EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
BETWEEN
SILICON VALLEY BANK
AND
CANCERVAX CORPORATION
DECEMBER 23, 2004
$18,000,000
TABLE OF CONTENTS
PAGE
TABLE OF CONTENTS
Page
----
1. ACCOUNTING AND OTHER TERMS............................................ 1
2. LOAN AND TERMS OF PAYMENT............................................. 1
3. CONDITIONS OF LOANS................................................... 3
4. CREATION OF SECURITY INTEREST......................................... 4
5. REPRESENTATIONS AND WARRANTIES........................................ 5
6. AFFIRMATIVE COVENANTS................................................. 7
7. NEGATIVE COVENANTS.................................................... 9
8. EVENTS OF DEFAULT..................................................... 11
9. BANK'S RIGHTS AND REMEDIES............................................ 12
10. NOTICES............................................................... 14
11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER........................... 14
12. GENERAL PROVISIONS.................................................... 15
13. DEFINITIONS........................................................... 16
-i-
THIS LOAN AND SECURITY AGREEMENT dated December 23, 2004, between SILICON
VALLEY BANK ("BANK"), whose address is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and CANCERVAX CORPORATION ("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) but not limited to," in this
or any Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions
pursuant to the terms and conditions hereto.
2.1.1 Advances.
(a) Through December 31, 2005 (the "AVAILABILITY END DATE"), Bank will
make advances (each an "ADVANCE" and, collectively, "ADVANCES") not exceeding,
in the aggregate, the Commitment Amount. The Advances may only be used to
finance Eligible Equipment purchased on or after 90 days before the date of each
such Advance; provided, however that, with respect to the initial Advance made
hereunder, up to an aggregate amount of $1,500,000, may be used to refinance
Borrower's existing indebtedness to Venture Lending & Leasing III, Inc. and up
to an aggregate amount of $3,000,000 may be used to finance Eligible Equipment
purchased on or after January 1, 2004. The amount of each Advance hereunder may
not exceed 100% of the Original Stated Cost of the Eligible Equipment being
financed. Unless otherwise agreed to by Bank, not more than $16,000,000 of the
Eligible Equipment financed with the proceeds of the advances made hereunder
shall consist of Other Equipment.
(b) Interest accrues from the date of each Advance at the rate, and is
payable, as set forth under Section 2.3(a). The principal amount of each Advance
is payable as set forth under Section 2.3(b). Advances when repaid may not be
reborrowed.
(c) To obtain an Advance, Borrower must notify Bank by facsimile no later
than 3:00 p.m. Pacific time one (1) Business Day before the day on which the
Advance is to be made. The notice in the form of Exhibit B ("PAYMENT/ADVANCE
FORM") must be signed by a Responsible Officer or designee and include a copy of
the invoice for the Eligible Equipment being financed.
1
2.2 [Intentionally Omitted].
2.3 Interest Rate Options; Payments.
(a) Interest Rate Options. Advances accrue interest as follows:
(i) prior to the Availability End Date (subject to an election made
by Borrower pursuant to Section 2.3(a)(ii)), at a variable per annum rate (the
"Variable Rate Option") of interest equal to the greater of (A) the Prime Rate
or (B) four and three-quarters percent (4.75%); or
(ii) Borrower may elect, on or prior to the Availability End Date,
with respect to any certain Advance (except any Advance which has, as of the
date of such election, been subject to a prior Early Amoritization Election
pursuant to Section 2.3(b)), by written notice to Bank received by 12:00 noon
Pacific time on the day such rate is to be effective, a fixed per annum rate
(the "Fixed Rate Option") of interest applicable to such Advance equal to the
greater of (A) the Treasury Note Rate or (B) six percent (6.00%); provided that
all Advances subject to a Fixed Rate Option election under this Section
2.3(a)(ii) shall also automatically be subject to a simultaneous Early
Amoritization Election pursuant to Section 2.3(b)(ii); or
(iii) Borrower may elect, at any time with respect to any certain
Advance by written notice to Bank received by 12:00 noon Pacific time on the day
such rate is to be effective, a fixed per annum rate (the "Elective Fixed Rate
Option") of interest applicable to such Advance equal to the greater of (A) the
Prime Rate plus one and one- quarter percent (1.25%) or (B) six percent (6.00%).
