EXHIBIT 10.21
LOAN AND SECURITY AGREEMENT
NEAH POWER SYSTEMS, INC.
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TABLE OF CONTENTS
PAGE
1 ACCOUNTING AND OTHER TERMS .......................................................... 4
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2 LOAN AND TERMS OF PAYMENT .......................................................... 4
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2.1 Promise to Pay ............................................................. 4
2.2 Termination of Commitment to Lend .......................................... 5
2.3 Interest Rate, Payments .................................................... 5
2.4 - -- Fees ....................................................................... 6
3 CONDITIONS OF LOANS ................................................................ 6
3.1 Conditions Precedent to Initial Credit Extension ........................... 6
3.2 Conditions Precedent to all Credit Extensions .............................. 6
4 CREATION OF SECURITY INTEREST ....................................................... 6
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4.1 Grant of Security Interest ................................................. 6
4.2 Authorization to File ...................................................... 6
5 REPRESENTATIONS AND WARRANTIES ...................................................... 7
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5.1 Due Organization and Authorization ......................................... 7
5.2 Collateral ................................................................. 7
5.3 Litigation ................................................................. 7
5.4 No Material Adverse Change in Financial Statements ......................... 7
5.5 Solvency ................................................................... 7
5.6 Regulatory Compliance ...................................................... 8
5.7 Investments in Subsidiaries ................................................ 8
5.8 Full Disclosure ............................................................ 8
6 AFFIRMATIVE COVENANTS ............................................................... 8
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6.1 Government Compliance ...................................................... 8
6.2 Financial Statements, Reports, Certificates ................................ 8
6.3 Inventory; Returns ......................................................... 9
6.4 Taxes ...................................................................... 9
6.5 Insurance .................................................................. 9
6.6 Primary Accounts ........................................................... 10
6.7 Further Assurances ......................................................... 10
7 NEGATIVE COVENANTS .................................................................. 10
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7.1 Dispositions ............................................................... 10
7.2 Changes in Business, Ownership, Management or Locations of Collateral ...... 10
7.3 Mergers or Acquisitions .................................................... 10
7.4 Indebtedness ............................................................... 10
7.5 Encumbrance ................................................................ 11
7.6 Distributions; Investments ................................................. 11
7.7 Transactions with Affiliates ............................................... 11
7.8 Subordinated Debt .......................................................... 11
7.9 Compliance ................................................................. 11
8 EVENTS OF DEFAULT ................................................................... 11
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8.1 Payment Default ............................................................ 11
8.2 Covenant Default ........................................................... 11
8.3 Material Adverse Change .................................................... 12
8.4 Attachment ................................................................. 12
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8.5 Insolvency 12
8.6 Other Agreements 12
8.7 Judgments 12
8.8 Misrepresentations 13
9 BANK'S RIGHTS AND REMEDIES 13
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9.1 Rights and Remedies 13
9.2 Power of Attorney 13
9.3 Bank Expenses 14
9.4 Bank's Liability for Collateral 14
9.5 Remedies Cumulative 14
9.6 Demand Waiver 14
10 NOTICES 14
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11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER 14
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12 GENERAL PROVISIONS 15
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12.1 Successors and Assigns 15
12.2 Indemnification 15
12.3 Time of Essence 15
12.4 Severability of Provision 15
12.5 Amendments in Writing, Integration 15
12.6 Counterparts 15
12.7 Survival 15
12.8 Confidentiality 16
12.9 Attorneys' Fees, Costs and Expenses 16
13 DEFINITIONS 16
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13.1 Definitions 16
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THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated as of the
Effective Date, between SILICON VALLEY BANK ("Bank"), whose address is ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ with a loan production Office
located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and NEAH POWER
SYSTEMS, INC. ("Borrower"), whose address is ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ provides the terms on which Bank will lend to Borrower
and Borrower will repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.
2 LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY.
Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 TERM LOAN.
(a) Bank will make a Term Loan available to Borrower on the
Effective Date, based on the depreciative value of the existing Equipment.
(b) Borrower will pay 24 equal installments of principal and
interest (the "Term Loan Payment"). Each Term Loan Payment is payable on the 1st
of each month during the term of the loan. Borrower's final Term Loan Payment,
due on May 1, 2007 (the "Term Loan Maturity Date"), includes all outstanding
Term Loan principal and accrued interest. In addition to and not a substitution
for the regular monthly payments of principal and accrued interest a final
payment is due on the Term Loan Maturity Date equal to the original amount of
the Term Loan multiplied by 6%.
