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CYGNUS, INC.
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . 8
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . . . 8
2.1 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Interest Rate Protection. . . . . . . . . . . . . . . . . . 9
2.3 Interest Rates, Payments, and Calculations. . . . . . . . . 10
2.4 Crediting Payments. . . . . . . . . . . . . . . . . . . . . 11
2.5 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Additional Costs. . . . . . . . . . . . . . . . . . . . . . 12
2.7 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. CONDITIONS OF LOANS. . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Conditions Precedent to Advance . . . . . . . . . . . . . . 12
4. CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . . . . 13
4.1 Grant of Security Interest. . . . . . . . . . . . . . . . . 13
4.2 Delivery of Additional Documentation Required . . . . . . . 13
4.3 Right to Inspect. . . . . . . . . . . . . . . . . . . . . . 13
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 14
5.1 Due Organization and Qualification. . . . . . . . . . . . . 14
5.2 Due Authorization; No Conflict. . . . . . . . . . . . . . . 14
5.3 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . 14
5.4 Bona Fide Accounts. . . . . . . . . . . . . . . . . . . . . 14
5.5 Merchantable Inventory. . . . . . . . . . . . . . . . . . . 14
5.6 Intellectual Property . . . . . . . . . . . . . . . . . . . 14
5.7 Name; Location of Chief Executive Office. . . . . . . . . . 15
5.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.9 No Material Adverse Change in Financial Statements. . . . . 15
5.10 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11 Regulatory Compliance . . . . . . . . . . . . . . . . . . . 15
5.12 Environmental Condition . . . . . . . . . . . . . . . . . . 15
5.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.14 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 16
5.15 Government Consents . . . . . . . . . . . . . . . . . . . . 16
5.16 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 16
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 16
6.1 Good Standing . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Government Compliance . . . . . . . . . . . . . . . . . . . 16
6.3 Adverse Information . . . . . . . . . . . . . . . . . . . . 17
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6.4 Financial Statements, Reports, Certificates . . . . . . . 17
6.5 Inventory; Returns. . . . . . . . . . . . . . . . . . . . 17
6.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Principal Depository. . . . . . . . . . . . . . . . . . . 18
6.9 Adjusted Total Liabilities-Net Worth Ratio. . . . . . . . 18
6.10 Tangible Net Worth. . . . . . . . . . . . . . . . . . . . 18
6.11 Minimum Liquidity and Debt Service Coverage.. . . . . . . 18
6.12 Registration of Intellectual Property Rights. . . . . . . 19
6.13 Further Assurances. . . . . . . . . . . . . . . . . . . . 19
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Dispositions. . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Change in Business. . . . . . . . . . . . . . . . . . . . 19
7.3 Mergers or Acquisitions . . . . . . . . . . . . . . . . . 20
7.4 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Encumbrances. . . . . . . . . . . . . . . . . . . . . . . 20
7.6 Distributions . . . . . . . . . . . . . . . . . . . . . . 20
7.7 Investments . . . . . . . . . . . . . . . . . . . . . . . 20
7.8 Transactions with Affiliates. . . . . . . . . . . . . . . 20
7.9 Intellectual Property Agreements. . . . . . . . . . . . . 20
7.10 Subordinated Debt . . . . . . . . . . . . . . . . . . . . 20
7.11 Inventory . . . . . . . . . . . . . . . . . . . . . . . . 20
7.12 Compliance. . . . . . . . . . . . . . . . . . . . . . . . 20
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Payment Default . . . . . . . . . . . . . . . . . . . . . 21
8.2 Covenant Default. . . . . . . . . . . . . . . . . . . . . 21
8.3 Material Adverse Change . . . . . . . . . . . . . . . . . 21
8.4 Attachment. . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Other Agreements. . . . . . . . . . . . . . . . . . . . . 22
8.7 Subordinated Debt . . . . . . . . . . . . . . . . . . . . 22
8.8 Adverse Legal Action/Judgments. . . . . . . . . . . . . . 22
8.9 Misrepresentations. . . . . . . . . . . . . . . . . . . . 22
8.10 Change of Control . . . . . . . . . . . . . . . . . . . . 22
9. BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . 22
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . 22
9.2 Power of Attorney . . . . . . . . . . . . . . . . . . . . 23
9.3 Accounts Collection.. . . . . . . . . . . . . . . . . . . 24
9.4 Bank Expenses . . . . . . . . . . . . . . . . . . . . . . 24
9.5 Bank's Liability for Collateral . . . . . . . . . . . . . 24
9.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . 24
9.7 Demand; Protest . . . . . . . . . . . . . . . . . . . . . 24
10. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . 25
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12. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 25
12.1 Successors and Assigns. . . . . . . . . . . . . . . . . . 25
12.2 Indemnification . . . . . . . . . . . . . . . . . . . . . 26
12.3 Time of Essence . . . . . . . . . . . . . . . . . . . . . 26
12.4 Severability of Provisions. . . . . . . . . . . . . . . . 26
12.5 Amendments in Writing, Integration. . . . . . . . . . . . 26
12.6 Amendments in Writing, Integration. . . . . . . . . . . . 26
12.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 26
12.8 Survival. . . . . . . . . . . . . . . . . . . . . . . . . 26
12.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . 27
12.10 Effect of Amendment and Restatement. . . . . . . . . . . 27
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This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as of
April 30, 1998, by and between SILICON VALLEY BANK ("Bank") and CYGNUS, INC.
("Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Loan and Security
Agreement, dated as of December 9, 1994 and the Loan and Security Agreement
dated as of June 24, 1996, each as amended from time to time, including, without
limitation by the Assumption and Loan Modification Agreement dated as of October
30, 1997, the Loan Modification Agreement dated as of January 2, 1998, and the
Loan Modification Agreement dated as of February 9, 1998 (collectively, and as
may have been further amended, the "Original Loan Documents").
B. Borrower and Bank wish to amend and restate the terms of the Original
Loan Documents as stated herein. This Agreement sets forth the terms on which
Bank will loan money to Borrower and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means cash advances under the First Term
Loan Facility and the Second Term Loan Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
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"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached
hereto.
"Committed Loan Amount" means Ten Million Dollars ($10,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Debt Service Coverage" means, as measured quarterly as of the
last day of each fiscal quarter of Borrower (unless measured monthly in
accordance with Section 6.11 herein), on a consolidated basis determined in
accordance with GAAP, the ratio of (a) an amount equal to the sum of (i) net
income, PLUS (ii) depreciation, amortization of intangible assets and other
non-cash charges to income, and (iii) accrued interest, to (b) an amount equal
to the sum of all scheduled repayments for such quarter (or month, as
applicable), including accrued interest, and mandatory prepayments of principal
on account of long-term Debt.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"FDA" means the Food and Drug Administration of the United States
government, and any successor regulatory body.
"First Term Loan Facility" means the facility under which
Borrower may request cash advances as specified in Section 2.1 (a).
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"GAAP" means generally accepted accounting principles as in
effect from time to time.
"GMP" has the meaning set forth in Section 6.2.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means any and all right, title
and interest of Borrower in the proceeds of the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to ▇▇▇ for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
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"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Liquidity" means, at any date of determination, the sum of
Borrower's cash, cash equivalents, and short term investments, less any cash and
cash equivalent balances that are held in a sinking fund for the retirement of
debt or capital stock or that are held in pledge for another creditor.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means October 29, 2001.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Net Cash Losses" means, with respect to any date of
determination, determined on a consolidated basis in accordance with GAAP for
Borrower and its consolidated Subsidiaries, the reduction in cash from
operations (excluding non-recurring charges) during the three months prior to
such date of determination or if the date of determination is the last day of a
fiscal quarter, during the fiscal quarter then ending (or, if monthly reporting
is required pursuant to Section 6.4(c), during the three fiscal months ending
prior to such date of determination).
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Payment Date" means the twenty-ninth (29th) calendar day of each
month during the term of this Agreement.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
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"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the date of this Agreement and
disclosed in the Schedule;
(c) Indebtedness to trade creditors incurred in the ordinary
course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby); Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby); and Contingent Obligations of the
Borrower as a guarantor for obligations of its Subsidiaries that (i) are
existing on the date of this Agreement, or (ii) have been approved by Bank in
writing;
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition; and
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Date of this Agreement disclosed
in the Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank, and (iv) any Investments permitted by
Borrower's investment policy, as amended from time to time, provided that such
investment policy (any such amendment thereto) has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable
instrument for deposit or collection or similar transactions in the ordinary
course of business;
(d) Investments accepted in connection with Transfers permitted
by Section 7.1;
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(e) Investments (whether consisting of the purchase of
securities, loans, capital contribution, or otherwise) of Borrower in
Subsidiaries and of Subsidiaries in or to other Subsidiaries or in Borrower;
(f) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best interests
of Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower or its Subsidiaries pursuant to employee stock purchase plans or
agreements approved by Borrower's Board of Directors;
(g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph (i)
shall not apply to Investments by Borrower in any Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 7.3; and
(j) Deposit accounts of Borrower in which Bank has a Lien prior
to any other Lien.
"Permitted Liens" means the following:
(a) Any Liens existing on the date of this Agreement and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, PROVIDED the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, PROVIDED that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens referred to in UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and license and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;
(f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
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(g) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(h) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(i) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (d), (e) and (f) above, PROVIDED that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; and
(j) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Remaining Months Liquidity" means, at the end of each fiscal
quarter, or if monthly reporting is required pursuant to Section 6.4(c), as at
the end of each fiscal month, the ratio of (i) Liquidity at such time to
(ii) the monthly average of Net Cash Losses.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Director of Finance of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Second Term Loan Facility" means the facility under which
Borrower may request cash advances as specified in Section 2.1 (b).
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which
(i) any general partnership interest or (ii) more than 50% of the stock of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries MINUS, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, AND (ii) Total Liabilities.
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"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt, except as amended in Section 6.9 below.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
"Unrestricted Cash Reserves" means, at any time of determination,
the sum of Borrower's (i) cash balance of deposit accounts and investment
accounts, PLUS (ii) market value of all readily marketable securities
beneficially owned by Borrower, MINUS (iii) cash value of any certificates of
deposit or securities encumbered and/or restricted by any Bank or any other
Persons.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
8
2. LOAN AND TERMS OF PAYMENT
2.1 TERM LOANS.
(a) FIRST TERM LOAN FACILITY. Borrower acknowledges that
Borrower has certain outstanding Obligations under the Original Loan Documents.
