ARTHROCARE CORPORATION
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of June 11, 1999,
by and between SILICON VALLEY BANK ("Bank") and ARTHROCARE CORPORATION
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and
Bank desires to extend such credit to Borrower. This Agreement sets
forth the terms on which Bank will advance credit to Borrower, and
Borrower will repay that credit owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Accounts" means all presently existing and
hereafter arising accounts, contract rights, and all other forms of
obligations owing to Borrower arising out of the sale or lease of goods
(including, without limitation, the licensing of software and other
technology) or the rendering of services by Borrower, whether or not
earned by performance, and any and all credit insurance, guaranties,
and other security therefor, as well as all merchandise returned to or
reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance' or "Advances' means a cash advance under
the Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any
Person that controls or is controlled by or is under common control
with such Person, and each of such Person's senior executive officers,
directors, and partners.
"Bank Expenses"means all: reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred
in connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; reasonable Collateral audit fees;
and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal), incurred before, during and after an Insolvency
Proceeding, 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.
"Borrowing Base" means an amount equal to eighty
percent (80%) of Eligible Accounts, as determined by Bank with
reference to the most recent Borrowing Base Certificate delivered by
Borrower.
'Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the States of California or
Colorado are authorized or required to close.
"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 Revolving Line" means Seven Million
Dollars ($7,000,000).
"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.
"Credit Extension" means each Advance or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable
date, all amounts that should, in accordance with GAAP, be included as
current liabilities on the consolidated balance sheet of Borrower and
its Subsidiaries, as at such date, plus, to the extent not already
included therein, all outstanding Advances made under this Agreement,
including all Indebtedness that is payable upon demand or within one
year from the date of determination thereof unless such Indebtedness is
renewable or extendible at the option of Borrower or any Subsidiary to
a date more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
"Eligible Accounts" means those Accounts that arise
in the ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in
Section 5.4; provided, that standards of eligibility may be fixed and
revised from time to time by Bank as a consequence of any Collateral
audits done pursuant to Section 6.3 in Bank's reasonable judgment and
upon notification thereof to Borrower in accordance with the provisions
hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall
not include the following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date or account debtors who have
been granted extended payment terms unless approved by Bank on a case
by case basis;
(b) Accounts with respect to an account debtor,
fifty percent (50%) of whose Accounts the account debtor has failed to
pay within ninety (90) days of invoice date;
(c) Accounts with respect to which the account
debtor is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇
and hold, or other terms by reason of which the payment by the account
debtor may be conditional;
(e) Accounts with respect to which the account
debtor is an Affiliate of Borrower;
(f) Accounts with respect to which the account
debtor does not have its principal place of business in the United
States, except for Eligible Foreign Accounts;
(g) Accounts with respect to which the account
debtor is the United States or any department, agency, or
instrumentality of the United States;
(h) Accounts with respect to which Borrower is
liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower, but only to the extent of any amounts owing
to the account debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, to the
extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(j) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to
which Bank believes, in its sole discretion, that there may be a basis
for dispute (but only to the extent of the amount subject to such
dispute or claim), or is subject to any Insolvency Proceeding, or
becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank
reasonably determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with
respect to which the account debtor does not have its principal place
of business in the United States and that are: (1) covered by credit
insurance in form and amount, and by an insurer satisfactory to Bank
less the amount of any deductible(s) which may be or become owing
thereon; or (2) supported by one or more letters of credit in favor of
Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on
a case-by-case basis.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools,
parts and attachments in which Borrower has any interest.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in
Article 8.
"GAAP" means generally accepted accounting
principles as in effect from time to time.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with
respect to surety bonds and letters of credit, (b) all obligations
evidenced by notes, bonds, debentures or similar instruments, (c) all
capital lease obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the
United States Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" means all of Borrower's
right, title and interest in 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.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this
Agreement, any note or notes executed by Borrower, and any other
agreement entered into between Borrower and Bank in connection with
this Agreement, all as amended or extended from time to time.
"Material Adverse Effect" means a material adverse
effect on (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.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary,
notes, drafts, instruments, securities, documents of title, and chattel
paper, and Borrower's Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to
this Agreement or any other agreement, whether absolute or contingent,
due or to become due, now existing or hereafter arising, including any
interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from
Borrower to others that Bank may have obtained by assignment or
otherwise.
"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.