Any variable rate of interest hereunder increases or decreases when the
Prime Rate changes. After the occurrence and during the continuance of an Event
of Default, Obligations accrue interest at two (2) percentage points above the
rate effective immediately before the Event of Default. Interest is computed on
a 360 day year for the actual number of days elapsed.
Elections made pursuant to Section 2.3(a)(ii) and (iii) are irrevocable
and permanent with respect to any Advances subject to such elections.
(b) Payments. Payments of principal and interest due on the Advances are
payable on the 30th day of each month as follows:
(i) With respect to Advances accruing interest at the Variable Rate
Option, Borrower shall (A) make interest-only payments ("Interest-Only
Payments") until (and including) December 31, 2005, and (B) commencing on
January 31, 2006, pay 48 equal installments of principal and interest (each an
"Installment Payment"); provided that Borrower may elect at any time on or prior
to the Availability End Date to begin paying Installment Payments (such
election, an "Early Amoritization Election"), in which case, Borrower shall make
48 Installment Payments commencing on the 30th day of the month in which such
Early Amoritization Election is made.
2
(ii) With respect to Advances with respect to which Borrower has
elected the Fixed Rate Option pursuant to Section 2.3(a)(ii) (and thus,
simultaneously, made an Early Amoritization Election), Borrower shall pay 48
Installment Payments commencing on the 30th day of the month in which such
election under Section 2.3(a)(ii) is made.
(iii) With respect to Advances (A) which accrue interest at the
Elective Fixed Rate Option and (B) are not subject to an Early Amoritization
Election, Borrower shall pay 48 Installment Payments commencing on January 31,
2006.
(iv) Borrower's final Installment Payment on all Advances, due on
the Maturity Date, includes all outstanding principal and accrued interest on
any Advances. Bank may debit any of Borrower's deposit accounts including
Account Number 3300465947 for principal and interest payments owing or any other
amounts due and payable by Borrower to Bank hereunder. 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 accrues.
ALL EARLY AMORITIZATION ELECTIONS MADE PURSUANT TO THIS SECTION 2.3(b) ARE
IRREVOCABLE AND PERMANENT WITH RESPECT TO ANY ADVANCES SUBJECT TO SUCH
ELECTIONS.
(c) Prepayments. Borrower may prepay the Advances, in whole or in part,
without penalty or premium.
2.4 Fees.
Borrower will pay:
(a) Bank Expenses. All Bank Expenses incurred through and after the date
of this Agreement, are payable when due.
(b) Loan Fee. On the Closing Date a loan fee equal to $42,000. The Parties
acknowledge that Borrower has already paid Bank a $20,000 deposit which shall be
applied against Bank Expenses. Any portion of the deposit not utilized to pay
Bank Expenses will be either applied to the loan fee or will be refunded to
Borrower.
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 precedents that Bank receives:
(a) an executed copy of this Agreement along with a completed Schedule;
and
(b) all Bank Expenses due (as of such date) and the loan fee pursuant to
Section 2.4.
3
3.2 Conditions Precedent to all Credit Extensions.
Bank's obligation to make each Credit Extension, including the initial
Credit Extension, is subject to the condition precedents that:
(a) Bank receives any Payment/Advance Form;
(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. By accepting such Credit Extension, Borrower
is making a representation and warranty on that date that the representations
and warranties of Section 5 remain true in all material respects;
(c) Borrower shall have (i) established deposit and/or investment accounts
at Bank or an affiliate of Bank with aggregate balances of at least the
aggregate outstanding principal amount of the Advances and (ii) delivered to
Bank any account control agreements required pursuant to Section 6.11; and
(d) with respect to any Credit Extension other than the initial Credit
Extension, Bank receives such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate to affect the
provisions of this Agreement.
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 (other than those described under clause (b) of the definition thereof),
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.