Subject to and upon the terms and conditions of this Agreement, Bank agrees to
make an Advance to Borrower as of the Closing Date, in an aggregate principal
amount of the outstanding Obligations under the Original Loan Documents, which
Advance shall be used to repay the outstanding Obligations under the Original
Loan Documents; PROVIDED, HOWEVER, that Borrower shall repay such Advance in
accordance with the terms of this Agreement; PROVIDED, FURTHER, that the amount
of outstanding Obligations under the First Term Loan Facility and the Second
Term Loan Facility do not exceed, in the aggregate, the Committed Loan Amount.
Amounts borrowed pursuant to this Section 2.1(a) may not be reborrowed once
repaid.
(b) SECOND TERM LOAN FACILITY. Subject to and upon the terms
and conditions of this Agreement, Bank agrees, at any time from the date of this
Agreement through April 29, 1999, to make Advances to Borrower in an aggregate
principal amount not to exceed the Committed Loan Amount LESS the outstanding
Obligations under the First Term Loan Facility as determined on the Closing
Date. Amounts borrowed pursuant to this Section 2.1 (b) may not be reborrowed
once repaid.
(c) PROCEDURES. Whenever Borrower desires an Advance, Borrower
shall notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
California time, one (1) Business Day before the day on which the Advance is
requested to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of EXHIBIT B hereto and signed by
a Responsible Officer. Bank is authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer, or
without instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank
will credit the amount of Advances made under this Section 2.1 to Borrower's
deposit account.
(d) INTEREST AND PRINCIPAL. Interest shall accrue from the date
of each Advance at the rate specified in Section 2.3(a), and shall be payable
monthly on the Payment Date for each month through the month in which the
Maturity Date falls. Bank shall, at its option, charge such interest, all Bank
Expenses, and all Periodic Payments against any of Borrower's deposit accounts,
including account number _____________ against the First Term Facility or
against the Second Term Facility, in which case those amounts shall thereafter
accrue interest at the rate then applicable hereunder. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) MATURITY. The First Term Facility and the Second Term
Facility shall terminate on the Maturity Date, at which time all Obligations
owing under this Section 2.1 shall be immediately due and payable.
2.2 INTEREST RATE PROTECTION. Subject to the terms and condition of
this Agreement, Borrower may prepay the Advances, in whole or in part, only upon
payment in full of (i) all accrued but unpaid interest and all outstanding
obligations hereunder (or, if partial prepayment, an applicable or proportionate
amount of such obligations), and (ii), if Borrower has elected the fixed rate
option set forth in Section 2.3(a), a fee as shall be determined by Bank in its
reasonable discretion to provide for interest rate protection in the event the
fixed interest rate set forth in Section 2.3(a) is higher than the then current
fixed rate for the Advances.
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2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b):
(i) ADVANCE UNDER THE FIRST TERM LOAN FACILITY. From and
after the Closing Date through October 29, 1998, the Advance under the First
Term Loan Facility shall bear interest, on the average daily balance thereof, at
a rate equal to one-half of one (1) percentage point above the Prime Rate. From
and after October 30, 1998 through the Maturity Date, the Advance under the
First Term Loan Facility shall bear interest, on the average daily balance
thereof, at a rate equal to, at Borrower's election, either (i) one-half of one
(1) percentage point above the Prime Rate; or (ii) three and one-half (3.5)
percentage points above the yield of the 42 month Treasury Note as reported in
the Western edition of THE WALL STREET JOURNAL, which rate shall be fixed at the
time of Borrower's election. Borrower shall give written notice to Bank of its
interest rate election no later than October 28, 1998, of its interest rate
election hereunder. If Borrower fails to give such notice, then the applicable
rate shall be the 42 month Treasury Note fixed rate described herein.
(ii) ADVANCES UNDER THE SECOND TERM LOAN FACILITY.