"Periodic Payments" means all installments or
similar recurring payments that Borrower may now or hereafter become
obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between Borrower
and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness secured by a lien described in
clause (c) of the defined term "Permitted Liens," provided such
Indebtedness does not exceed the lesser of the cost or fair market
value of the equipment financed with such Indebtedness;
(d) Subordinated Debt; and
(e) Indebtedness to trade creditors incurred in the
ordinary course of business.
"Permitted Investment" means
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
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
rating of at least A-2 or P-2 from either Standard & Poor's Corporation
or ▇▇▇▇▇'▇ Investors Service, (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank and (iv) Bank's money market accounts, and (v) investments in
accordance with the investment policy approved by Borrower's Board of
Directors and a copy of which has been provided to Bank
"Permitted Liens" means the following
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other
Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being
contested in good faith by appropriate proceedings, provided the same
have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase
price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition of such equipment, or (ii) existing on
such equipment at the time of its acquisition, provided that the Lien
is confined solely to the property so acquired and improvements
thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens
of the type described in clauses (a) through (c) above, provided that
any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of
the indebtedness being extended, renewed or refinanced does not
increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, 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.
"Quick Assets" means, at any date as of which the
amount thereof shall be determined, Borrower's unrestricted cash and
cash-equivalents; accounts receivable; and investments with maturities
not to exceed 90 days; in each case determined in accordance with GAAP.
"Responsible Officer" means each of the President,
Chief Executive Officer, the Chief Financial Officer and the Controller
of Borrower.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue Advances, as specified in
Section 2.1 hereof.
"Revolving Maturity Date" means June 10, 2000.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on
terms reasonably 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, is 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 sum of the capital stock
and additional paid-in capital plus retained earnings (or minus
accumulated deficit) of Borrower and its Subsidiaries minus intangible
assets, plus Subordinated Debt, on a consolidated basis determined in
accordance with GAAP.
"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.
"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 Borrower connected with and symbolized by such
trademarks.
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 consistently applied in the books and records of Borrower. When
used herein, the terms "financial statements" shall include the notes
and schedules thereto. This Agreement shall be construed to impart
upon Bank a duty to act reasonably at all times.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower
hereunder. Borrower shall also pay interest on the unpaid principal
amount of such Credit Extensions at rates in accordance with the terms
hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of
this Agreement, Borrower may request and Bank shall make Advances in an
aggregate outstanding amount not to exceed the lesser of (i) the
Committed Revolving Line, or (ii) the Borrowing Base. Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to
this Section 2.1.1 may be repaid and reborrowed at any time prior to
the Revolving Maturity Date, at which time all Advances under this
Section 2.1.1 shall be immediately due and payable. Borrower may
prepay any Advances without penalty or premium.
(b) Whenever Borrower desires an Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto.
Bank is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer or a designee of 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 or a designee thereof, 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 2.1.1 to Borrower's deposit account.
2.2 Overadvances. If, at any time or for any reason, the
outstanding Advances under the Revolving Facility exceed the lesser of
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in
Section 2.3(b), any Advances shall bear interest, on the average Daily
Balance, at a rate equal to one-quarter of one (0.25) percentage point
above the Prime Rate.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence and during the continuance of
an Event of Default, at a rate equal to five (5) percentage points
above the interest rate applicable immediately prior to the occurrence
of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on the tenth (10th) calendar day of each month during the term
hereof. For Obligations due and unpaid, Borrower authorizes Bank to,
at Bank's option, automatically debit Borrower's account with Bank (if
applicable) or charge such interest, all Bank Expenses, and all
Periodic Payments against any of Borrower's deposit accounts or against
the Committed Revolving Line, in which case those amounts shall
thereafter accrue interest at the rate then applicable hereunder. Any
interest not paid when due shall be compounded by becoming a part of
the Obligations, and such interest shall thereafter accrue interest at
the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest
hereunder shall be increased or decreased effective as of 12:01 a.m. on
the day the Prime Rate is changed, by an amount equal to such change in
the Prime Rate. Bank shall notify Borrower of the change in the
ordinary course of business. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or
other item of payment to such deposit account or Obligation as Borrower
specifies. After the occurrence of an Event of Default, the receipt by
Bank of any wire transfer of funds, check, or other item of payment
shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment on account unless such payment is of
immediately available federal funds or unless and until such check or
other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific 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, provided however, that no late fee shall
accrue because the relevant date is not a Business Day.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a Facility
Fee equal to Seventeen Thousand Five Hundred Dollars ($17,500) which
shall be nonrefundable;
(b) Non-Utilization Fee. On the last day of each
fiscal quarter, an amount equal to one-quarter of one percent (0.25%)
on an annualized basis, of the remainder of the Committed Revolving
Line minus the aggregate amount of Advances made by Bank to Borrower on
a daily basis during such fiscal quarter, which shall be nonrefundable;
(c) Bank Expenses. On the Closing Date, all Bank
Expenses incurred through the Closing Date, including reasonable
attorneys' fees and expenses (provided, however that Bank shall pay
fifty percent (50%) of any attorney's fees and expenses that exceed
Five Thousand Dollars ($5,000)) and, after the Closing Date, all Bank
Expenses, including reasonable attorneys' fees and expenses, as and
when they become due.
