HEARTPORT, INC.
LOAN AND SECURITY AGREEMENT
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND CONSTRUCTION............................................ 1
1.1 Definitions........................................................ 1
1.2 Accounting Terms................................................... 7
2. LOAN AND TERMS OF PAYMENT............................................... 7
2.1 Term Facility...................................................... 7
2.2 Interest Rate Protection........................................... 8
2.3 Interest Rates, Payments, and Calculations......................... 8
2.4 Crediting Payments................................................. 9
2.5 Fees............................................................... 9
2.6 Additional Costs................................................... 9
2.7 Term............................................................... 10
3. CONDITIONS OF LOANS..................................................... 10
3.1 Conditions Precedent to Initial Advance............................ 10
3.2 Conditions Precedent to all Advances............................... 10
4. CREATION OF SECURITY INTEREST........................................... 11
4.1 Grant of Security Interest......................................... 11
4.2 Delivery of Additional Documentation Required...................... 11
4.3 Right to Inspect................................................... 11
5. REPRESENTATIONS AND WARRANTIES.......................................... 12
5.1 Due Organization and Qualification................................. 12
5.2 Due Authorization; No Conflict..................................... 12
5.3 No Prior Encumbrances.............................................. 12
5.4 Name; Location of Chief Executive Office........................... 12
5.5 Litigation......................................................... 12
5.6 No Material Adverse Change in Financial Statements................. 12
5.7 Solvency........................................................... 12
5.8 Regulatory Compliance.............................................. 12
5.9 Environmental Condition............................................ 13
5.10 Taxes.............................................................. 13
5.11 Subsidiaries....................................................... 13
5.12 Government Consents................................................ 13
5.13 Full Disclosure.................................................... 13
6. AFFIRMATIVE COVENANTS................................................... 13
6.1 Good Standing...................................................... 13
6.2 Government Compliance.............................................. 13
6.3 Financial Statements, Reports, Certificates........................ 14
6.4 Taxes.............................................................. 14
6.5 Insurance.......................................................... 14
6.6 Principal Depository............................................... 15
6.7 Debt-Net Worth Ratio............................................... 15
6.8 Tangible Net Worth................................................. 15
6.9 Minimum Liquidity and Debt Service Coverage........................ 15
6.10 Co-Borrowers; Further Assurances................................... 15
i
7. NEGATIVE COVENANTS...................................................... 15
7.1 Dispositions....................................................... 15
7.2 Change in Business................................................. 16
7.3 Mergers or Acquisitions............................................ 16
7.4 Indebtedness....................................................... 16
7.5 Encumbrances....................................................... 16
7.6 Distributions...................................................... 16
7.7 Investments........................................................ 16
7.8 Transactions with Affiliates....................................... 16
7.9 Subordinated Debt.................................................. 16
7.10 Compliance......................................................... 16
8. EVENTS OF DEFAULT....................................................... 17
8.1 Payment Default.................................................... 17
8.2 Covenant Default................................................... 17
8.3 Material Adverse Change............................................ 17
8.4 Attachment......................................................... 17
8.5 Insolvency......................................................... 17
8.6 Other Agreements................................................... 17
8.7 Subordinated Debt.................................................. 18
8.8 Judgments.......................................................... 18
8.9 Misrepresentations................................................. 18
9. BANK'S RIGHTS AND REMEDIES.............................................. 18
9.1 Rights and Remedies................................................ 18
9.2 Power of Attorney.................................................. 19
9.3 Accounts Collection................................................ 19
9.4 Bank Expenses...................................................... 19
9.5 Bank's Liability for Collateral.................................... 19
9.6 Remedies Cumulative................................................ 20
9.7 Demand; Protest.................................................... 20
10. NOTICES................................................................. 20
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.............................. 20
12. GENERAL PROVISIONS...................................................... 21
12.1 Successors and Assigns............................................. 21
12.2 Indemnification.................................................... 21
12.3 Time of Essence.................................................... 21
12.4 Severability of Provisions......................................... 21
12.5 Amendments in Writing, Integration................................. 21
12.6 Counterparts....................................................... 21
12.7 Survival........................................................... 21
12.8 Confidentiality.................................................... 21
ii
This LOAN AND SECURITY AGREEMENT is entered into as of December 31, 1996,
by and between SILICON VALLEY BANK ("Bank") and HEARTPORT, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means an Advance under the Term 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 (including fees and expenses
of appeal), 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.
"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 Line" means Fifteen Million Dollars ($15,000,000).
1
"Commitment Termination Date" means March 31, 1998.
"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 net
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.
"Daily Balance" means the principal 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, 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 to (b) an amount equal to the sum of all scheduled
repayments for such quarter and mandatory prepayments of principal on account of
long-term Debt.
