imminent Insolvency Proceeding of any account debtor that is included
in any Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
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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.
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). To the best of its knowledge Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, 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
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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 where failure
to file or pay would not result in a Material Adverse Effect.
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.
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. 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. 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 could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
certified by a Responsible Officer; (b) as soon as available, but in any event
within one hundred sixty (160) 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 opinion on such
financial statements of an
15.
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independent certified public accounting firm reasonably acceptable to Bank; (c)
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, if any, on Form 10-K and
10-Q filed with the Securities and Exchange Commission; (d) 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 (e) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable within thirty (30)
days of the last day of each month.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
In addition to the initial audit of Borrower's Accounts as a condition
to the initial Advance, Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense (subject to the limitations set
forth in Section 2.5(b)), provided that such audits will be conducted no more
often than every six (6) months (and in any event, not more than once during the
first twelve (12) months after the date of this Agreement) unless an Event of
Default has occurred and is continuing.
6.4 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).
6.5 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.
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6.6 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.
(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 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
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITOR. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 PROFITABILITY. Borrower shall not suffer a loss in excess of Seven
Hundred Fifty Thousand Dollars ($750,000) in any calendar month.
6.9 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 Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement prior to the sale or licensing of
products containing such Intellectual Property. 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. 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.
6.10 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.
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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 any Advances, Borrower will
not do any of the following without the written consent of Bank, which consent
may be granted or withheld in Bank's sole discretion:
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) sale and leaseback transactions; or (iv) Transfers of
worn-out or obsolete Equipment.
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), or suffer a material change in Borrower's ownership.
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.
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 other than repurchases of capital stock issued to employees, directors or
consultants following termination of such relationship with the Borrower.
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.
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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.
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 for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
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, any Advances 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 Sections 6.7 or 6.8 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 Advances will be required to be made during such
cure period);
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8.3 MATERIAL ADVERSE CHANGES. 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 interest 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 twenty (20) 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 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 twenty (20)
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 Advances 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 Advances 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 JUDGMENTS. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Advances will be made
prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement existed 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, at the time such representation or warranty was made or such
certificate delivered.
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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:
(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.l, 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;
(h) Bank may credit bid and purchase at any public sale; and
21.
26
(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 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. If an Event of Default has occurred and is
continuing, 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,
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
reasonable banking practices, 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.
Notwithstanding the foregoing, Bank shall be responsible for its own gross
negligence or willful misconduct.
22.
27
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
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: BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
Attn: Teresa W. Ayers
FAX: (303) 530-6641
If to Bank: Venture Lending
Three Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attn: Craig Russell
F.A.X: (415) 843-6969
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,
23.
28
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 AMD ASSIGNS. 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, but with notice to, Borrower to sell, transfer,
negotiate or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
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,
24.
29
costs and 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.
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 deem
appropriate in the exercise of remedies after the occurrence of an Event of
Default. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BIOSTAR INC.,
A DELAWARE CORPORATION
By: /s/ Teresa W. Ayers
--------------------------------
Title: President/CEO
-------------------------------
VENTURE LENDING, A DIVISION OF
CUPERTINO NATIONAL BANK & TRUST
By:
--------------------------------
Title:
-------------------------------
25.
30
SCHEDULE OF EXCEPTIONS
1. Existing Indebtedness: That certain loan in an amount not to exceed Two
Million Five Hundred Thousand Dollars ($2,500,000) from Comdisco to
Borrower pursuant to a loan agreement dated May 3, 1995, as amended.
2. Lease Agreements with Comdisco and Dominion Ventures and Schedules
thereunder.
3. Subordinated Promissory Notes dated February 14, 1997 with various
investors in the aggregate amount of $1,000,000 and which may be amended to
an amount not to exceed $2,000,000.
4. Convertible Subordinated Debt dated March 20, 1996 and April 15, 1996 in
the amount of $4.5 million.
31
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, financial assets,
securities accounts, securities entitlements, 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.
32
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 NO.: (415) 843-6969 TIME:
---------------
- --------------------------------------------------------------------------------
FROM: BIOSTAR, INC.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT #: TO ACCOUNT #:
--------------------------------- ------------------
REQUETED 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
33
EXHIBIT C-1
BORROWING BASE CERTIFICATE
(REVOLVING FACILITY)
------------------------------------------------------------------------------
Borrower: BioStar, Inc.
Commitment Amount: $1,000,000
- ------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _______ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits $___________
7. Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $___________
BALANCES
16. Maximum Loan Amount $1,000,000
17. Total Funds Available [Lesser of #15 or #16] $___________
18. Present balance owing on Line of Credit $___________
19. RESERVE POSITION (#17 minus #18) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Lending.
----------------------------
COMMENTS: BANK USE ONLY
Rec'd By:
-------------------
Auth. Signer
Date:
----------------------
BioStar, Inc. Verified:
-------------------
Auth. Signer
By: Date:
----------------------------- -----------------------
Authorized Signer ----------------------------
34
EXHIBIT C-2
BRIDGE LOAN CERTIFICATE
(BRIDGE FACILITY)
- --------------------------------------------------------------------------------
Borrower: BioStar, Inc.
Commitment Amount: $2,000,000
- ------------------------------------------------------------------------------
NET REVENUE
1. Total Net Revenue Three (3) Months Prior to the Date of this
Certificate $___________
2. Multiplied by 1.5 $___________
3. TOTAL $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Lending.
---------------------------
COMMENTS: BANK USE ONLY
Rec'd By:
-------------------
Auth. Signer
Date:
-----------------------
BioStar, Inc. Verified:
-------------------
Auth. Signer
By: Date:
----------------------------- -----------------------
Authorized Signer ----------------------------
35
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: VENTURE LENDING
FROM: BIOSTAR, INC.
The undersigned authorized officer of BioStar, 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
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 160 days Yes No
A/R & A/P Agings Monthly within 30 days
A/R Audit Initial and Semi-annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Profitability or Maximum Loss:
Monthly ($750,000) $_____ Yes No
----------------------------------
COMMENTS REGARDING EXCEPTIONS: SEE ATTACHED. BANK USE ONLY
Sincerely, Received By:
----------------------
Authorized Signer
- --------------------------------
Signature Date:
-----------------------------
- --------------------------------
Title Verified:
-------------------------
- -------------------------------- Authorized Signer
Date
Date:
-----------------------------
Compliance Status: Yes No
----------------------------------