2.6 Additional Costs. In case any change in any law,
regulation, treaty or official directive or the interpretation or
application thereof by any court or any governmental authority charged
with the administration thereof or the compliance with any guideline or
request of any central bank or other governmental authority (whether or
not having the force of law), in each case after the date of this
Agreement:
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable
hereunder by Borrower or otherwise with respect to the transactions
contemplated hereby (except for taxes on the overall net income of Bank
imposed by the United States of America or any political subdivision
thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account of, or loans
by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank,
reduce the income receivable by Bank or impose any additional 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. Bank agrees that it will allocate
all such increased costs among the outstanding Advances and its
customers similarly affected in good faith and in a manner consistent
with Bank's customary practice.
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 Revolving Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate
its obligation to make Advances under this Agreement during the
continuance of an Event of Default. Notwithstanding termination,
Bank's Lien on the Collateral shall remain in effect for so long as any
Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The
obligation of Bank to make the initial Advance is subject to the
condition precedent that Bank shall have received, in form and
substance reasonably satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a financing statement (Form UCC-1);
(d) an audit of Borrower's Accounts;
(e) a Y2K survey of Borrower;
(f) an insurance certificate;
(g) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof; and
(h) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation
of Bank to make each Advance, including the initial Advance, is further
subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as
of the date of such Payment/Advance Form and on the effective date of
each Advance as though made at and as of each such date, and no Event
of Default shall have occurred and be continuing, or would result from
such Advance. The making of each Advance shall be deemed to be a
representation and warranty by Borrower on the date of such Advance as
to the accuracy of the facts referred to in this Section 3.3(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, subject to Permitted
Liens, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof, subject to Permitted Liens.
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 and without causing undue disruption to the conduct of
Borrower's business, from time to time during Borrower's usual business
hours, to inspect Borrower's Books and to make copies thereof and to
check, test, and appraise the Collateral in order to verify Borrower's
financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and
each Subsidiary is a corporation duly existing and in good standing
under the laws of its state or country 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.
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 material 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. Borrower is not in default under any agreement to which it is
a party or by which it is bound, which default could have a Material
Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except
for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts
are bona fide existing obligations. The property giving rise to such
Eligible Accounts has been delivered to the account debtor or to the
account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not received notice of
actual or imminent Insolvency Proceeding of any account debtor that is
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all
material defects, normal wear and tear excepted.
5.6 Intellectual Property. Borrower is the sole owner of
the Intellectual Property, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business, and as
provided in the Schedule. Each of the Patents is valid and
enforceable, and no part of the Intellectual Property has been judged
invalid or unenforceable, in whole or in part, and no claim has been
made that any part of the Intellectual Property violates the rights of
any third party.
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.
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. Borrower is solvent and is able to pay its
debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary
have 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 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. Borrower
has not violated any statutes, laws, ordinances or rules applicable to
it, the violation of which could have a Material Adverse Effect.
5.12 Environmental Condition. Except as disclosed in the
Schedule, 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.
5.14 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except
for Permitted Investments and has no Subsidiaries other than as
disclosed in the Schedule.
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 to the extent
that any failure to do so would not have a Material Adverse Effect;
provided that neither Borrower nor any subsidiary makes any
representation or warranty as to the likelihood or ability of Borrower
obtaining any consent, approval or authorization from the United States
Food and Drug Administration.
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 in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and
shall cause each Subsidiary to meet, the minimum funding requirements
of ERISA with respect to any employee benefit plans subject to ERISA.