"Effective Date" means the date on which Liquidity is less than
either (i) two and one-half (2.5) times the outstanding principal balance
hereunder or (ii) nine (9) times the Remaining Months Liquidity.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or
2
informal moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition 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.
"LIBOR Supplement" means the LIBOR Supplement to Agreement by and
between Bank and Borrower of even date herewith.
"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 the date immediately preceding four (4)
years from the anniversary of the Commitment Termination Date.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Net Cash Losses" means, with respect to any period of
determination, determined on a consolidated basis in accordance with GAAP for
such period for Borrower and its consolidated Subsidiaries, the sum of (i) net
income (loss), PLUS (ii) non-cash expenses, depreciation and amortization, MINUS
(iii) increases in gross fixed assets, PLUS (iv) increases (decreases) in long
term debt or capital leases excluding changes in deferred revenue.
3
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness of any Subsidiary to Borrower and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby); provided that the
incurrence of such Indebtedness or Contingent Obligations, as the case may be,
does not result in a violation of Section 7.7 as a consequence of the provisos
set forth in paragraph (d) of the definition of "Permitted Investments;"
(g) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of Borrower with respect to obligations of any Subsidiary (provided
that the primary obligations are not prohibited hereby), and 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);
(h) Indebtedness in connection with capital leases:
(i) Extensions, renewals and refinancings of the Indebtedness of
the Borrower or any of its Subsidiaries of the type referred to in clause (b) or
(h) above, PROVIDED that the principal amount of such Indebtedness being
extended, renewed or refinanced does not increase; and
(j) Indebtedness consisting of guarantees resulting from
endorsement of negotiable instruments for collection by the Borrower or any such
Subsidiary in the ordinary course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
4
(b) any investments selected by the Borrower in accordance with
its Investment Policy as adopted by the Borrower on December 19, 1996 (as the
same may be amended from time to time with the approval of the Bank); and
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(d) Investments (whether consisting of the purchase of
securities, loans, capital contributions or otherwise) of Borrower in or to
Subsidiaries and Investments by Borrower in or to companies which
simultaneously with such Investments become Subsidiaries, provided that the
sum of (i) all such Investments by Borrower in or to Subsidiaries, plus (ii)
Contingent Obligations by Borrower outstanding at any time with respect to
the obligations of Subsidiaries, minus the sum of (x) Investments by
Subsidiaries in or to Borrower, plus (y) payments to Borrower on account of
Investments of Borrower in or to Subsidiaries, plus (z) distributions or
dividends by Subsidiaries to Borrower, in each case, made, incurred or
arising on or after the date hereof, does not exceed Five Million Dollars
($5,000,000) outstanding at any time, provided an Event of Default does not
exist immediately before or would not exist after giving effect to such
Investments;
(e) Investments (whether consisting of the purchase of
securities, loans, capital contributions, or otherwise) of Subsidiaries in or to
other Subsidiaries or in Borrower;
(f) Investments consisting of receivables owing to Borrower or
its Subsidiaries by Persons and advances to customers or suppliers, in each
case, if created, acquired or made in the ordinary course of business; provided
that this paragraph (f) shall not apply to Investments owing by Subsidiaries to
Borrower;
(g) 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; (iii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower
or its Subsidiaries;
(h) Investments pursuant to or arising under currency agreements
or interest rate agreements entered into in the ordinary course of business for
bona fide hedging purposes and not for speculation;
(i) Investments permitted under Section 7.3;
(j) Investments consisting of deposit accounts of Borrower in
which Bank has a Lien prior to any other Lien;
(k) Investments consisting of deposit accounts of any
Subsidiaries maintained in the ordinary course of business;
(l) Investments accepted in connection with Transfers permitted
by Section 7.1; and
(m) Investments in an amount not to exceed an aggregate of
Twenty Million Dollars ($20,000,000) in Heartport Research and Training Center
Inc., provided an Event of Default does not exist immediately before or would
exist after giving effect to such Investments.
"Permitted Liens" means the following:
5
(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 or real property 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;
(e) Liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(f) Liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods;
(g) Liens which constitute rights of set-off of a customary
nature or banker's liens on amounts on deposit, whether arising by contract or
by operation of law, in connection with arrangements entered into with
depository institutions in the ordinary course of business; and
(h) Any judgment, attachment or similar lien in connection with
any event or circumstance described in Section 8.4 that is not an Event of
Default hereunder.
"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 any time of determination,
the ratio of (i) Unrestricted Cash Reserves at such time to (ii) the average of
Net Cash Losses for the immediately preceding six (6) months.
"Responsible Officer" means each of the Chief Executive Officer,
Executive Vice President of Operations, the Chief Financial Officer, the Vice
President of Finance and Controller and the Treasurer of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
6
"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.