Once Borrower has fully satisfied its Obligations, Bank shall take such steps as
are reasonably necessary to release its security interest in the Collateral.
4.2 Contingent Cash Collateral.
In the event there is a breach by Borrower of the covenant set forth in
Section 6.9, Borrower shall immediately pledge and deliver to Bank a CD in the
principal amount equal to the aggregate outstanding principal amount of the
Advances at such time. Such delivery and pledge of the CD shall be deemed to
have cured the Event of Default arising from the breach of such covenant. If
Borrower shall thereafter comply with the requirements of Section 6.9 hereunder,
and if no other Event of Default shall exist, and if Bank shall at such time
continue to hold a perfected, first priority security interest in the
Collateral, then Bank shall release the CD to Borrower.
4
4.3 Bank Account Collateral.
Bank hereby agrees that so long as no Event of Default exists, Bank's
security interest in any deposit or investment account shall not restrict
Borrower's right to access and employ funds in such accounts. Bank further
agrees that upon any exercise of its rights and remedies hereunder upon the
occurrence and during the continuance of an Event of Default, Bank shall
exercise such rights and remedies in the following order: (i) first as to
deposit and investment accounts held at Bank or an affiliate of Bank, (ii)
second as to any deposit or investment accounts held at third party financial
institutions, and (iii) third as to any other Collateral secured under Section
4.1. In addition, Bank will not exercise its rights under any control agreements
issued pursuant to Section 6.11 unless an Event of Default has occurred and is
continuing.
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
jurisdiction of formation and qualified and licensed to do business in, and in
good standing in, any jurisdiction 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 cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's certificate of
incorporation and bylaws, nor constitute an event of default under any Material
Agreement by which Borrower is bound. Borrower is not in default under any
Material Agreement to which or by which it is bound in which the default could
reasonably be expected to cause a Material Adverse Change.
5.2 Collateral; Intellectual Property.
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). All Inventory is in all material respects of good and marketable
quality, free from material defects. Except as disclosed in Borrower's public
filings with the SEC or as would not reasonably be expected to cause a Material
Adverse Change, Borrower owns, possesses, licenses or has other rights to use
its Intellectual Property that is necessary for Borrower to conduct its business
as is conducted as of the date hereof.
5
5.3 Litigation.
Except as disclosed pursuant to Borrower's public filings with the SEC,
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 cause 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 accordance with GAAP, Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any deterioration in Borrower's consolidated
financial condition since the date of the most recent financial statements
submitted to Bank that could reasonably be expected to cause a Material Adverse
Change (other than Cash Burn in the ordinary course of Borrower's business).
5.5 Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
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 or the violation of which would not cause a Material Adverse
Change. 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 cause a
Material Adverse Change.
5.7 Subsidiaries.
As of the Closing Date, Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.
6
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 at the
time such statement was made. 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:
6.1 Government Compliance.
Subject to Section 7.3, Borrower will maintain its and all Subsidiaries'
legal existence and good standing in their jurisdiction of formation and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to cause a Material Adverse Change. Borrower will
comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which would reasonably be
expected to cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) within 5 Business Days of the
required filing date, copies of all reports on Form 8-K filed with the SEC that
would have, concerns or involves, a Material Adverse Change; (ii) a prompt
report of any legal actions pending against Borrower or any Subsidiary, that are
not already described in Borrower's prior public filings with the SEC, that
could result in damages or costs to Borrower or any Subsidiary of $1,000,000 (to
the extent not covered by insurance) or more; and (iii) annual budgets, sales
projections, and operating plans which Borrower prepares in accordance with its
past practices and which Bank reasonably requests.
(b) Within 5 Business Days of the required filing date of any of
Borrower's Form 10-K's and/or 10-Q's with the SEC, Borrower will deliver to Bank
a Compliance Certificate signed by a Responsible Officer in the form of Exhibit
C.
(c) Within 15 days after the acquisition or formation by Borrower of any
Subsidiary after the date hereof, Borrower will deliver to Bank a notice of such
acquisition and/or formation describing such acquisition and/or formation in
reasonable detail.