From and after the Closing Date through April 29, 1999, the Advances under the
Second Term Loan Facility shall bear interest, on the average daily balance
thereof, at a rate equal to one-half of one (1) percentage point above the Prime
Rate. From and after April 30, 1999 through the Maturity Date, the Advances
under the Second Term Loan Facility shall bear interest, on the average daily
balance thereof, at a rate equal to, at Borrower's election, either (i) one-half
of one (1) percentage point above the Prime Rate; or (ii) three and one-half
(3.5) percentage points above the yield of the 42 month Treasury Note as
reported in the Western edition of THE WALL STREET JOURNAL, which rate shall be
fixed at the time of Borrower's election. Borrower shall give written notice to
Bank of its interest rate election no later than April 28, 1999, of its interest
rate election hereunder. If Borrower fails to give such notice, then the
applicable rate shall be the 42 month Treasury Note fixed rate described herein.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on
the Payment Date of each month during the term hereof. Borrower shall make
payments of principal and interest, as follows:
(i) FIRST TERM LOAN FACILITY. Borrower shall make payments
on the Advance under the First Term Loan Facility, as follows: (i) beginning on
November 29, 1998, and continuing on the Payment Date of each calendar month for
each of the twenty-four (24) months thereafter, Borrower shall make a payment of
principal and interest to Bank in equal monthly installments totalling fifty
percent (50%) of the outstanding Obligations under the First Term Loan Facility,
and (ii) beginning on November 29, 2000, and continuing on the Payment Date of
each calendar month for each of the twelve (12) months thereafter through the
Maturity Date, Borrower shall make a payment of principal and interest to Bank
in equal monthly installments totalling the remaining balance of the outstanding
Obligations under the First Term Loan Facility. Bank shall, at its option,
charge such interest, principal, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts, including Account Number
______________ in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(ii) SECOND TERM LOAN FACILITY. Borrower shall make
payments on the Advances under the Second Term Loan Facility, as follows: (i)
beginning on May 29, 1999, and continuing on the Payment Date of each calendar
month for each of the eighteen (18) months thereafter, Borrower shall make a
payment of principal and interest to Bank in equal monthly installments
totalling fifty percent (50%) of the
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outstanding Obligations under the Second Term Loan Facility, and (ii) beginning
on November 29, 2000, and continuing on the Payment Date of each calendar month
for each of the twelve (12) months thereafter through the Maturity Date,
Borrower shall make a payment of principal and interest to Bank in equal monthly
installments totalling the remaining balance of the outstanding Obligations
under the Second Term Loan Facility. Bank shall, at its option, charge such
interest, principal, all Bank Expenses, and all Periodic Payments against any of
Borrower's deposit accounts, including Account Number __________________ in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
Notwithstanding the foregoing, this Section 2.3(d) shall not apply in the event
the Borrower elects the fixed rate option as set forth in Section 2.3(a).
2.4 CREDITING PAYMENTS. Prior to the occurrence and during the
continuance of an Event of Default, Bank shall credit a wire transfer of funds,
check or other item of payment to such deposit account or Obligation as Borrower
specifies. After the occurrence and during the continuance of an Event of
Default, the receipt by Bank of any wire transfer of funds, check, or other
similar item for the purpose of payment of Obligations shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment on account unless such payment is of immediately available federal funds
or unless and until such check or other item of payment is honored when
presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon
California time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business Day. Whenever any payment to
Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to (i) Thirty-Eight
Thousand Dollars ($38,000) for the First Term Loan Facility, which fee shall be
due and payable on the date of this Agreement, shall be fully earned and
non-refundable, and (ii) a Facility Fee in the amount of three-quarters of one
(.75) percentage point of the Advances available to be borrowed under the Second
Term Loan Facility as of the Closing Date, which amount shall be the Committed
Loan Amount LESS the Advance under the First Term Loan Facility, fifty percent
(50%) of which fee shall be due and payable on the date of this Agreement, and
shall be fully earned and non-refundable, and the remaining fifty percent (50%)
of which fee shall be due and payable on October 29, 1998, and shall be fully
earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents; and
(c) BANK EXPENSES. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
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2.6 ADDITIONAL COSTS. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail which statement shall be deemed
true and correct absent manifest error; PROVIDED, HOWEVER, that Borrower shall
not be liable for any such amount attributable to any period prior to the date
one hundred and eighty (180) days prior to the date of such certificate.
2.7 TERM. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make the Advance under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations (other than inchoate
indemnity obligations) are outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO ADVANCE. The obligation of Bank to make
the Advance is subject to the conditions precedent that:
(a) Bank shall have received, in form and substance satisfactory
to Bank, the following:
(i) this Agreement;
(ii) a certificate of the Secretary of Borrower with respect
to incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(iii) an intellectual property security agreement;
(iv) financing statements (Forms UCC-1);
(v) insurance certificate;
12
(vi) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof;
(vii) timely receipt of the Payment/Advance Form as
provided in Section 2.1;
(viii) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of the
Payment/Advance Form and on the effective date of each of the Advances, and no
Event of Default shall have occurred and be continuing, or would result from
each of the Advances. The making of each of the Advances shall be deemed to be
a representation and warranty by Borrower on the date of each of the Advances as
to the accuracy of the facts referred to in this Section 3.1(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof,
in each case, to the extent that a security interest in such Collateral can be
perfected by the filing of a financing statement or, in the case of Collateral
consisting of instruments, documents, chattel paper or certificated securities,
to the extent that Bank takes possession of such Collateral. Bank agrees to
execute and deliver to Borrower from time to time such Lien subordinations as
Borrower may request and as are necessary to give to other lenders which finance
new Equipment for Borrower a first priority security interest in the new
Equipment financed so long as the Liens and the Indebtedness incurred with
respect to such Equipment financing are permitted under this Agreement.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
4.4 REQUIREMENT FOR CASH COLLATERAL. Borrower shall pledge cash or a
certificate of deposit to Bank as follows:
(a) Upon an Event of Default (except for six (6) months
Remaining Months Liquidity of Section 6.11), then Borrower shall pledge cash in
the form of a certificate of deposit at Silicon Valley Bank, on terms acceptable
to Bank, in an amount equal to fifty-five percent (55%) of the outstanding loan
balance, at which time Borrower shall be deemed to have cured the Event of
Default. Notwithstanding the foregoing, Bank shall have no obligation to
release the cash pledged pursuant to this Section 4.4(a) unless and until
Borrower achieves compliance with all the terms of the Loan Documents and cures
such Event of Default.