"Term Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"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.
"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.
2. LOAN AND TERMS OF PAYMENT
2.1 TERM FACILITY.
(a) ADVANCES. Subject to and upon the terms and conditions of
this Agreement, Bank agrees at any time from the date hereof through the
Commitment Termination Date to make Advances to Borrower in an aggregate
principal amount of up to the Committed Loan Amount. Each Advance shall be in
an amount of no less than Five Hundred Thousand Dollars ($500,000). Amounts
borrowed pursuant to this Section 2.1 may not be reborrowed once repaid.
(b) PROCEDURES. When Borrower desires to obtain an Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission received no later than 3:00 p.m. California time on the Business
Day on which the Advance is requested to be made or, in the case of a LIBOR Rate
Advance, no later than 11:00 a.m. California time three (3) Business Days before
the day on which the Advance is requested to be made. Such notice shall be in
substantially the form of EXHIBIT B hereto or a LIBOR Rate Advance Form as
attached to the LIBOR Supplement. 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
7
meet Obligations which have become due and remain unpaid. The written notice
shall be signed by a Responsible Officer. 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 loss suffered by Bank as a result of such reliance. Bank will credit the
amount of Advances made under this Section 2.1 to Borrower's deposit account.
(c) PAYMENTS/MATURITY. Interest shall accrue from the date of
each Advance at the rate specified in Section 2.3(b), and shall be payable
monthly on the thirtieth calendar day of the month (except for the month of
February for which payment shall be due on the twenty-eight calendar day of the
month) for each month through the month in which the Commitment Termination Date
falls. All Advances that are outstanding on the Commitment Termination Date
shall be payable in forty-eight (48) equal monthly installments of principal,
plus accrued interest, beginning on April 30, 1998. All amounts outstanding
under the Term Facility and all amounts due under this Agreement shall be paid
in full on the Maturity Date.
2.2 INTEREST RATE PROTECTION. Subject to the terms and condition of
this Agreement, Borrower may prepay outstanding 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(b), 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(b) is lower than the then
current fixed rate for the Term Facility.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) LIBOR OPTION. Borrower shall be entitled to request
Advances in accordance with the LIBOR Supplement, which shall govern all LIBOR
Rate Advances, as defined therein.
(b) INTEREST RATE. Except as set forth in Section 2.3(c) and
subject to the following sentence, all outstanding Advances shall bear interest,
on the average Daily Balance thereof, at a rate equal to either (i) the Prime
Rate or (ii) the rate specified in the LIBOR Supplement. Except as set forth in
Section 2.3(c), Borrower shall have a one-time option, exercisable by written
notice to Bank on the Commitment Termination Date, to elect that all outstanding
Advances shall bear interest at a rate equal to two (2) percentage points above
the forty-eight (48) month Treasury Note Yield to maturity for four (4) year
treasury bills, as such rate is quoted by Bank. Such fixed rate option, once
elected, shall continue for the term of the Term Facility.
(c) DEFAULT RATE. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to four
(4) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(d) PAYMENTS. Interest hereunder shall be due and payable
on the thirtieth calendar day of each month (except for the month of February
for which payment shall be due on the twenty-eight calendar day) during the term
hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and
all Periodic Payments against any of Borrower's deposit accounts or against the
Committed Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(e) 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
8
Rate. All interest chargeable under the Loan Documents shall be computed on
the basis of a three hundred sixty (360) day year for the actual number of
days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence and 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
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 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. Facility fees equal to (i) Thirty Seven
Thousand Five Hundred Dollars ($37,500), which fee shall be due on the Closing
Date and shall be fully earned and nonrefundable and (ii) one quarter of one
percent (.25%) of the unused portion of the Committed Loan Amount per year
payable quarterly for each quarter until the Commitment Termination Date, which
fee, when paid, 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;
(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.
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,
9
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 TERM. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect
for a term ending on the Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Advances under this
Agreement immediately upon the occurrence and during the continuance of an
Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank
to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) negative pledge agreement in substantially the form of
EXHIBIT D hereto;
(d) the LIBOR Supplement;
(e) financing statements (Forms UCC-1);
(f) 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 or
LIBOR Rate 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 or LIBOR Rate 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 3.2(b).
10
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
(a) 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.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the grant of security interest contained herein shall not be effective
or otherwise deemed given until the Effective Date, at which date the terms of
this Sections 4.1 and 4.2 shall become immediately effective without notice or
action by Bank. Bank may file the financing statement referred to in Section
3.1(e) with the California Secretary of State on or after, but not before, the
Effective Date.