6.3 Inventory.
Borrower will maintain its Inventory consistent with its past practices
(as applicable).
7
6.4 Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP).
6.5 Insurance.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as reasonable and customary for a corporation of similar size and
business as Borrower. Insurance policies will be in a form, with companies, and
in amounts that are reasonable and customary for a corporation of similar size
and business as Borrower. All policies covering Collateral will have a lender's
loss payable endorsement showing Bank as an additional loss payee and all
liability policies covering Collateral will show the Bank as an additional
insured. At Bank's request, Borrower will deliver certified copies of policies
and evidence of all premium payments.
6.6 Loss; Destruction; or Damage. Borrower will bear the risk of any Equipment
financed hereunder ("FINANCED EQUIPMENT") being lost, stolen, destroyed, or
damaged. If during the term of this Agreement any item of Financed Equipment
with a value in excess of $100,000 is lost, stolen, destroyed, damaged beyond
repair, rendered permanently unfit for use, or seized by a governmental
authority for any reason for a period equal to at least the remainder of the
term of this Agreement (an "EVENT OF LOSS"), then in each case, Borrower will
(i) pay to Bank on account of the Obligations with respect to such piece of
Financed Equipment all accrued interest to the date of the prepayment, plus all
outstanding principal; or (ii) repair or replace any Financed Equipment subject
to an Event of Loss provided the repaired or replaced Financed Equipment is of
equal or like value to the Financed Equipment subject to an Event of Loss and
provided further that Bank has a first priority perfected security interest in
such repaired or replaced Financed Equipment. On the date of receipt by Bank of
the amount specified above with respect to each such item of Financed Equipment
subject to an Event of Loss, this Agreement shall terminate as to such Financed
Equipment. If any proceeds of insurance or awards received from governmental
authorities are in excess of the amount owed under this Section, Bank shall
promptly remit to Borrower the amount in excess of the amount owed to Bank.
6.7 Location of Equipment.
Keep Borrower's and its Subsidiaries' Equipment only at the locations
identified on the Schedule and their chief executive offices only at the
locations identified on the Schedule; provided, however, that Borrower may amend
the Schedule so long as such amendment occurs by written notice to Bank not less
than 30 days prior to the date on which such Equipment is moved to such new
location or such chief executive office is relocated, so long as such new
location is within the continental United States.
6.8 Primary Accounts.
On or before April 1, 2005, Borrower shall establish, and thereafter
maintain, its primary operating account(s) with Bank; provided that prior to the
funding of the initial Advance made
8
hereunder, Borrower shall establish, and thereafter maintain, investment and
deposit accounts at Bank or affiliates of Bank with aggregate balances of at
least the aggregate outstanding principal amount of the Advances. For purposes
of determining the aggregate balances of Borrower's accounts held at Bank under
this Section 6.8, the value of a CD pledged pursuant to Section 4.2 shall be
included in the calculation of such aggregate balances. Such balances (excluding
any pledged CD) are not considered restricted.
6.9 Financial Covenants.
Borrower will maintain, as of the last day of each quarter, Liquidity of
at least the greater of (a) Cash Burn for such quarter multiplied by two (2) (in
any event, as of January 1, 2007 (for the March 31, 2007 reporting period), the
amount calculated pursuant to this clause (a) shall not exceed an amount equal,
at any certain time, to the then aggregate outstanding balance of the Advances
multiplied by three), or (b) the then aggregate outstanding balance of the
Advances multiplied by one and one-half (1.5). "LIQUIDITY" is unrestricted cash
on hand (and cash equivalents, including, without limitation, securities
available for sale) and any CD pledged pursuant to Section 4.2. "CASH BURN" is
the change in Liquidity from that as of the prior quarter end to Liquidity
calculated at such quarter end, excluding such extraordinary items as Borrower
may reasonably request and as Bank may approve in its reasonable discretion.
6.10 Intellectual Property Rights.
Borrower will protect, defend and maintain the validity and enforceability
of its Intellectual Property to the extent necessary for Borrower to conduct its
business.