(c) Borrower shall have the option to prepay all, but not less
than all, of the Term Loan advanced by Bank under this Agreement on or before
May 24, 2006, PROVIDED Borrower (i) provides written notice to Bank of its
election to prepay the Term Loan at least thirty (30) days prior to such
prepayment, and (ii) pays, on the date of the prepayment (A) the unpaid Term
Loan (including principal and interest); (B) all unpaid accrued interest to the
date of the prepayment; (C) an amount equal to 1% of the Term Loan, and (D) all
other sums, if any, that shall have become due and payable hereunder with
respect to this Agreement.
2.1.2 TERM LOAN II
(a) Bank will make a Term Loan II available to Borrower, on the
Effective Date, to pay off the remaining portion of the Commitment, Commitment
Percentage and Final Payments made available by GATX Ventures, Inc. under the
Equipment Loan and Security Agreement by and among GATX Ventures, Inc., Silicon
Valley Bank and Neah Power Systems, Inc. dated as of October 24, 2002 (the
"Original Agreement") collectively defined as Term Loan II. The Term Loan II
shall be subject to the repayment terms and conditions as set forth below. No
further Term Loan II Credit Extensions shall be allowed. The following defined
terms "Commitment", "Commitment Percentage", and "Final Payments" as referenced
in this section shall have the meaning set forth in the Original Agreement.
(b) Borrower will pay 18 equal installments of principal and
interest (the "Term Lean II Payment"). Each Term Loan II Payment is payable on
the 1st of each month during the term of
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the loan. Borrower's final Term Loan II Payment, due on October 31, 2006,
includes all outstanding Term Loan II principal and accrued interest.
(c) Borrower shall have the option to prepay all, but not less
than all, of the Term Loan II advanced by Bank under this Agreement on or before
May 24, 2006, PROVIDED Borrower (i) provides written notice to Bank of its
election to prepay the Term Loan II at least thirty (30) days prior to such
prepayment, and (ii) pays, on the date of the prepayment (A) the unpaid Term
Loan (including principal and interest); (B) all unpaid accrued interest to the
date of the prepayment; (C) an amount equal to 1% of the Term Loan II, and (D)
all other sums, if any, that shall have become due and payable hereunder with
respect to this Agreement.
2.1.3 TERM LOAN III.
(a) Bank will make a Term Loan III available to Borrower, on the
Effective Date, to pay off the remaining portion of the Commitment, Commitment
Percentage and Final Payments made available by Silicon Valley Bank under the
Equipment Loan and Security Agreement by and among GATX Ventures, Inc., Silicon
Valley Bank and Neah Power Systems, Inc. dated as of October 24, 2002 (the
"Original Agreement") collectively defined as Term Loan III. The Term Loan III
shall be subject to the repayment terms and conditions as set forth below. No
further Term Loan III Credit Extensions shall be allowed. The following defined
terms "Commitment", "Commitment Percentage", and "Final Payments' as referenced
in this section shall have the meaning set forth in the Original Agreement.
(b) Borrower will pay 18 equal installments of principal and
interest (the "Term Loan III Payment"). Each Term Loan Ill Payment is payable on
the 1 of each month during the term of the loan. Borrower's final Term Loan III
Payment, due on October 31, 2006 (the "Term Loan Ill Maturity Date"), includes
all outstanding Term Loan Ill principal and accrued interest.
(c) Borrower shall have the option to prepay all, but not less
than all, of the Term Loan III advanced by Bank under this Agreement on or
before May 24, 2006, PROVIDED Borrower (i) provides written notice to Bank of
its election to prepay the Term Loan III at least thirty (30) days prior to such
prepayment, and (ii) pays, on the date of the prepayment (A) the unpaid Term
Loan III (including principal and interest); (B) all unpaid accrued interest to
the date of the prepayment; (C) an amount equal to 1% of the Term Loan III, and
(D) all other sums, if any, that shall have become due and payable hereunder
with respect to this Agreement.
2.2 TERMINATION OF COMMITMENT TO LEND.
Bank's obligation to lend the undisbursed portion of the Obligations
will terminate if, in Bank's sole discretion, there has been a material adverse
change in the general affairs, management, results of operation, condition
(financial or otherwise) or the prospect of repayment of the Obligations, or
there has been any material adverse deviation by Borrower from the most recent
business plan of Borrower presented to and accepted by Bank prior to the
execution of this Agreement.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. (i) The Term Loan accrues interest on the
outstanding principal balance at a per annum fixed rate of 7.3918 percentage
points, (ii) the Term Loan II accrues interest at a per annum fixed rate of
7.3918 percentage points, and (iii) the Term Loan 1111 accrues interest on the
outstanding principal balance at a per annum fixed rate of 7.3918. After an
Event of Default, Obligations accrue interest at 5 percent above the rate
effective immediately before the Event of Default. The interest rate increases
or decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
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(b) Payments. Bank may debit any of Borrower's deposit accounts
including Account Number __________________ for principal and interest payments
owing or any amounts Borrower owes Bank. Bank will promptly notify Borrower when
it debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific Time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional interest shall
accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$1,500 for the Term Loan II due on the Effective Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable
attorneys' fees and reasonable expenses) incurred through and after the date of
this Agreement, are payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receives the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
If Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 AUTHORIZATION TO FILE.