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) If Borrower does not comply with Section 6.9 herein (except
for the Debt Service Coverage covenant contained therein), then Borrower shall
pledge cash or a certificate of deposit to the Bank in an amount equal to eighty
percent (80%) of the outstanding loan balance hereunder. Bank agrees to release
the cash pledged pursuant to this Section 4.4(a) upon Borrower achieving
compliance with such Section 6.9. Notwithstanding anything to the contrary in
this Agreement, failure to comply with Section 6.9 shall not be a default or an
Event of Default so long as the Borrower complies with this Section 4.4 on the
next Business Day after the Borrower's becoming aware of the noncompliance with
Section 6.9.
(b) If at any time the Liquidity of Borrower is less than (i)
one and one-half (11/2) times the outstanding loan balance hereunder, or (ii)
four (4) times Remaining Months Liquidity, then Borrower shall pledge cash or a
certificate of deposit to the Bank in an amount equal to one hundred and five
percent (105%) of the outstanding loan balance. Bank agrees, subject to Section
4.4(a), to release the cash collateral pledged pursuant to this Section 4.4(b)
(or portion thereof in accordance with Section 4.4(a)) upon Borrower achieving
Liquidity greater than (i) one and one-half (11/2) times the outstanding loan
balance hereunder or (ii) four (4) times Remaining Months Liquidity.
11
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. 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 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.
5.5 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.
5.6 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.
5.7 SOLVENCY. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.8 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 which or violation of
which could have a Material Adverse Effect.
12
5.9 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.
5.10 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.
5.11 SUBSIDIARIES. As of the date hereof, Borrower does not own any
stock, partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.12 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 failure to do so would not have a Material Adverse
Effect on the Borrower.
5.13 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
13
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower shall deliver to Bank: (a) 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; (b) 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; (c) 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 Five Hundred Thousand Dollars ($500,000) or more; and (d) such
financial information as Bank may reasonably request from time to time.
(b) If at any time and during such time that Borrower's
Liquidity is less than (i) three (3) times the outstanding Obligations hereunder
or (ii) twelve (12) times Remaining Months Liquidity, Borrower shall deliver to
Bank a company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations for the relevant month, certified by a
Responsible Officer within thirty (30) days after the last day of each calendar
month.
(c) Borrower shall deliver to Bank with each of the quarterly or
monthly financial statement required above a Compliance Certificate signed by a
Responsible Officer in substantially the form of EXHIBIT C hereto.
6.4 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.
6.5 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank.
After the Effective Date only, 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. After the Effective Date only, 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 Effective Date
only, all
14
proceeds payable under any such policy shall, at the option of Bank, be
payable to Bank to be applied on account of the Obligations.
6.6 PRINCIPAL DEPOSITORY. Borrower shall either (i) maintain its
principal domestic depository and operating accounts with Bank or (ii) shall
maintain a minimum balance of no less than Four Million Dollars ($4,000,000) in
a deposit account with Bank.
6.7 DEBT-NET WORTH RATIO. Subject to the following sentence,
Borrower shall maintain, as of the last day of each of Borrower's fiscal
quarters, a ratio of Total Liabilities less Subordinated Debt to Tangible Net
Worth plus Subordinated Debt of not more than .75 to 1.00. At any time
Borrower is subject to the monthly reporting requirements of Section 6.3(b),
Borrower shall maintain, as of the last day of each calendar month, a ratio
of Total Liabilities less Subordinated Debt to Tangible Net Worth plus
Subordinated Debt of not more than .75 to 1.00.
6.8 TANGIBLE NET WORTH. Subject to the following sentence, Borrower
shall maintain, as of the last day of each of Borrower's fiscal quarters, a
Tangible Net Worth of not less than Thirty Million Dollars ($30,000,000). At
any time Borrower is subject to the monthly reporting requirements of Section
6.3(b), Borrower shall maintain, as of the last day of each calendar month, a
Tangible Net Worth of not less than Thirty Million Dollars ($30,000,000).
6.9 MINIMUM LIQUIDITY AND DEBT SERVICE COVERAGE. Subject to the
remainder of this Section, Borrower shall maintain, as of the last day of each
of Borrower's fiscal quarters, a minimum Liquidity of the greater of (a) two (2)
times the amount of outstanding obligations hereunder OR (b) six (6) times
Remaining Months Liquidity. Subject to the remainder of this Section, at any
time Borrower is subject to the monthly reporting requirements of Section
6.3(b), Borrower shall maintain, as of the last day of each calendar month, a
minimum Liquidity of the greater of (a) two (2) times the amount of outstanding
obligations hereunder OR (b) six (6) times Remaining Months Liquidity.
Notwithstanding the foregoing, from and after the time Borrower achieves a Debt
Service Coverage for four (4) 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.
6.10 CO-BORROWERS; FURTHER ASSURANCES. At any time and from time to
time, Borrower shall, at Bank's request in Bank's sole discretion, cause any
Subsidiary to become party to this Agreement as a co-borrower and to grant a
security interest in its assets to secure the Obligations, all on terms
acceptable to Bank. 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:
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 and other assets 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 (iv) as disclosed in writing to Bank prior to date hereof.