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(b) If at any time the Liquidity of Borrower is less than (i)
Fifteen Million Dollars ($15,000,000), or (ii) six (6) times Remaining Months
Liquidity, then Borrower shall pledge cash in the form of a certificate of
deposit at Silicon Valley Bank, on terms acceptable to Bank, in an amount equal
to one hundred and five percent (105%) of the outstanding loan balance, at which
time Borrower shall be deemed to have cured the Event of Default.
Notwithstanding the foregoing, Bank shall have no obligation to release the cash
pledged pursuant to this Section 4.4(b) unless and until Borrower achieves
compliance with all the terms of the Loan Documents and cures such Event of
Default.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except to the extent that failure to
so qualify would not have a Material Adverse Effect on the Borrower.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default under
any agreement to which it is a party or by which it is bound, which default
could reasonably be expected to have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ACCOUNTS. The Accounts are bona fide existing
obligations. The property giving rise to such Accounts has been delivered to
the account debtor or to the account debtor's agent for immediate shipment to
and unconditional acceptance by the account debtor. Borrower has not received
notice of actual or imminent Insolvency Proceeding of any account debtor.
5.5 MERCHANTABLE INVENTORY. All Inventory, net of reserves in
accordance with GAAP, is in all material respects of good and marketable
quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any United States governmental authority or
United States regulatory body is required either (i) for the grant by Borrower
of the security interest granted hereby or for the execution, delivery or
performance of Loan Documents by Borrower in the United States or (ii) for the
perfection in the United States or the exercise by Bank of its rights and
remedies hereunder.
14
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.10 SOLVENCY. The fair saleable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower and each Guarantor are
able to pay their respective debts (including trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act and Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, noncompliance with or which violation of
which could have a Material Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein, except for taxes the
amount or validity of which the Borrower is contesting in good faith by
appropriate proceedings and with respect to which the Borrower has taken
adequate reserves in accordance with GAAP.
15
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
Except as disclosed in writing to Bank, Borrower has not been denied an
Investigational New Drug status nor has any application for New Drug Approval
been denied, nor has Borrower received any information indicating that the FDA
is unlikely to issue an approval letter in response to such application for any
products material to Borrower's business.
5.16 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE.
(a) ERISA. Borrower shall meet, and shall cause each Subsidiary
to meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA.
(b) FDA. To the extent required by law, Borrower shall cause
its, and each of its Subsidiaries', manufacturing and quality control to conform
in all material respects to FDA Good Manufacturing Practices ("GMP") regulations
and such other regulations applicable to Borrower and its Subsidiaries with
respect to advertising, labeling and reporting, product testing, design, safety
and labeling of products except where the failure to so conform is not
reasonably likely to have a Material Adverse Effect. To the extent necessary to
the conduct of its and its Subsidiaries' business, Borrower shall register, and
shall cause each of its Subsidiaries to register, with the Food and Drug Branch
of the California Department of Health Services and the FDA, and Borrower shall
register its, and shall cause each of its Subsidiaries to register their,
manufacturing facilities in accordance with GMP regulations.
(c) STATUTORY COMPLIANCE. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which is reasonably likely to have a Material Adverse Effect, including without
limitation, compliance in all material respects with the Federal Food, Drug, and
Cosmetics Act, the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, and all other applicable
federal, state and local laws, orders and regulations.
6.3 ADVERSE INFORMATION. Borrower shall immediately notify Bank upon
receipt of any information that indicates that (a) the FDA has denied, or has
stated that it is likely to deny, any of Borrower's, or its Subsidiaries',
Investigational New Drug Applications or New Product Application, (b) Borrower
or a Subsidiary has
16
elected not to proceed with clinical trials for any of Borrower's or
Subsidiary's products for which Borrower or any Subsidiary has filed an
Investigational New Drug Application with the FDA, or (c) the FDA or other
governmental agency has advised Borrower that it found material deficiencies in
Borrower's or a Subsidiary's compliance with applicable regulations.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower shall deliver to Bank: (i) as soon as available,
but in any event within ninety (90) days after the end of Borrower's fiscal
year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified
opinion on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (ii) within five (5) days upon
becoming available, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and all reports on Form 10-K and 10-Q filed with the
Securities and Exchange Commission; (iii) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (iv) prompt
notice of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not specified in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely affects the value of the Intellectual
Property Collateral; and (v) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
(b) Borrower shall deliver to Bank with the quarterly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto.
(c) If at any time and during such time that Borrower's
Liquidity is less than Twenty Five Million Dollars ($25,000,000), or if an Event
of Default occurs and is continuing, Borrower shall deliver a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations for the relevant month, certified by a Responsible Officer and a
Compliance Certificate (as referenced above) to Borrower within twenty (20) days
after the last day of each calendar month. Borrower shall deliver to Bank with
such monthly financial statements and Compliance Certificate a monthly liquidity
and average cash burn report in a form and substance satisfactory to Bank.