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Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank's interest in the Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to use a Material Adverse Change. Borrower has not
changed its state of formation or its organizational structure or type or any
organizational number (if any) assigned by its jurisdiction of formation.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to use a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens or Borrower has Rights to each asset that is Collateral.
Borrower has no other deposit account, other than the deposit accounts described
in the Schedule. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. The Collateral is not in the possession of any third party bailee (such
as at a warehouse). In the event that: Borrower, after the date hereof, intends
to store or otherwise deliver the Collateral to such a trailer then Borrower
will receive the prior written consent of Bank and such bailee must acknowledge
in writing that the bailee is holding such Collateral for the benefit of Bank.
All Inventory is in all material respects of good and marketable quality, free
from material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision could
reasonably be expected to use a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities (including, without
limitation, contingent liabilities but excluding any redemption privileges
associated with Borrower's Preferred Stock); the Borrower is
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not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to use a Material Adverse Change.
5.7 INVESTMENTS IN SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading. It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an
obligation to lend, or there are outstanding Obligations:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify would reasonably be
expected to use a material adverse effect on Borrower's business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or would reasonably
be expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period certified by a Responsible Officer and in a form
acceptable to Bank; (ii) as soon as available, but no later than 150 days after
the last day of Borrower's fiscal year (no later than 180 days for Borrower's
December 31, 2004 fiscal year end only), audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion, with exception of a going concern qualification, on the
financial statements from an independent certified public accounting firm
reasonably acceptable to Bank; (iii) a prompt 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 $100,000 or more; and (iv)
budgets, sales projections, operating plans or other financial information Bank
reasonably requests.
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(b) Allow Bank to audit Borrower's Collateral at Borrower's expense.
Such audits will be conducted only at such times as an Event of Default has
occurred and is continuing.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than $50,000.
6.4 TAXES.
Borrower will make, and use each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank in Bank's
reasonable discretion. All property policies will have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank's
request, Borrower will deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy will, at Bank's option, be
payable to Bank on account of the Obligations. Statutory notice regarding
insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as
required by our contract or loan agreement, we may purchase insurance at your
expense to protect our interest. This insurance may, but need not, also protect
your interest. If the collateral becomes damaged, the coverage we purchase may
not pay any claim you make or any claim made against you. You may later cancel
this coverage by providing evidence that you have obtained property coverage
elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.
This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or ANY mandatory liability insurance requirements imposed by
applicable law.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary operating accounts with Bank. 6.7
FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
For so long as Bank has an obligation to lend or there are any
outstanding Obligations, Borrower shall not, without Bank's prior written
consent (which shall be a matter of its good faith business judgment), do any of
the following:
7.1 DISPOSITIONS.
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Convey, sell, lease, transfer or otherwise dispose of (collectively
'Transfer"), Cr permit any of its Subsidiaries to Transfer, all or any part of
its business or Collateral, EXCEPT for Transfers (i) of Inventory in the
ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR LOCATIONS OF COLLATERAL.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material change in its ownership or management of greater than
25% (other than by the sale of Borrower's equity securities in a public offering
or to venture capital investors so long as Borrower identifies the venture
capital investors prior to the closing of the investment). Borrower will not,
without at least 30 days prior written notice, relocate its chief executive
office, change its state of formation (including reincorporation), change its
organizational-number or name or add any new offices business locations (such as
warehouses) in which Borrower maintains or stores over $5,000 in Collateral.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any -of-its -Subsidiaries to merge or
consolidate; with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) such transaction would not result in a decrease of more than
25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of itsCollateral, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 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 non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited
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Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonably be expected to have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 5 days after
their due date, however, during such period no Credit Extensions will be made;
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under Section 6.2
or violates any of the covenants contained in Section 7 of this Agreement, or
(b) If Borrower 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 fifteen (15) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
fifteen (15) day period or cannot after diligent attempts by Borrower be cured
within such fifteen (15) 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 Credit
Extensions will be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE.