15
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.
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
except (i) if Borrower is the surviving entity of any such merger or
consolidation (except for the merger or consolidation of one Subsidiary into
another Subsidiary) and (ii) no Event of Default has occurred and is
continuing or would result from such action.
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 (i) repurchases from current or former employees, directors or
consultants of the Borrower under the terms of any stock option or stock
purchase plans or agreements up to a maximum of $500,000 in any one fiscal year
(provided an Event of Default has not occurred and is continuing at the time of
such repurchase or would exist after giving effect to such repurchase), and
(ii) dividends payable solely in common stock.
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 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 COMPLIANCE. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.
16
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal of, or
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation
under Sections 4.4, 6.7, 6.8 or 6.9 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 twenty (20) 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
twenty (20) day period or cannot after diligent attempts by Borrower be cured
within such twenty (20) 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 consolidated 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 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 twenty (20) 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 Five Hundred Thousand
Dollars ($500,000) or that could have a Material Adverse Effect;
17
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,
the uninsured amount of which is, individually or in the aggregate, at least
Five Hundred Thousand Dollars ($500,000), shall be rendered against Borrower and
shall remain unsatisfied and unstayed for a period of thirty (30) days (provided
that no Advances will be made prior to the satisfaction or stay of such
judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement on or as of the date made 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) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, 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
18
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. At any time after the Effective Date, but
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; 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. At any time from the Effective Date, 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; or (b) obtain and maintain
insurance policies of the type discussed in Section 6.5 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.
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.
19
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: Heartport, 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.
20
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.
12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
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
21
becomes part of the public domain after disclosure to Bank through no fault
of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
have actual knowledge that such third party is prohibited from disclosing
such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
HEARTPORT, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
By:_________________________________________
Treasurer
Title:______________________________________
SILICON VALLEY BANK
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
By:_________________________________________
Senior Vice President
Title:______________________________________
22
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, claims, literature, reports, catalogs, 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,
trademarks, servicemarks and applications therefor; 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.
23
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: HEARTPORT, 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 (ADVANCE) $---------------------------------------------
PRINCIPAL PAYMENT (ONLY) $---------------------------------------------
INTEREST PAYMENT (ONLY) $---------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $---------------------------------------------
OTHER INSTRUCTIONS:-------------------------------------------------------------
--------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
-------------------------------------- ----------------------------
Authorized Requester Phone #
-------------------------------------- ----------------------------
Received By (Bank) Phone #
-------------------------------
Authorized Signature (Bank)
24
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: HEARTPORT, INC.
The undersigned authorized officer of Heartport, Inc. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ___________________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Monthly financial statements Monthly within 30 days* Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10K & 10Q Within 5 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Quarterly/
Monthly** Basis:
Liquidity*** **** _________ Yes No
Debt Service Coverage 1:50:1.00***** ____:1.00 Yes No
Minimum Tangible Net Worth $30,000,000 $________ Yes No
Maximum Debt/Tangible Net Worth .75:1.00 ____:1.00 Yes No
* Only required if Liquidity LESS THAN 3x loan balance or RML LESS THAN 4
quarters.
** Tested Quarterly unless Liquidity LESS THAN 3x loan balance or RML LESS
THAN 4 quarters.
*** Tested until 4 quarters of DSC at 1.50:1.00
**** 2x outstanding obligations or 6x Remaining Months Liquidity
***** Tested once 4 quarters of DSC at 1.50:1.00.
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Sincerely, Received by:________________
AUTHORIZED SIGNER
SIGNATURE Date:_______________________
Verified:___________________
AUTHORIZED SIGNER
TITLE Date:_______________________
DATE Compliance Status: Yes No
EXHIBIT D
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of December 31, 1996, by and
between HEARTPORT, INC. ("Debtor") and SILICON VALLEY BANK ("Creditor").
In connection with the Loan Documents being concurrently executed between
Debtor and Creditor, Debtor agrees as follows:
1. Debtor shall not sell, transfer, assign, mortgage, pledge, lease,
grant a security interest in, or encumber any of Debtor'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 Debtor 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 Debtor 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.
Notwithstanding the foregoing, Debtor may sell, license and otherwise dispose
of the foregoing (i) to the extent set forth in the Loan Documents, and (ii) in
the ordinary course of business.
2. It shall be an Event of Default under the Loan Documents between Debtor
and Creditor 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.