6.11 Control Agreements.
With respect to deposit accounts or investment accounts maintained at
financial institutions other than Bank, within the later of 5 Business Days of
the opening of any such deposit account or investment account or 30 days after
the Closing Date, Borrower will execute and deliver to Bank control agreements
in form reasonably satisfactory to Bank in order for Bank to perfect its
security interest in Borrower's deposit accounts or investment accounts;
provided, however that with respect to any account maintained at an affiliate of
Bank, such a control agreement shall be executed and delivered: (a) with respect
to accounts existing as of the Closing Date, on or before the Closing Date, and
(b) with respect to accounts opened after the Closing Date, within 5 Business
Days of the opening of any such accounts.
6.12 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.
9
7. NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld or delayed, for so long as Bank
has an obligation to lend or there are any outstanding Obligations:
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
the Collateral, other than (i) Transfers of Inventory in the ordinary course of
business; (ii) licenses, sublicenses or Transfers of Intellectual Property in
the ordinary course of business; (iii) Transfers of worn-out or obsolete
Equipment; (iv) licenses, sublicenses or Transfers of Intellectual Property
pursuant to agreements approved by Borrower's Board of Directors; or (v) other
Transfers of Collateral in the ordinary course of business up to $1,000,000 per
year (exclusive of the CD). For purposes of this Section 7.1, Intellectual
Property shall only be considered "Collateral" to the extent that it is included
as Collateral as set forth on Exhibit A hereto.
7.2 Changes in Business, Ownership, Management or Business Locations.
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
or ancillary thereto or issue new equity securities in an amount greater than an
aggregate of 33% of its common stock outstanding on the Closing Date, calculated
on a fully diluted basis, in a single transaction or series of related
transactions (unless such transactions are approved by Borrower's stockholders).
7.3 Mergers or Acquisitions.
Merge or consolidate with any other Person, or 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, (ii) Borrower is the
surviving entity after any such transaction has been consummated and (iii) such
transaction would not result in a decrease of Borrower's Tangible Net Worth. A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
Notwithstanding the foregoing, Borrower may Transfer all or substantially all of
its business to a Person or be acquired by a Person (whether by merger,
consolidation, sale of stock or sale of assets) if (i) such Person has a market
capitalization or Tangible Net Worth greater than Borrower's market
capitalization or Tangible Net Worth immediately prior to the time of such
transaction, and (ii) such Person expressly assumes all rights, duties and
obligations of Borrower under the Loan Documents to the satisfaction of, and
pursuant to documentation satisfactory to, Bank in its sole discretion.
7.4 Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
10
7.5 Encumbrance.
Create, incur, or allow any Lien on any of the Collateral, 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.
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, except
for (i) repurchases of stock from former employees, consultants, or directors of
Borrower under the terms of applicable repurchase agreements and (ii) dividends
or distributions consisting solely of capital stock of the Borrower, in either
case, provided that no Event of Default has occurred, is continuing or would
exist after giving effect to such repurchases, dividends or distributions.
7.7 Transactions with Affiliates.
Except as approved by the majority of the disinterested members of
Borrower's board of directors, directly or indirectly enter into or permit any
material transaction with any Affiliate except transactions that are in the
ordinary course of Borrower's business, on terms 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 that would reasonably be expected to cause a Material
Adverse Change 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
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 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:
11
8.1 Payment Default.
If Borrower fails to pay any of the Obligations within 3 Business Days
after their due date. During the additional 3 Business Day period the failure to
cure the default is not an Event of Default (but no Credit Extension will be
made during the cure period);
8.2 Covenant Default.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, or any other Loan Documents and as to
any default under a term, condition or covenant that can be cured, and has not
cured the default within 30 days of its occurrence. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 Material Adverse Change.
If there occurs a Material Adverse Change, and, if such Material Adverse
Change is curable, Borrower has not cured the same within 30 days;
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 15 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 15 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 60 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 Other Agreements.