If there (i) occurs a material adverse change in the business,
operations, or financial condition of the Borrower, or (ii) is a material
impairment of the prospect of repayment of any portion of the Obligations; or
(iii) is a material impairment of the value or priority of Bank's security
interests in the Collateral (the foregoing being defined as a "Material Adverse
Change"). In determining whether an Event of Default has occurred under clause
(i) or clause (ii) of this Section, Bank's primary, though not sole,
consideration will be whether Borrower has or will have sufficient cash
resources to repay the Obligations on schedule. Bank recognizes that, as a
pre-profit company, Borrower's cash resources will decline over time and
Borrower will periodically require additional infusions of equity capital. The
clear intention of Borrower's investors to continue to fund Borrower in the
amounts and timeframe necessary in Bank's good faith business judgment to enable
Borrower to satisfy the Obligations as they become due and payable is the most
significant criterion in making ay such assessment.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
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8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third parry the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $100,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Credit Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's
benefit 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, on terms and in any order that Bank considers advisable;
notify any Person owing Borrower money of Bank's security interest in the funds
and verify the amount of the Account. Borrower must collect all payments in
trust for Bank and, if requested by Bank, immediately deliver the payments to
Bank in the form received from the account debtor, with proper endorsements for
deposit;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Bank may place a "hold" on any account maintained with Bank
and deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any control agreement or similar
agreements providing control of any Collateral;
(f) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral; and
(h) Dispose of the Collateral according to the code.
(i) 9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or ▇▇▇▇ of lading for any Account or drafts against
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account debtors, (iii) make, settle, and adjust all claims under Borrower's
insurance policies; (iv) settle and adjust disputes and claims about the
Accounts directly with account debtors, for amounts and on terms Bank determines
reasonable; and (v) transfer the Collateral into the name of Bank or a third
party as the Code permits. Bank may exercise the power of attorney to sign
Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred.
Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank's obligation to provide Credit
Extensions terminates.
9.3 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment 1o third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable; bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.4 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Except as provided above, Borrower bears, all risk of loss, damage
or destruction of the Collateral.
9.5 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.6 DEMAND WAIVER.
Borrower waives demand, 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 held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other parry
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Washington law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in King County, Washington.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES
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TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
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
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including 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 in this Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. UNDER WASHINGTON AND OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
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, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
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12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing, as such definition may be amended from time to time according to the
Code.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, and partners and, for any Person that is a limited
liability company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CODE" is the Washington Uniform Commercial Code, as applicable.
"COLLATERAL" is the property described on EXHIBIT A.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum
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reasonably anticipated liability for it determined by the Person in good faith;
but the amount may not exceed the maximum of the obligations under the guarantee
or other support arrangement.
"CREDIT EXTENSION" is each Term Loan, Term Loan II, Term Loan III, or
any other extension of credit by Bank for Borrower's benefit.
"EFFECTIVE DATE" is the date Bank executes this Agreement.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest -or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"ORIGINAL AGREEMENT" is defined in Section 2.1.3.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;
(b) Indebtedness existing on the Effective Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
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(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the
Effective Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" ARE:
(a) Liens existing on the Effective Date and shown on the Schedule
or arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements and the proceeds of the equipment;
(d) Licenses or sublicenses granted in the ordinary course of
Borrower's business and any interest or title of a licensor or under any license
or sublicense, if the licenses and sublicenses permit granting Bank a security
interest;
(e) Leases or subleases granted in the ordinary course of
Borrower's business, including in connection with Borrower's leased premises or
leased property;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or !government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is nut Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"RIGHTS", as applied to the Collateral, means the Borrower's rights and
interests in, and powers with respect to, that Collateral whatever the nature of
those rights, interests and powers and, in any event, including Borrower's power
to transfer rights in such Collateral to Balk.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity -interests is owned-or
controlled; directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as
17
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses- except prepaid-expenses
and-(c) reserves not already deducted from assets, and (ii) Total Liabilities.
"TERM LOAN" is a loan of up to $150,000.
"TERM LOAN MATURITY DATE" is May 1, 2007.
"TERM LOAN PAYMENT" is defined in Section 2.1.1.
"TERM LOAN II" is a loan of up to $186,000.
"TERM LOAN II PAYMENT" is defined in Section 2.1.2.
"TERM LOAN III" is a loan of up to $50,000.
"TERM LOAN ILL MATURITY DATE" is October 31, 2006.
"TERM LOAN III PAYMENT" is defined in Section 2.1.3.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
(remainder of page left intentionally blank - signatures on following page)
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BORROWER:
NEAH POWER SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------
Print Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Print Title: Chief Financial Officer
BANK:
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Print Title: Vice President
Effective Date: May 24, 2005
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in and to
the following:
Each item of equipment, or personal property financed with the Term Loan, Term
Loan II and Term Loan III pursuant to that certain Loan and Security Agreement,
dated as of the Effective Crate, as defined therein (the "Loan Agreement"), by
and between Borrower and Bank, including, without limitation, the property
described in Annex A hereto, whether now owned or hereafter acquired, together
with all substitutions, renewals or replacements of and additions, improvements,
and accessions to any and all of the foregoing, and all proceeds from sales,
renewals, releases or other dispositions thereof.
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