HEARTPORT, INC. SILICON VALLEY BANK
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
By:__________________________________ By:____________________________________
Treasurer Senior Vice President
Title:_______________________________ Title:_________________________________
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Heartport, Inc. Bank: Silicon Valley Bank
LOAN TYPE. This is a variable rate, term loan of a principal amount up to
$15,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: 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: $________
$37,500 Loan Fee
Other Charges Paid in Cash: $________
$ 100 UCC Search Fees
--------
$ 50 UCC Filing Fees
--------
$ 7,150 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 DECEMBER 31, 1996.
BORROWER:
HEARTPORT, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Authorized Officer
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Heartport, Inc. BANK: Silicon Valley Bank
INSURANCE REQUIREMENTS. Heartport, 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.
Endorsement: 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 December 31, 1996, 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 DECEMBER 31,
1996.
GRANTOR:
HEARTPORT, INC.
x /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Authorized Officer
--------------------------------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
--------------------------------------------------------------------------------
LIBOR SUPPLEMENT TO AGREEMENT
This LIBOR Supplement to Agreement (the "Supplement") is a supplement to
the Loan and Security Agreement (the "Agreement") dated as of December 31,
1996, between Silicon Valley Bank ("Bank") and Heartport, Inc. ("Borrower"),
and forms a part of and is incorporated into the Agreement. Except as
otherwise defined in this Supplement, capitalized terms shall have the
meanings assigned in the Agreement.
1. DEFINITIONS.
"Business Day" means a day of the year (a) that is not a Saturday, Sunday
or other day on which banks in the State of California or the City of London
are authorized or required to close and (b) on which dealings are carried on
in the interbank market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Advance, a period of
approximately one, two, three, six or nine months as the Borrower may elect,
PROVIDED that the last day of an Interest Period for a LIBOR Rate Advance
shall be determined in accordance with the practices of the LIBOR interbank
market as from time to time in effect, PROVIDED, FURTHER, in all cases such
period shall expire not later than the applicable Maturity Date.
"Interest Rate" shall mean as to: (a) Prime Rate Advances, a rate equal
to the Prime Rate; and (b) LIBOR Rate Advances, a rate of one and one-half
percent (1 1/2%) per annum in excess of the LIBOR Rate (based on the LIBOR
Rate applicable for the Interest Period selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate
Advance, the rate of interest per annum determined by Bank to be the per
annum rate of interest at which deposits in United States Dollars are offered
to Bank in the London interbank market in which Bank customarily participates
a 11:00 A.M. (local time in such interbank market) two (2) Business Days
before the first day of such Interest Period for a period approximately equal
to such Interest Period and in an amount approximately equal to the amount of
such Advance.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate
Advance, a rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by
(ii) 1 minus the Reserve Requirement for such Interest Period.
"LIBOR Rate Advances" means any Advances made or a portion thereof on
which interest is payable based on the LIBOR Rate in accordance with the
terms hereof.
"Prime Rate Advances" means any Advances made or a portion thereof on
which interest is payable based on the Prime Rate in accordance with the
terms hereof.
"Regulatory Change" means, with respect to Bank, any change on or after
the date of this Agreement in United States federal, state or foreign laws or
regulations, including Regulation D, or the adoption or making on or after
such date of any interpretations, directives or requests applying to a class
of lenders including Bank of or under any United States federal or state, or
any foreign, laws or regulations (whether or not having the force of law) by
any court or governmantal or monetary authority charged with the
interpretation or administration thereof.
"Reserve Requirement" means, for any Interest Period, the average
maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used
in Regulation D) by member banks of the Federal Reserve System. Without
limiting the effect of the
1
foregoing, the Reserve Requirement shall reflect any other reserves required
to be maintained by Bank by reason of any Regulatory Change against (i) any
category of liabilities which includes deposits by reference to which the
LIBOR Rate is to be determined as provided in the definition of "LIBOR Base
Rate" or (ii) any category of extensions of credit or other assets which
include Advances.
2. REQUESTS FOR ADVANCES; CONFIRMATION OF INITIAL ADVANCES. Each
LIBOR Rate Advance shall be made upon the irrevocable written request of
Borrower received by Bank not later than 11:00 a.m. (Santa Clara, California
time) on the Business Day three (3) Business Days prior to the date such
Advance is to be made. Each such notice shall specify the date such Advance
is to be made, which day shall be a Business Day; the amount of such Advance,
the Interest Period for such Advance, and comply with such other requirements
as Bank determines are reasonable or desirable in connection therewith.
Each written request for a LIBOR Rate Advance shall be in the form of a
LIBOR Rate Advance Form as set forth on Exhibit A, which shall be duly
executed by a Responsible Officer.
3. CONVERSION/CONTINUATION OF ADVANCES.
(a) Borrower may from time to time submit in writing a
request that Prime Rate Advances be converted to LIBOR Rate Advances or that
any existing LIBOR Rate Advances continue for an additional Interest Period.