If there is a default by Borrower in any agreement between Borrower and a
third party, including, without limitation, any Material Agreement, that gives
the third party the right to accelerate any Indebtedness exceeding $1,000,000 or
that could otherwise cause a Material Adverse Change.
12
8.7 Judgments.
If a money judgment(s) in the aggregate of at least $1,000,000 (to the
extent not covered by insurance) is rendered against Borrower and is unsatisfied
and unstayed for 15 days (but no Credit Extensions will be made before the
judgment is stayed or satisfied);
8.8 Misrepresentations.
If Borrower or any authorized Person acting for Borrower makes any
material misrepresentation or material misstatement now or later in any warranty
or representation in this Agreement, in any Loan Document, or in any writing
delivered to Bank to induce Bank to enter this Agreement.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
Subject to Section 4.3, 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;
(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) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) amount held by Bank owing to or for the credit or the account of
Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's Intellectual Property solely to extent required in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
13
(g) Dispose of the Collateral according to the Code.
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 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, but only to the extent of the then current aggregate outstanding
balance of the Advances. 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,
but only after Bank has requested in writing such actions from Borrower and
Borrower has failed to promptly perform such action after such notice. 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 Accounts Collection.
Subject to Section 4.3, when an Event of Default occurs and continues,
Bank may 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.
9.4 Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to 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.
9.5 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. Borrower bears all risk of loss, damage or destruction of the
Collateral.
14
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement and the other Loan
Documents 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. In all cases Bank's recourse under this
Agreement is limited to the extent of the Obligations.
9.7 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 party
written notice.
11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California 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 San Diego County, California.
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 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. Unless pursuant to a transaction permitted
under Section 7.3, 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
15
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; provided, however, that if no Event of Default has occurred and is
continuing, Bank will not 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 to any of Borrower's competitors.
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 reasonable 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 and are superceded
by 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, 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.
16
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, but only pursuant to a
confidentiality agreement that is at least as restrictive as the terms of this
Section 12.8, (iii) as required by law, regulation, subpoena, or other order,
and (iv) as required in connection with Bank's examination or audit, but only
pursuant to a confidentiality agreement. Confidential information does not
include information that either: (a) is in the public domain or in Bank's
possession when disclosed to Bank if not the result of Banks breach of this
Agreement, 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, after due inquiry,
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.
"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, 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 and as limited by Section 12.9).
"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.
17
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CASH BURN" is defined in Section 6.9.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMMITMENT AMOUNT" is $18,000,000.
"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 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.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each original work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" are the Advances hereunder, and any other extension of
credit by Bank for Borrower's benefit.
"ELIGIBLE EQUIPMENT" is general purpose computer equipment, office
equipment, test and laboratory equipment, furnishings, and, subject to the
limitations set forth below, Other Equipment that complies with all of
Borrower's representations and warranties to Bank and which is acceptable to
Bank in all respects. All Equipment financed with the proceeds of advances made
hereunder shall be new, provided that Bank, in its sole discretion, may finance
used equipment.
"EQUIPMENT" is all present and future machinery, equipment, furniture,
vehicles, tools and parts in which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
18
"GAAP" is United States 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.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use (now or later existing);
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to ▇▇▇ and
collect damages for use or infringement of the intellectual property rights
above; and
(e) All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory (if any) 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.
"LIQUIDITY" is defined in Section 6.9.
19
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower, 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.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" means (i) a material impairment of the
Borrower's ability to satisfy the Obligations; or (ii) a material impairment of
the value or priority of Bank's security interests in the Collateral.
"MATERIAL AGREEMENT" means any agreement (including leases) to which
Borrower is a party that Borrower has filed (including by incorporation by
reference) as an exhibit to its most recent annual report on Form 10-K or any of
its subsequent quarterly reports on Form 10-Q.
"MATURITY DATE" is December 31, 2009.
"OBLIGATIONS" are any debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later under the Loan Documents, including cash
management services, letters of credit and foreign exchange contracts, if any
and including interest accruing after Insolvency Proceedings begin.