Borrower shall comply, and shall cause each Subsidiary to comply, with
all statutes, laws, ordinances and government rules and regulations to
which it is subject, noncompliance with which could have a Material
Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available, but in any
event within thirty (30) days after the end of each calendar month, a
company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a
form acceptable to Bank and certified by a Responsible Officer; (b) 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; (c) 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, within five days of filing; (d) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000)
or more; (e) prompt notice of any material change in the composition of
the Intellectual Property, including, but not limited to, any
subsequent ownership right of the Borrower in or to any Copyright,
Patent or Trademark or knowledge of an event that materially adversely
effects the value of the Intellectual Property; and (f) such budgets,
sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Within thirty (30) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto,
together with aged listings by invoice date of accounts receivable and
accounts payable.
Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts and appraise Collateral and to incur reasonable
audit and appraisal fees to be paid for by Borrower in connection
therewith, provided that such audits will be conducted no more often
than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all
Inventory in good and marketable condition, free from all material
defects, subject to normal wear and tear. 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 One Hundred Thousand Dollars
($100,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material
federal, state, and local taxes, assessments, or contributions required
of it by law, and will execute and deliver to Bank, on demand,
appropriate certificates attesting to the payment or deposit thereof;
and Borrower will make, and will cause each Subsidiary to make, timely
payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Bank with
proof satisfactory to Bank indicating that Borrower or a Subsidiary has
made such payments or deposits; provided that Borrower or a Subsidiary
need not make any payment if the amount or validity of such payment is
contested in good faith by appropriate proceedings and is reserved
against (to the extent required by GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion or
sprinklers, using a standard commercial all-risk form that excludes
from coverage damage from earthquakes and floods 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, including, but
not limited to, products liability insurance.
(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 reasonably
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. After the occurrence of an Event of
Default, all proceeds payable under any such policy shall, at the
option of Bank, be payable to Bank to be applied on account of the
Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last
day of each calendar month, a ratio of Quick Assets to Current
Liabilities of at least 1.00 to 1.00.
6.9 Tangible Net Worth. Borrower shall maintain, as of
the last day of each fiscal quarter, a Tangible Net Worth of not less
than Twenty Million Dollars ($20,000,000).
6.10 Profitability. Borrower shall not suffer losses in
excess of Five Hundred Thousand Dollars ($500,000) for the fiscal
quarter ending July 3, 1999. Thereafter, Borrower shall achieve, as of
the last day of each fiscal quarter, profitability of at least One
Dollar ($1.00). Borrower shall achieve annual profitability of at
least One Dollar ($1.00).
6.11 Total Liabilities-Tangible Net Worth. Borrower shall
maintain, as of the last day of each fiscal quarter, a ratio of Total
Liabilities to Tangible Net Worth of not more than 0.75 to 1.00.
6.12 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 any Advances, Borrower will not do any of the following:
(a) 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, including the Intellectual Property, other than:
(i) Transfers of Inventory in the ordinary course of business;
(ii) Transfers of non-exclusive licenses for the use of the property of
Borrower or its Subsidiaries; (iii) Transfers of exclusive licenses for
(a) the use of property of Borrower or its Subsidiaries related to
applications of Borrower's Intellectual Property outside the scope of
arthroscopic applications, and (b) the distribution rights for any
applications of Borrower's Intellectual Property outside of the United
States; or (iv) Transfers of worn-out or obsolete equipment (in which
case Bank will, upon Borrower's request, execute a partial release of
lien with respect thereto).
7.2 Change in Business. Engage in any business, or
permit any of its Subsidiaries to engage in any business, other than
the businesses currently engaged in by Borrower and any business
substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership in any single or
related series of transactions of more than 25%. Borrower will not,
without thirty (30) days prior written notification to Bank, relocate
its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into
any other business organization, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock
or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to
do, other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or
otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for
Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or
purchase of any capital stock, except Borrower may at any time when an
Event of Default is not continuing (or would not exist after giving
effect thereto), repurchase from an officer, director or employee
shares of equity securities of Borrower held by them upon such Person's
termination of employment or rendering of service to Borrower or
pursuant to agreements to which Borrower may be a party.
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.
7.9 Intellectual Property Agreements. Enter into any
agreement with a third party which allows for the creation of a
security interest in Borrower's rights and interests in any
intellectual property or the proceeds for the benefit of a third party.