Such request shall specify the amount of the Prime Rate Advances which will
constitute LIBOR Rate Advances (subject to the limits set forth below) and
the Interest Period to be applicable to such LIBOR Rate Advances. Each
written request for a conversion to a LIBOR Rate Advance or a continuation of
a LIBOR Rate Advance shall be substantially in the form of a LIBOR Rate
Conversion/Continuation Certificate as set forth on Exhibit B, which shall be
duly executed by a Responsible Officer. Subject to the terms and conditions
contained herein, three (3) Business Days after Bank's receipt of such a
request from Borrower, such Prime Rate Advances shall be converted to LIBOR
Rate Advances or such LIBOR Rate Advances shall continue, as the case may be
provided that:
(i) no Event of Default or event which with notice or
passage of time or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of
termination of this Supplement or of the Agreement;
(iii) Borrower shall have complied with such customary
procedures as Bank has established from time to time for Borrower's requests
for LIBOR Rate Advances;
(iv) the amount of a LIBOR Rate Advance shall be
$500,000 or such greater amount which is an integral multiple of $50,000; and
(v) Bank shall have determined that the Interest
Period or LIBOR Rate is available to Bank which can be readily determined as
of the date of the request for such LIBOR Rate Advance.
Any request by Borrower to convert Prime Rate Advances to LIBOR Rate
Advances or continue any existing LIBOR Rate Advances shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Bank shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances,
but the provisions hereof shall be deemed to apply as if Bank had purchased
such deposits to fund the LIBOR Rate Advances.
2
(b) Any LIBOR Rate Advances shall automatically convert to Prime
Rate Advances upon the last day of the applicable Interest Period, unless
Bank has received and approved a complete and proper request to continue such
LIBOR Rate Advance at least three (3) Business Days prior to such last day in
accordance with the terms hereof. Any LIBOR Rate Advances shall, at Bank's
option, convert to Prime Rate Advances in the event that (i) an Event of
Default, or event which with the notice or passage of time or both would
constitute an Event of Default, shall exist, (ii) this Supplement or the
Agreement shall terminate, or (iii) the aggregate principal amount of the
Prime Rate Advances which have previously been converted to LIBOR Rate
Advances, or the aggregate principal amount of existing LIBOR Rate Advances
continued, as the case may be, at the beginning of an Interest Period shall
at any time during such Interest Period exceeds the Committed Line. Borrower
agrees to pay to Bank, upon demand by Bank (or Bank may, at its option,
charge Borrower's deposit account) any amounts required to compensate Bank
for any loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of LIBOR Rate Advances
to Prime Rate Advances pursuant to any of the foregoing.
(c) On all Advances, Interest shall be payable by Borrower to
Bank monthly in arrears not later than the twenty-eighth (28th) day of each
calendar month at the applicable Interest Rate.
4. ADDITIONAL REQUIREMENTS/PROVISIONS REGARDING LIBOR RATE ADVANCES;
ETC.
(a) If for any reason (including voluntary or mandatory
prepayment or acceleration), Bank receives all or part of the principal
amount of a LIBOR Rate Advance prior to the last day of the Interest Period
for such Advance, Borrower shall immediately notify Borrower's account
officer at Bank and, on demand by Bank, pay Bank the amount (if any) by which
(i) the additional interest which would have been payable on the amount so
received had it not been received until the last day of such Interest Period
exceeds (ii) the interest which would have been recoverable by Bank by
placing the amount so received on deposit in the offshore currency interbank
markets, for a period starting on the date on which it was so received and
ending on the last day of such Interest Period at the interest rate
determined by Bank in its reasonable discretion. Bank's determination as to
such amount shall be conclusive absent manifest error.
(b) Borrower shall pay to Bank, upon demand by Bank, from
time to time such amounts as Bank may determine to be necessary to compensate
it for any costs incurred by Bank that Bank determines are attributable to
its making or maintaining of any amount receivable by Bank hereunder in
respect of any Advances relating thereto (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to Bank under this Supplement in respect of any Advances (other than
changes which affect taxes measured by or imposed on the overall net income
of Bank by the jurisdiction in which such Bank has its principal office); or
(ii) imposes or modifies any reserve, special deposit
or similar requirements relating to any extensions of credit or other assets
of, or any deposits with or other liabilities of Bank (including any Advances
or any deposits referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other condition affecting this
Supplement (or any of such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the
Agreement which will entitle Bank to compensation pursuant to this section as
promptly as practicable after it obtains knowledge
3
thereof and determines to request such compensation. Bank will furnish
Borrower with a statement setting forth the basis and amount of each request
by Bank for compensation under this Section 4. Determinations and allocations
by Bank for purposes of this Section 4 of the effect of any Regulatory Change
on its costs of maintaining its obligations to make Advances or of making or
maintaining Advances or on amounts receivable by it in respect of Advances,
and of the additional amounts required to compensate Bank in respect of any
Additional Costs, shall be conclusive absent manifest error.