"ORIGINAL STATED COST" is (i), the original cost to the Borrower of the
item of new Equipment net of any and all freight, installation, tax or (ii) the
fair market value assigned to such item of used Equipment by mutual agreement of
Borrower and Bank at the time of making of an Advance relating to such
Equipment.
"OTHER EQUIPMENT" is leasehold improvements (including design,
architectural, permit and project management costs related thereto), freight,
taxes, intangible property such as computer software and software licenses,
equipment specifically designed or manufactured for Borrower, other intangible
property, limited use property and other similar property.
"PATENTS" are patents, patent applications and like protections, now or
later existing, including improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
20
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness other than Indebtedness described in clauses (a) through
(e) of this definition of Permitted Indebtedness, provided such Indebtedness
shall not exceed $1,000,000 in the aggregate at any given time;
(g) extensions, refinancings and renewals of any items of Permitted
Indebtedness; and
(h) any real property lease.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) Investments in Borrower's Subsidiaries, whether existing on the date
hereof or formed or acquired hereafter, as long as no Event of Default has
occurred, is continuing or would exist after giving effect to such Investments;
(c) Investments consisting of notes receivable of, or prepaid royalties
and other credit extensions to, customers and suppliers who are not Affiliates,
in the ordinary course of business;
(d) Investments not otherwise permitted under Section 7.6 which do not
exceed $2,000,000 in the aggregate during the term of this Agreement as long as
no Event of Default has occurred, is continuing or would exist after giving
effect to such Investments;
(e) Acquisitions permitted under Section 7.3; and
(f) Investments in compliance with Borrower's Investment Policy, dated
October 28, 2003, or as otherwise approved by Borrower's board of directors.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing 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) Transfers, licenses or sublicenses permitted under Section 7.1;
21
(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 arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 8.4 or Section 8.7;
(g) Deposits in the ordinary course of business under worker's
compensation, unemployment insurance, social security and other similar laws, or
to secure the performance of bids, tenders or contracts (other than for the
repayment of borrowed money) or to secure indemnity, performance or other
similar bonds for the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations (other than
liens arising under ERISA or environmental liens) or surety or appeal bonds, or
to secure indemnity, performance or other similar bonds;
(h) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payments of custom duties in connection with the importation of
goods;
(i) Liens in favor of a banking institution arising as a matter of law
encumbering deposits (including right of set-off) held by such banking
institutions incurred in the ordinary course of business and which are within
the general parameters customary in the banking industry;
(j) Liens of materialmen, mechanics, warehousemen, carriers, artisan's or
other similar Liens arising in the ordinary course of Borrower's business or by
operation of law, which are not past due or which are being contested in good
faith by appropriate proceedings and for which reserves have been established in
accordance with GAAP; and
(k) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (j), 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
not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer and Chief
Financial Officer.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank on terms reasonably satisfactory to Bank.
22
"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, without duplication, (i) 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) reserves not
already deducted from assets, and minus (ii) Total Liabilities.
"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.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, now or later
existing, and the entire goodwill of the business of Borrower connected with the
trademarks.