6.5 INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Fifty Thousand Dollars ($50,000).
6.6 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
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6.7 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's. Nothing
herein shall be construed as requiring the Borrower to maintain credit insurance
with respect to its accounts receivable.
(b) All such policies of insurance shall be in such form, with
such companies and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon
Bank's request, Borrower shall deliver to Bank certified copies of such policies
of insurance and evidence of the payments of all premiums therefor. All
proceeds payable under any such policy shall, at the option of Bank, be payable
to Bank for application to the Obligations.
6.8 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.9 ADJUSTED TOTAL LIABILITIES-NET WORTH RATIO. Subject to the last
sentence of this Section, Borrower shall maintain, (i) as of the last day of
each fiscal quarter through the fiscal quarter ending December 31, 1998, a ratio
of Total Liabilities (excluding long-term and short-term deferred revenue and
excluding $23,000,000 in long-term debt owed to Sanofi) less Subordinated Debt
to Tangible Net Worth plus Subordinated Debt of not more than 2.00 to 1.00, (ii)
as of the last day of each fiscal quarter commencing with the quarter ending
March 31, 1999, through the fiscal quarter ending March 31, 2000, a ratio of
Total Liabilities (excluding long-term and short-term deferred revenue and
excluding $23,000,000 in long-term debt owed to Sanofi) less Subordinated Debt
to Tangible Net Worth plus Subordinated Debt of not more than 3.25 to 1.00, and
(iii) as of the last day of each fiscal quarter commencing on the fiscal quarter
ending June 30, 2000, a ratio of Total Liabilities (excluding long-term and
short-term deferred revenue) less Subordinated Debt to Tangible Net Worth plus
Subordinated Debt of not more than 2.00 to 1.00.
6.10 TANGIBLE NET WORTH. Subject to the last sentence of this
Section, Borrower shall maintain, as of the last day of each fiscal quarter, (i)
commencing on the Closing Date through the fiscal quarter ending December 31,
1998, a Tangible Net Worth of not less than Eighteen Million Dollars
($18,000,000), (ii) commencing on the fiscal quarter ending March 31, 1999
through the fiscal quarter ending March 31, 2000, a Tangible Net Worth of not
less than Ten Million Dollars ($10,000,000), and (iii) commencing on the fiscal
quarter ending June 30, 2000 through the term of this Agreement, a Tangible Net
worth of not less than Fifteen Million Dollars ($15,000,000).
6.11 MINIMUM LIQUIDITY AND DEBT SERVICE COVERAGE. Subject to the
remainder of this Section, Borrower shall maintain, as of the last day of each
of fiscal quarter, a minimum Liquidity of the greater of (a) two (2) times the
amount of Obligations, OR (b) six times (6x) the average of Net Cash Losses for
the immediately preceding three (3) month period. Notwithstanding the
foregoing, from and after the time Borrower achieves a Debt Service Coverage for
two consecutive fiscal quarters of at least 1.50 to 1.00, and for so long as
Borrower maintains as of the last day of each fiscal quarter thereafter, a Debt
Service Coverage of at least 1.50 to 1.00, Borrower shall not be subject to the
minimum required Liquidity set forth above.
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6.12 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not
allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.12 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.12.
6.13 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make the Advance, Borrower will
not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment or new Equipment
financed by other vendors; or (iv) Transfers which constitute liquidation of
Investments permitted under Section 7.7.
7.2 CHANGE IN BUSINESS. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto). Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
19
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; PROVIDED
that this Section 7.3 shall not apply to (i) transactions among Subsidiaries or
among Borrower and its Subsidiaries in which Borrower is the surviving entity,
or (ii) such transactions that do not involve an amount that, in the aggregate,
exceeds Five Million Dollars ($5,000,000) during the term of this Agreement as
long as, before and after giving effect to such transactions, Borrower will be
in compliance with Sections 6.9, 6.10 and 6.11 herein.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock; PROVIDED, that Borrower may convert any of its convertible securities
into other securities pursuant to the terms of such convertible securities or
otherwise in exchange therefor.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person and
except for transactions with a Subsidiary that are upon fair and reasonable
terms and transactions constituting Permitted Investments.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or
20
use the proceeds of any Advance or Loan for such purpose. Fail to (i) comply in
all material respects with FDA's GMP regulations and registration requirements;
(ii) comply in all material respects with Federal Food, Drug and Cosmetics Act,
the Occupational Safety and Health Act, the Environmental Protection Act, and
the Toxic Substances Control Act; (iii) meet the minimum funding requirements of
ERISA, permit a reportable event or prohibited transaction, as defined in ERISA,
to occur; (iv) comply with the Federal Fair Labor Standards Act in all material
respects; or (v) violate any law or regulation, in each case which violation
could have a Material Adverse Effect.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal of, or
any interest on, the Advance when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation
under Section 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants contained
in Article 7 of this Agreement, or fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advance will be
required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advance will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advance will be made prior to the dismissal of such Insolvency
Proceeding);
21
8.6 OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in the
exercise of a right by such third party or parties to accelerate the maturity
of any Indebtedness in an amount in excess of Five Hundred Thousand Dollars
($500,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank or approved by Bank in Bank's
sole discretion;
8.8 ADVERSE LEGAL ACTION/JUDGMENTS. If there occurs any adverse
legal decision, determined in Bank's sole and independent discretion, that
represents a potential judgment in an amount representing liability to the
Borrower (whether contingent or otherwise) greater than Three Million Dollars
($3,000,000); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
8.10 CHANGE OF CONTROL. If any "person" or "group" (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of a sufficient number of shares