(c) Borrower shall pay to Bank, upon the request of Bank,
such amount or amounts as shall be sufficient (in the sole good faith opinion
of such Bank) to compensate it for any loss, costs or expense incurred by it
as a result of any failure by Borrower to borrow a LIBOR Rate Advance on the
date for such borrowing specified in the relevant notice of borrowing
hereunder.
(d) If Bank shall determine that the adoption or
implementation of any applicable law, rule, regulation or treaty regarding
capital adequacy, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by Bank (or its applicable lending office) with any
respect or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on capital of Bank or
any person or entity controlling Bank (a "Parent") as a consequence of its
obligations hereunder to a level below that which Bank (or its Parent) could
have achieved but for such adoption, change or compliance (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by Bank to be material, then from time to time, within 15 days after
demand by Bank, Borrower shall pay to Bank such additional amount or amounts
as will compensate Bank for such reduction. A statement of Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error.
(e) If at any time Bank, in its sole and absolute discretion,
determines that: (i) the amount of the LIBOR Rate Advances for periods equal
to the corresponding Interest Periods are not available to Bank in the
offshore currency interbank markets, or (ii) the LIBOR Rate does not
accurately reflect the cost to Bank of lending the LIBOR Rate Advance, then
Bank shall promptly give notice thereof to Borrower, and upon the giving of
such notice Bank's obligation to make the LIBOR Rate Advances shall
terminate, unless Bank and the Borrower agree in writing to a different
interest rate Advances shall terminate, unless Bank and the Borrower agree in
writing to a different interest rate applicable to LIBOR Rate Advances. If it
shall become unlawful for Bank to continue to fund or maintain any Advances,
or to perform its obligations hereunder, upon demand by Bank, Borrower shall
prepay the Advances in full with accrued interest thereon and all other
amounts payable by Borrower hereunder (including, without limitation, any
amount payable in connection with such prepayment pursuant to Section 4(a)).
4
IN WITNESS WHEREOF, the undersigned have executed this LIBOR Supplement
to Agreement as of the first date above written.
HEARTPORT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------
Title: Treasurer
-----------------------
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Title: Senior Vice President
-----------------------
5
EXHIBIT A
LIBOR RATE ADVANCE FORM
The undersigned hereby certifies as follows:
I, ________________, am the duly elected and acting ____________ of
Heartport, Inc. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan and Security Agreement by and
between Borrower and Silicon Valley Bank ("Bank") (the "Agreement"). The terms
used in this Borrowing Certificate which are defined in the Agreement have the
same meaning herein as ascribed to them therein.
Borrower hereby requests on ____________, 19__ a LIBOR Rate Advance (the
"Advance") as follows:
(a) The date on which the Advance is to be made is _____________, 19__.
(b) The amount of the Advance is to be ___________________ ($______), for
an Interest Period of ____ month(s).
All representations and warranties of Borrower stated in the Agreement are
true, correct and complete in all material respects as of the date of this
request for a loan; 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.
IN WITNESS WHEREOF, this LIBOR Rate Advance Form is executed by the
undersigned as of this _____________ day of __________, 19___.
HEARTPORT, INC.
By:_________________________
Title:______________________
FOR INTERNAL BANK USE ONLY
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
------------------ ----------- ------------------- --------------
__%
6
EXHIBIT B
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ________________, am the duly elected and acting ____________ of
Heartport, Inc. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan and Security Agreement by and
between Borrower and Silicon Valley Bank ("Bank") (the "Agreement"). The terms
used in this LIBOR Rate Conversion/Continuation Certificate which are defined
in the Agreement have the same meaning herein as ascribed to them therein.
Borrower hereby requests on ____________, 19__ a LIBOR Rate Advance (the
"Advance") as follows:
(a) ___ (i) A rate conversion of an existing Prime Rate Advance from a
Prime Rate Advance to a LIBOR Rate Advance; or
___ (ii) A continuation of an existing LIBOR Rate Advance as a LIBOR
Rate Advance;
[CHECK (i) OR (ii) ABOVE]
(b) The date on which the Advance is to be made is _____________, 19___.
(c) The amount of the Advance is to be __________________ ($______), for
an Interest Period of ________ month(s).
All representations and warranties of Borrower stated in the Agreement are
true, correct and complete in all material respects as of the date of this
request for a loan; 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.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate is
executed by the undersigned as of this _____________ day of __________, 19___.
HEARTPORT, INC.
By:_________________________
Title:______________________
FOR INTERNAL BANK USE ONLY
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
------------------ ----------- ------------------- --------------
__%
7