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 or on the Schedule, 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" or be
controlled by an "investment company," within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use
the proceeds of any Advance for such purpose. Fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply in a
material respect with the Federal Fair Labor Standards Act or violate
any law or regulation, which violation could have a Material Adverse
Effect or a material adverse effect on the Collateral or the priority
of Bank's Lien on the Collateral, or permit any of its Subsidiaries to
do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay when due,
any of the Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Article 6 or violates any of the covenants contained
in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or
in any other present or future agreement between Borrower and Bank and
as to any default under such other term, provision, condition, covenant
or agreement that can be cured, has failed to cure such default within
ten (10) days after Borrower receives notice thereof or any officer of
Borrower becomes aware thereof; provided, however, that if the default
cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default (provided
that no Advances will be required to be made during such cure period);
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 twenty (20) days, or if Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material
portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets
by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or
governmental agency, and the same is not paid within twenty (20) days
after Borrower receives notice thereof, provided that none of the
foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good
faith contest by Borrower (provided that no Advances will be required
to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency
Proceeding is commenced against Borrower and is not dismissed or stayed
within thirty (30) days (provided that no Advances will be made prior
to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount
in excess of One Hundred Thousand Dollars ($100,000) or that could
reasonably be expected to have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is
allowed under any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate, of (i)
more than One Million Dollars ($1,000,000) whether or not covered by
Borrower's insurance company, or (ii) less than One Million Dollars
($1,000,000) but not covered or contested by Borrower's insurance
company, shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of twenty (20) days (provided
that no Advances will be made prior to the satisfaction or stay of such
judgment). Notwithstanding the foregoing, it shall not be an Event of
Default under this Section 8.8 if Borrower suffers one (but no more
than one) adverse judgment in a products liability action provided
Borrower's insurance company confirms that all damages arising out of
such judgment will be promptly paid without contest by such insurance
company; or
8.9 Misrepresentations. If any material written
misrepresentation or material written 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.
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) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in
the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or lien which in Bank's
determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect
to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the
same, without charge, in order to exercise any of Bank's rights or
remedies provided herein, at law, in equity, or otherwise;
(e) 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 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; (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 dispose of
the Collateral; (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 Intellectual Property 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. Upon the occurrence and during
the continuance of an Event of Default, Bank may notify any Person
owing funds to Borrower of Bank's security interest in such funds and
verify the amount of such Account. Borrower shall collect all amounts
owing to Borrower for Bank, receive in trust all payments as Bank's
trustee, and immediately deliver such payments to Bank in their
original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or
entities, as required under the terms of this Agreement, then Bank may
do any or all of the following: (a) make payment of the same or any
part thereof; (b) set up such reserves under the Revolving Facility as
Bank deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type
discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank reasonably 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 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 reasonable banking practices, Bank shall not in any way
or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies
under this Agreement, the Loan Documents, and all other agreements
shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity.
No exercise by Bank of one right or remedy shall be deemed an election,
and no waiver by Bank of any Event of Default on Borrower's part shall
be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on
which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in writing and (except for
financial statements and other informational documents which may be
sent by first-class mail, postage prepaid) shall be personally
delivered or sent by a recognized overnight delivery service, certified
mail, postage prepaid, return receipt requested, or by telefacsimile to
Borrower or to Bank, as the case may be, at its addresses set forth
below:
If to Borrower:
ARTHROCARE CORPORATION
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank:
Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice delivered or sent to Borrower shall be effective
notwithstanding a failure to deliver or send a copy of such notice to
Borrower's counsel or any other person. 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
The Loan Documents 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. 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
participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder to any commercial lender or
financial institution.
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 the Loan Documents; 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 the Loan Documents, or otherwise
(including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this
Agreement for the purpose of determining the legal enforceability of
any specific provision.