of all classes of stock then outstanding of Borrower ordinarily entitled to vote
in the election of directors, empowering such "person" or "group" to elect a
majority of the Board of Directors of Borrower.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to
22
enter into possession of such premises and to occupy the same, without charge,
for up to one hundred twenty (120) days in order to exercise any of Bank's
rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable;
(f) to modify, in its sole discretion, any intellectual property security
agreement entered into between Borrower and Bank without first obtaining
Borrower's approval of or signature to such modification by amending Exhibit A,
Exhibit B and Exhibit C, thereof, as appropriate, to include reference to any
right, title or interest in any Copyrights, Patents or Trademarks acquired by
Borrower after the execution hereof or to delete any reference to any right,
title or interest in any Copyrights, Patents or Trademarks in which Borrower no
longer has or claims any right, title or interest; (g) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (h) to transfer the Collateral into the name of Bank
or a third party to the extent permitted under the California Uniform Commercial
Code provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 ACCOUNTS COLLECTION. After the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify
23
the amount of such Account. Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement. Bank shall
have a non-exclusive, royalty-free license to use the Intellectual Property
Collateral to the extent reasonably necessary to permit Bank to exercise its
rights and remedies upon the occurrence of an Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
Section 9207 of the Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
24
If to Borrower: Cygnus, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
▇▇▇▇▇, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties;
PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participations in all or any part of, or any interest in Bank's
obligations, rights and benefits hereunder subject to the provisions of this
Section 12.1.
(b) Bank may sell, negotiate or grant participations to
other financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of
Borrower; PROVIDED that any such sale, negotiation or participation shall be in
compliance with the applicable federal and state securities laws and the other
requirements of this Section 12.1. Notwithstanding the sale, negotiation or
grant of participations, Bank shall remain solely responsible for the
performance of its obligations under this Agreement, and Borrower shall continue
to deal solely and directly with Bank in connection with this Agreement and the
other Loan Documents.
25
(c) The grant of a participation interest shall be on such
terms as Bank determines are appropriate, provided only that (1) the holder of
such a participation interest shall not have any of the rights of Bank under
this Agreement except, if the participation agreement so provides, rights to
demand the payment of costs of the type described in Section 2.6, (ii) extend
the term of this Agreement, (iii) decrease the rate of interest or the amount of
any fee or any other amount payable to Bank under this Agreement, (iv) reduce
the principal amount payable under this Agreement, or (v) extend the date fixed
for the payment of principal or interest or any other amount payable under this
Agreement.
(d) Bank may assign, from time to time, all or any portion
of its pro rata share of the Committed Loan Amount to an Affiliate of the Bank
or to the Federal Reserve Bank or, subject to the prior written approval of
Borrower (which approval will not be unreasonably withheld), to any other
financial institution; provided, that the parties to each such assignment shall
execute and deliver to Borrower an assignment agreement in a form renewable
acceptable to each. Upon such execution and delivery, from and after the
effective date specified in such assignment agreement (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment
agreement, have the rights and obligations of a Bank hereunder and (y) Bank
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such assignment agreement, relinquish its rights and be released
from its obligations under this Agreement (other than pursuant to this Section
12.1(d)), and, in the case of an assignment agreement covering all or the
remaining portion of Bank's rights and obligations under this Agreement, Bank
shall cease to be a party hereto. In the event of an assignment hereunder, the
parties agree to amend this Agreement to the extent necessary to reflect the
mechanical changes which are necessary to document such assignment and which are
standard for a multi-bank credit facility.
12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance
of all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents except that any financing statements or other
agreements or instruments, filed by Bank with respect to the Borrower shall
remain in full force and effect.
26
12.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.8 SURVIVAL. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run,
provided that so long as the obligations set forth in the first sentence of this
Section 12.8 have been satisfied, and Bank has no commitment to make any Advance
or to make any other loans to Borrower, Bank shall release all security
interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
12.9 CONFIDENTIALITY. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and (v)
as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information
that either: (a) is in the public domain or in the knowledge or possession of
Bank when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a
third party, provided Bank does not have actual knowledge that such third party
is prohibited from disclosing such information.
12.10 EFFECT OF AMENDMENT AND RESTATEMENT. This Agreement is
intended to and does completely amend and restate, without novation, the
Original Loan Documents. All security interests granted under the Original Loan
Documents are hereby confirmed and ratified and shall continue to secure all
Obligations under this Agreement.
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CYGNUS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
----------------------------------
Title: Executive Director of Finance
-------------------------------
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Title: Vice President
-------------------------------
28
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial assets,
investment property, securities accounts, securities entitlements, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, Bank's security interest in the Intellectual
Property Collateral shall be perfected only to the extent necessary to perfect
Bank's security interest in the proceeds of the Intellectual Property
Collateral.
29
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
----------------------
FAX#: (▇▇▇) ▇▇▇-▇▇▇▇ TIME:
----------------------
--------------------------------------------------------------------------------
FROM: CYGNUS, INC.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------------
PHONE NUMBER:
------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
---------------------------------- ------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (FIRST TERM ADVANCE) $
---------------------------------
PRINCIPAL INCREASE (SECOND TERM ADVANCE) $
---------------------------------
PRINCIPAL PAYMENT (ONLY) $
---------------------------------
INTEREST PAYMENT (ONLY) $
---------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
---------------------------------
OTHER INSTRUCTIONS:
------------------------------------------------------------
-------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
--------------------------------------------------------------------------------
-
30
--------------------------------------------------------------------------------
-
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
---------------------------------- -----------------------------------
Authorized Requester Phone #
---------------------------------- -----------------------------------
Received By (Bank) Phone #
-------------------------------------
Authorized Signature (Bank)
--------------------------------------------------------------------------------
-
31
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: CYGNUS, INC.
The undersigned authorized officer of Cygnus, Inc. hereby certifies that in
accordance with the terms and conditions of the Amended and Restated Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ____________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Financial statements(1) 10-K 10-Q within 5 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Liquidity/Cash Burn Report(2) Monthly within 20 days Yes No
(1) Monthly if Liquidity below $25,000,000
(2) Only required if Liquidity below $25,000,000.
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Total Liabilities/Tangible Net Worth(3) 4 _____:1.0 Yes No
Tangible Net Worth 5 $_______ Yes No
Liquidity/Debt Service Coverage 2x Obligations _____:1.0 Yes No
or 6 RML(6)
(3) see Section 6.9 for Total Liabilities exclusions
(4) (i) through 12/31/98, 2.00 to 1.00, (ii) as of 3/31/99 through 3/31/00,
3.25 to 1.00, (iii) from and after 6/30/00, 2.00 to 1.00
(5) $18,000,000 through 12/31/98, $10,000,000 from 3/31/99 through 3/31/00,
$15,000,000 from 6/30/00
(6) converts to Debt Service Coverage of 1.5:1.0 upon two consecutive quarters
of compliance with Debt Service Coverage
32
--------------------------------
BANK USE ONLY
COMMENTS REGARDING EXCEPTIONS: See Attached. Received by:
--------------------
AUTHORIZED SIGNER
Sincerely, Date:
---------------------------
-------------------------------------------- Verified:
SIGNATURE -----------------------
AUTHORIZED SIGNER
--------------------------------------------
TITLE Date:
---------------------------
--------------------------------------------
DATE Compliance Status: Yes No
--------------------------------
33
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Cygnus, Inc. Bank: Silicon Valley Bank
--------------------------------------------------------------------------------
LOAN TYPE. This is a Variable/Fixed Rate, Term Loan Facility of a principal
amount up to $10,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
TERM LOAN
---------
Amount paid to Borrower directly: $
--------
Undisbursed Funds $
--------
Principal $
--------
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:
Prepaid Finance Charges Paid in Cash:
SILICON VALLEY BANK LOAN FEE: $38,000 plus one-half of .75% of
Advances available under the Second
Term Loan Facility
Other Charges Paid in Cash: $
--------
$ 100 UCC Search Fees
--------
$ 100 UCC Filing Fees
--------
$ TBD Patent Filing Fees
--------
$ TBD Trademark Filing Fees
--------
$ TBD Copyright Filing Fees
--------
$ TBD Outside Counsel Fees and Expenses (Estimate)
--------
Total Charges Paid in Cash $
--------
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF APRIL 30, 1998.
BORROWER:
-----------------------------
-----------------------------
Authorized Officer
--------------------------------------------------------------------------------
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Cygnus, Inc. BANK: Silicon Valley Bank
--------------------------------------------------------------------------------
INSURANCE REQUIREMENTS. Cygnus, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished without a
minimum of twenty (20) days' prior written notice to
Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of April 30, 1998, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
Amended and Restated Loan and Security Agreement. The cost of such insurance,
at the option of Bank, shall be payable on demand or shall be added to the
indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF
BANK SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED
PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE
LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 30,
1998.
GRANTOR:
CYGNUS, INC.
x
Authorized Officer
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
CORPORATE RESOLUTIONS TO BORROW
--------------------------------------------------------------------------------
BORROWER: Cygnus, Inc.
--------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Cygnus, Inc. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
-------------------------------------------------------------------
-------------------- -------------------- -----------------------
-------------------- -------------------- -----------------------
-------------------- -------------------- -----------------------
-------------------- -------------------- -----------------------
-------------------- -------------------- -----------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Amended and Restated Loan and Security Agreement dated as of April 30,
1998 (the "Loan Agreement").
EXECUTE NOTES. To execute and deliver to Bank the promissory note or notes
of the Corporation, on Lender's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
1
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on April 30, 1998, and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-----------------------------------
--------------------------------------------------------------------------------
Attachments:
1. Certificate of Incorporation
2. By-Laws
2