"TREASURY NOTE RATE" is, as of the Closing Date, the per annum rate of
interest (based on a year of 360 days) equal to the sum of (a) the U.S. Treasury
note yield to maturity equal to the yield to maturity for a 3-year (36-month)
and 5-year (60-month) term as quoted in The Wall Street Journal divided by two
(2), plus (b) 2.86 percentage points.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
BORROWER:
CANCERVAX CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
Title: Sr. Vice President and
Chief Financial Officer
BANK:
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
Title: Deal Team Leader
24
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
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;
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 held for sale or lease, or to be furnished under a contract of
service or is temporarily out of Borrower's custody or possession or in transit
and including any returns or repossession 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;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, 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, payment intangibles, and rights to payment of any kind;
All now existing and hereafter arising accounts (including health-care
insurance receivables), 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;
All documents (including negotiable documents), cash, deposit accounts,
securities, securities entitlements, securities accounts, investment property,
financial assets, letters of credit, letter of credit rights, money,
certificates of deposit, instruments (including promissory notes) and chattel
paper (including tangible and electronic chattel paper) now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
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 claims for damages by way of any past, present and
future infringement of any of the foregoing; and
All Borrower's Books relating to the foregoing, and the computers and
equipment containing said books and records, and any and all claims, rights and
interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
such property that (1) is nonassignable by its terms without the consent of the
licensor thereof or another party (but only to the extent such prohibition on
transfer is enforceable under applicable law, including, without limitation,
Sections 9406
25
and 9408 of the Code) or requires a landlord's consent under any real property
lease agreement to grant a security interest therein, (2) the granting of a
security interest therein is contrary to applicable law, provided that upon the
cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral (unless such property comes within
the scope of clause (3) below), or (3) copyrights, copyright applications,
copyright registrations and like protection in each work of authorship and
derivative work thereof, whether published or unpublished, now owned or
hereafter acquired; any patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, trademarks,
servicemarks and applications therefor, whether registered or not, and the
goodwill of the business of Borrower connected with and symbolized by such
trademarks, any trade secret rights, including any rights to unpatented
inventions, know-how, operating manuals, contract rights, and license rights
relating to any of the foregoing and agreements and confidential information,
now owned or hereafter acquired; or any claims for damage by way of any past,
present and future infringement or misappropriation of any of the foregoing
(collectively, the "INTELLECTUAL PROPERTY"), except that the Collateral shall
include the proceeds of all the Intellectual Property that are accounts, (i.e.
accounts receivable) of Borrower, or general intangibles consisting of rights to
payment, if a judicial authority (including a U.S. Bankruptcy Court) holds that
a security interest in the underlying Intellectual Property is necessary to have
a security interest in such accounts and general intangibles of Borrower that
are proceeds of the Intellectual Property, then the Collateral shall
automatically, and effective as of the Closing Date, include the Intellectual
Property only to the extent necessary to permit perfection of Bank's security
interest in such accounts and general intangibles of Borrower that are proceeds
of the Intellectual Property.
26
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 NOON., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ___________________________
FAX #: (▇▇▇) ▇▇▇-▇▇▇▇ TIME: ___________________________
FROM: CANCERVAX CORPORATION
CLIENT NAME (BORROWER)
REQUESTED BY: _______________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: _______________________________________
PHONE NUMBER: _______________________________________________
FROM ACCOUNT # __________________ TO ACCOUNT # ______________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
-------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $_______________________
PRINCIPAL PAYMENT (ONLY) $_______________________
INTEREST PAYMENT (ONLY) $_______________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________
OTHER INSTRUCTIONS: _________________________________________
_____________________________________________________________
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for the Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that 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 #
27
________________________________________________________________________________
Received By (Bank) Phone #
______________________________________________
Authorized Signature (Bank)
28
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FROM: CANCERVAX CORPORATION
The undersigned authorized officer of CANCERVAX CORPORATION ("Borrower"),
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in compliance for
the period ending _______________ with all required covenants except as noted
below and (ii) all representations and warranties in the Agreement are true and
correct in all material respects on this date (except for those representations
and warranties that expressly speak as of an earlier date, which continue to be
true and correct in all material respects, in each case as of such earlier
date). Attached are the required documents supporting the certification. The
Officer certifies that any financial calculations set forth herein are based
upon financial information (as applicable) contained in Borrower's financial
statements, which have been prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next,
subject to, in the case of interim financial statements, the absence of footnote
disclosure and normal year-end adjustments. The Officer acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the material terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
All 8-K's required under Section 6.2 of Within 5 days after required SEC Yes No
the Agreement filing date
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Minimum Liquidity $__________________ * $__________ Yes No
*Greater of 2 x Quarter's Cash Burn or 1.5 x
Advance balance
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Sincerely, Received by: ____________________
AUTHORIZED SIGNER
29
CancerVax Corporation Date: ___________________________
___________________________________ Verified: _______________________
SIGNATURE AUTHORIZED SIGNER
___________________________________ Date: ___________________________
TITLE
Compliance Status: Yes No
___________________________________
DATE
30