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements,
understandings, representations, warranties, and negotiations between
the parties hereto with respect to the subject matter of this
Agreement, if any, are merged into this Agreement and the Loan
Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and
effect so long as any Obligations remain outstanding. The obligations
of Borrower to indemnify Bank with respect to the expenses, damages,
losses, costs and 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
ARTHROCARE CORPORATION
By:
Title:
SILICON VALLEY BANK
By:
Title:
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, leases,
license agreements, franchise agreements, blueprints, drawings,
purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and
rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods, the
licensing of technology or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to
any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters
of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the
foregoing; and
(f) Any and all claims, rights and interests in any of the
above and all substitutions for, additions and accessions to and
proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any 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; any patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part
of the same, trademarks, servicemarks and applications therefor,
whether registered or not, and the goodwill of the business of Borrower
connected with and symbolized by such trademarks, any trade secret
rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; or any claims for damages
by way of any past, present and future infringement of any of the
foregoing (collectively, the "Intellectual Property"), except that the
Collateral shall include the proceeds of all the Intellectual Property
that are accounts, i.e. accounts receivable, of Borrower; and, to the
extent that the Company is in default of this Agreement, if a judicial
authority (including a U.S. Bankruptcy Court) holds that a security
interest in the underlying Intellectual Property is necessary to have a
security interest in such accounts of Borrower that are proceeds of the
Intellectual Property, then the Collateral shall include the
Intellectual Property solely to the extent necessary to permit
perfection of Bank's security interest in such accounts of Borrower
that are proceeds of the Intellectual Property.
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:
CLIENT NAME (BORROWER)
REQUESTED BY:
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # TO ACCOUNT #
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects
as of the date of the telephone request for and Advance confirmed by this
Borrowing Certificate; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer
/loan advance on the advance designated account and is known to me.
Authorized Requester
Received By (Bank)
Authorized Signature (Bank)
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: ARTHROCARE CORPORATION Lender: SILICON VALLEY BANK
Commitment Amount: $7,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $
2. Additions (please explain on reverse) $
3. TOTAL ACCOUNTS RECEIVABLE $
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due
5. Balance of 50% over 90 day accounts
6. Concentration Limits
(account balances>25% of Total Accounts Receivable) $
7. Foreign Accounts
8. Governmental Accounts
9. Contra Accounts
10. Demo Accounts
11. Intercompany/Employee Accounts
12. Other (please explain on reverse)
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
14. Eligible Accounts (#3 minus #13) $
15. LOAN VALUE OF ACCOUNTS (80% of #14) $
BALANCES
16. Maximum Loan Amount $7,000,000
17. Total Funds Available [Lesser of #15 or #16] $
18. Present balance owing on Line of Credit $
19. Outstanding under Sublimits (if any) $
20. RESERVE POSITION (#17 minus #18 and #19) $
The undersigned represents and warrants that the foregoing is true,
complete and correct, and that the information reflected in this
Borrowing Base Certificate complies with the representations and
warranties set forth in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
ARTHROCARE CORPORATION
By:
Authorized Signer
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: ARTHROCARE CORPORATION
The undersigned authorized officer of ARTHROCARE CORPORATION
hereby certifies that in accordance with the terms and conditions of
the Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period
ending _______________ with all required covenants except as noted
below and (ii) all representations and warranties of Borrower stated in
the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are
prepared in accordance with Generally Accepted Accounting Principles
(GAAP) and are consistently applied from one period to the next except
as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
Monthly financial statements and Compliance Monthly
within 30 days Yes No
Certificate
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 30 days Yes No
A/R Audit Semi-Annually Yes No
10Q & 10K Within 5 days after filing Yes No
Financial Covenant Required Actual Complies
Quarterly unless stated otherwise:
Minimum Quick Ratio (monthly) 1.00:1.00 _____:1.0 Yes No
Tangible Net Worth $20,000,000 $_____ Yes No
Profitability $1.00 $_____: Yes No
Maximum Debt-TNW 0.75:1.00 _____:1.0 Yes No
BANK USE ONLY
Received by:
AUTHORIZED SIGNER
Date:
Verified:
AUTHORIZED SIGNER
Date:
Compliance Status: Yes No
Comments Regarding Exceptions: See Attached.
Sincerely,
SIGNATURE
TITLE
DAT
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: ARTHROCARE CORPORATION
Bank: Silicon Valley Bank
LOAN TYPE. This is a Variable Rate revolving line of credit up to
$7,000,000.
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:
Revolver
Amount paid to Borrower directly:
$
Undisbursed Funds
$
Principal
$7,000,000
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed
the following charges:
Charges Paid in Cash:
$17,500 Loan Fee
$TBD Outside Counsel Fees and Expenses
Total Charges Paid in Cash:
$___________
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to
deduct from Borrower's account numbered _____________ the amount of any
loan payment. If the funds in the account are insufficient to cover
any payment, Bank shall not be obligated to advance funds to cover the
payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER
REPRESENTS AND WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS
TRUE AND CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN
Borrower's FINANCIAL CONDITION AS DISCLOSED IN Borrower's MOST RECENT
FINANCIAL STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF JUNE
11, 1999.
BORROWER:
ARTHROCARE CORPORATION
Authorized Officer
AGREEMENT TO PROVIDE INSURANCE
Grantor: ARTHROCARE CORPORATION Bank: Silicon Valley
Bank
INSURANCE REQUIREMENTS. ARTHROCARE CORPORATION ("Grantor")
understands that insurance coverage is required in connection with the
extending of a loan or the providing of other financial accommodations
to Grantor by Bank. These requirements are set forth in the Loan
Documents. The following minimum insurance coverages must be provided
on the following described collateral (the "Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with
stipulation that coverage will not be cancelled
or diminished without a minimum of twenty (20)
days' prior written notice to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any
insurance company Grantor may choose that is reasonably acceptable to
Bank. Grantor understands that credit may not be denied solely because
insurance was not purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank,
on or before closing, evidence of the required insurance as provided
above, with an effective date of June 11, 1999, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required
insurance or fails to continue such insurance in force, Bank may do so
at Grantor's expense as provided in the Loan and Security Agreement.
The cost of such insurance, at the option of Bank, shall be payable on
demand or shall be added to the indebtedness as provided in the
security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY
SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST
PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR
PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF
ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the
Collateral, Grantor authorizes Bank to provide to any person (including
any insurance agent or company) all information Bank deems appropriate,
whether regarding the Collateral, the loan or other financial
accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT
IS DATED JUNE 11, 1999.
GRANTOR:
ARTHROCARE CORPORATION
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: ARTHROCARE CORPORATION
I, the undersigned Secretary or Assistant Secretary of ARTHROCARE
CORPORATION (the "Corporation"), HEREBY CERTIFY that the Corporation
is organized and existing under and by virtue of the laws of the State
of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are
true and complete copies of the Certificate of Incorporation and Bylaws
of the Corporation, each of which is in full force and effect on the
date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation, duly called and held, at which a quorum was present and
voting (or by other duly authorized corporate action in lieu of a
meeting), the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are
shown below:
NAMES
POSITIONS
ACTUAL SIGNATURES
acting for an on behalf of this Corporation and as its act and deed be,
and they hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from Silicon Valley
Bank ("Bank"), on such terms as may be agreed upon between the
officers, employees, or agents and Bank, such sum or sums of money as
in their judgment should be borrowed, without limitation, including
such sums as are specified in that certain Loan and Security Agreement
dated as of June 11, 1999, as amended from time to time (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.
Letters of Credit; Foreign Exchange. To execute letters of
credit applications, foreign exchange agreements and other related
documents pertaining to Bank's issuance of letters of credit and
foreign exchange contracts.
Cash Management Services. To enter into that certain Cash
Management Services Agreement by and between Borrower and Bank
authorizing Bank to perform Cash Management Services as defined
therein.
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
_______________, 19___ and attest that the signatures set opposite the
names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
Debtor: ARTHROCARE CORPORATION
Secured Party: Silicon Valley Bank
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of June 11, 1999, by
and between ARTHROCARE CORPORATION ("Borrower") and SILICON VALLEY
BANK ("Bank").
In connection with the Loan Documents being concurrently executed
between Borrower and Bank, Borrower agrees as follows:
1. Except as permitted in the Loan Documents and subject to
Permitted Liens, Borrower shall not sell, transfer, assign, mortgage,
pledge, lease, grant a security interest in, or encumber any of
Borrower's intellectual property, including, without limitation, the
following:
a. Any and all copyright rights, copyright applications,
copyright registrations and like protection 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 (collectively, the
"Copyrights");
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. All patents, patent applications and like
protections, including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part
of the same, including, without limitation, the patents and patent
applications (collectively, the "Patents");
e. 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
Borrower connected with and symbolized by such trademarks
(collectively, the "Trademarks");
f. Any and all claims for damages by way of past,
present and future infringements 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;
g. 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;
h. All amendments, extensions, renewals and extensions
of any of the Copyrights, Patents or Trademarks; and
i. 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.
2. It shall be an Event of Default under the Loan Documents
between Borrower and Bank if there is a breach of any term of this
Negative Pledge Agreement.
3. Capitalized items used herein without definition shall have
the same meanings as set forth in the Loan and Security Agreement of
even date herewith.
ARTHROCARE CORPORATION
By:
Title:
SILICON VALLEY BANK
By:
Title: