LOAN AND SECURITY AGREEMENT
Exhibit 10.1
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of June 29, 2009 (the “Effective
Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and XXXXXXXXXXX
PHARMACEUTICALS, INC., a Delaware corporation (“Borrower”), provides the terms on which Bank shall
lend to Borrower and Borrower shall repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. Capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the
Code to the extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1 Revolving Advances.
(a) Availability. Subject to the terms and conditions of this Agreement and to
deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. Amounts
borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date, reborrowed,
subject to the applicable terms and conditions precedent herein.
(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all
other Obligations relating to the Revolving Line shall be immediately due and payable
2.1.2 Non-Formula Sublimit. During such period that Borrower maintains cash on deposit with
Bank in an amount in excess of $20,000,000 (the “Access Period”), Borrower may have access to the
Non-Formula Sublimit. Such aggregate amounts utilized under the Non-Formula Sublimit shall be an
Advance and shall at all times reduce the amount otherwise available for Advances under the
Revolving Line, but such Advance shall not be subject to the Borrowing Base. Advances under the
Non-Formula Sublimit shall be used by Borrower to secure (a) Letters of Credit issued pursuant to
Section 2.1.4(a) hereof, (b) Cash Management Services, or (c) an FX Reserve. Should any
Access Period end while any Advance under this Section 2.1.2 remains outstanding, Borrower
shall immediately (x) repay such Advance, (y) secure such Advance with a Certificate of Deposit
maintained with Bank in an amount equal to such Advance, or (z) instruct Bank to convert such
Advance to an Advance under, and subject to, the Borrowing Base.
2.1.3 Foreign Exchange Sublimit. As part of the Revolving Line and the Foreign Exchange
Sublimit, Borrower may enter into foreign exchange contracts with Bank under which Borrower commits
to purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX Forward
Contract”) on a specified date (the “Settlement Date”). FX Forward Contracts shall have a
Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to
a reserve of ten percent (10%) of each outstanding FX Forward Contract (the “FX Reserve”). The
aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the Foreign
Exchange Sublimit. The amount otherwise available for Credit Extensions under the Revolving Line
shall be reduced by an amount equal to ten percent (10%) of each outstanding FX Forward Contract
(the “FX Reduction Amount”). Any amounts needed to fully reimburse Bank for any amounts not paid
by Borrower in connection with FX Forward Contracts will be treated as Advances under the Revolving
Line and will accrue interest at the interest rate applicable to Advances.
2.1.4 Other Services Sublimit.
(a) Letters of Credit.
(i) As part of the Revolving Line and the Other Services Sublimit, Bank shall
issue or have issued Letters of Credit for Borrower’s account. Such aggregate
amounts utilized hereunder shall at all times reduce the amount otherwise available
for Advances under the Revolving Line. The face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed the Other Services Sublimit. If, on the Revolving Line
Maturity Date, there are any outstanding Letters of Credit, then on such date
Borrower shall provide to Bank cash collateral in an amount equal to 105% of the
face amount of all such Letters of Credit plus all interest, fees, and costs due or
to become due in connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to said Letters of
Credit. All Letters of Credit shall be in form and substance acceptable to Bank in
its sole discretion and shall be subject to the terms and conditions of Bank’s
standard Application and Letter of Credit Agreement (the “Letter of Credit
Application”). Borrower agrees to execute any further documentation in connection
with the Letters of Credit as Bank may reasonably request. Borrower further agrees
to be bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account, and
Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following Borrower’s
instructions or those contained in the Letters of Credit or any modifications,
amendments, or supplements thereto.
(ii) The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, such Letters
of Credit, and the Letter of Credit Application.
(iii) Borrower may request that Bank issue a Letter of Credit payable in a
Foreign Currency. If a demand for payment is made under any such Letter of Credit,
Bank shall treat such demand as an Advance to Borrower of the equivalent of the
amount thereof (plus fees and charges in connection therewith such as wire, cable,
SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the country
issuing such Foreign Currency.
(iv) To guard against fluctuations in currency exchange rates, upon the
issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount equal
to ten percent (10%) of the face amount of such Letter of Credit. The amount of the
Letter of Credit Reserve may be adjusted by Bank from time to time to account for
fluctuations in the exchange rate. The availability of funds under the Revolving
Line shall be reduced by the amount of such Letter of Credit Reserve for as long as
such Letter of Credit remains outstanding.
(v) Notwithstanding the foregoing, Bank shall waive the Letter of Credit
Reserve for any Letter of Credit secured by cash on deposit with Bank in an amount
equal to one hundred percent (100%) of the face amount of such Letter of Credit. To
cash secure a Letter of Credit, Borrower shall give Bank written notice of its
intent to cash secure such Letter of Credit, and Bank may, at Bank’s option, require
Borrower to deposit such cash security into a blocked account or such other form of
deposit as shall limit Borrower’s access to such cash security during the period in
which such Letter of Credit remains issued and outstanding.
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(b) Cash Management Services. Borrower may use up to the Other Services Sublimit of
the Revolving Line for Bank’s cash management services which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified in Bank’s various
cash management services
agreements (collectively, the “Cash Management Services”). Any amounts used by Borrower for
Cash Management Services will be treated as Advances under the Revolving Line, will accrue interest
at the interest rate applicable to Advances, and will reduce the amount otherwise available for
Credit Extensions thereunder
(c) Other Services Sublimit. The aggregate of all amounts used by Borrower under this
Section 2.1.4 shall reduce the Other Services Sublimit.
2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any
Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) and any Letter
of Credit Reserve), plus (c) the FX Reduction Amount (such sum being an “Overadvance”) exceeds the
lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank
in cash such Overadvance. Without limiting Borrower’s obligation to repay Bank any amount of the
Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on
demand, at the Default Rate.
2.3 Payment of Interest on the Credit Extensions.
(a) Advances. Subject to Section 2.3(b), the principal amount outstanding
under the Revolving Line shall accrue interest at a floating per annum rate equal to (i) during any
Streamline Period, the greater of (A) one percent (1.0%) above the Prime Rate, and (B) five percent
(5.0%), and (ii) during any other period, the greater of (X) two percent (2.0%) above the Prime
Rate, and (Y) six percent (6.0%), which interest shall be payable monthly in accordance with
Section 2.3(f) below.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, Obligations shall bear interest at a rate per annum which is five percentage
points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank
otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and
expenses which are required to be paid by Borrower pursuant to the Loan Documents (including,
without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a
rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the
increased interest rate provided in this Section 2.3(b) is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or
limit any rights or remedies of Bank.
(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension
based on changes to the Prime Rate shall be effective on the effective date of any change to the
Prime Rate and to the extent of any such change.
(d) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including
the Designated Deposit Account, for principal and interest payments or any other amounts Borrower
owes Bank when due. These debits shall not constitute a set-off.
(e) Payment; Interest Computation; Float Charge. Interest is payable monthly on the
last calendar day of each month and shall be computed on the basis of a 360-day year for the actual
number of days elapsed. In computing interest, (i) all Payments received after 12:00 p.m. Pacific
time on any day shall be deemed received at the opening of business on the next Business Day, and
(ii) the date of the making of any Credit Extension shall be included and the date of payment shall
be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it
is made, such day shall be included in computing interest on such Credit Extension. In addition,
Bank shall be entitled to charge Borrower a “float” charge in an amount equal to two (2) Business
Days interest, at the interest rate applicable to the Advances whether or not any Advances are
outstanding, on all Payments received by Bank. Such float charge is not included in interest for
purposes of computing Minimum Monthly Interest (if any) under this Agreement. The float charge for
each month shall be payable on the last day of the month. Bank shall not, however, be required to
credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in
its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the
amount of any item of payment which is returned to Bank unpaid.
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2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of $85,000, payable
as follows: (i) $50,000 shall be paid on the Effective Date, and (ii) $35,000 shall be paid on the
first anniversary of the Effective Date;
(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, a letter of credit fee of (i) one and
one quarter percent (1.25%) per annum of the Dollar Equivalent of the face amount of each Letter of
Credit issued that is fully secured by cash on deposit with Bank, and (ii) one and one half percent
(1.50%) per annum of the Dollar Equivalent of the face amount of each Letter of Credit issued that
is fully secured by cash on deposit with Bank pursuant to the terms of Section 2.1.4(a)(v).
Such fees are due upon the issuance of such Letter of Credit, each anniversary of the issuance
during the term of such Letter of Credit, and upon the renewal of such Letter of Credit by Bank;
(c) Termination Fee. Subject to the terms of Section 12.1, a termination fee;
(d) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility
Fee”), payable monthly, in arrears, on a calendar year basis, in an amount equal to three-eighths
of one percent (0.375%) per annum of the average unused portion of the Revolving Line, as
determined by Bank; provided, that such Unused Revolving Line Facility Fee shall be waived during
each month in which Borrower maintains not less than $3,750,000 in cash on deposit with Bank in an
SVB Demand Deposit Account. The unused portion of the Revolving Line, for the purposes of this
calculation, shall include amounts reserved for products provided in connection with Cash
Management Services. Borrower shall not be entitled to any credit, rebate or repayment of any
Unused Revolving Line Facility Fee previously earned by Bank pursuant to this Section
notwithstanding any termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder; and
(e) Collateral Monitoring Fee. A monthly collateral monitoring fee of $1,000, payable
in arrears on the last day of each month (prorated for any partial month at the beginning and upon
termination of this Agreement); provided, that Bank shall waive such fee during any Streamline
Period; and
2.5 Payments; Application of Payments.
(a) All payments (including prepayments) to be made by Borrower under any Loan Document shall
be made in immediately available funds in U.S. Dollars, without setoff or counterclaim, before
12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after
12:00 p.m. Pacific time are considered received at the opening of business on the next Business
Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next
Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.
(b) Prior to the occurrence of an Event of Default, payments made by Borrower with respect to
the Obligations shall be applied in the following order: (i) fees and expenses due and owing by
Borrower to Bank, (ii) accrued but unpaid interest, (iii) the principal balance of the Obligations,
and (iv) any remainder shall be deposited by Bank into the Designated Deposit Account. Following
an Event of Default, all payments with respect to the Obligations may be applied in such order and
manner as Bank shall determine in its sole discretion. Borrower shall have no right to specify the
order or the accounts to which Bank shall allocate or apply any payments required to be made by
Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or
application is not specified elsewhere in this Agreement.
2.6 Limitation on Streamline Periods. Notwithstanding anything contained hereon to the
contrary, in the event Borrower qualifies for a Streamline Period during any fiscal quarter and
subsequently fails to qualify for a Streamline Period during such fiscal quarter, Borrower shall
not be eligible to qualify for another Streamline Period until the following fiscal quarter. The
result will be the application of all non-Streamline Period terms and requirements until such time
that Borrower is again eligible for a Streamline Period hereunder.
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3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial
Credit Extension is subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed original signatures to the Loan Documents;
(b) duly executed original signatures to the Control Agreements required by Bank;
(c) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(d) Borrower’s Operating Documents and a Certificate of Existence and Good Standing of
Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than
thirty (30) days prior to the Effective Date;
(e) Evidence of Borrower’s good standing and authorization to transact business as a foreign
entity in each jurisdiction set forth on Schedule 3.1(e);
(f) a duly executed original bailee agreement in form and substance satisfactory to Bank in
its sole discretion from the parties identified on Schedule 3.1(f)
(g) the Perfection Certificate(s) of Borrower, together with the duly executed original
signature thereto;
(h) a landlord’s consent in favor of Bank for Borrowers’ offices at the addresses listed
Schedule 3.1, attached hereto, by the respective landlord thereof, together with the duly executed
original signatures thereto;
(i) the insurance policies and/or endorsements required pursuant to Section 6.7
hereof;
(j) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.
3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to make each Credit
Extension, including the initial Credit Extension, is subject to the following conditions
precedent:
(a) timely receipt of an executed Transaction Report;
(b) the representations and warranties in this Agreement shall be true, accurate, and complete
in all material respects on the date of the Transaction Report and on the Funding Date of each
Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material respects as of such date, and no
Event of Default shall have occurred and be continuing or result from the Credit Extension. Each
Credit Extension is Borrower’s representation and warranty on that date that the representations
and warranties in this Agreement remain true, accurate, and complete in all material respects;
provided, however, that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date; and
(c) in Bank’s sole discretion, there has not been any material impairment in the general
affairs, management, results of operation, financial condition or the prospect of repayment of the
Obligations, or any material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank.
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3.3 Covenant to Deliver.
Borrower agrees to deliver to Bank each item required to be delivered to Bank under this
Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a
Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver
by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in
the absence of a required item shall be in Bank’s sole discretion.
3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable
conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone
by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with such notification,
Borrower must promptly deliver to Bank by electronic mail or facsimile a completed Transaction
Report executed by a Responsible Officer or his or her designee. Bank shall credit Advances to the
Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from
a Responsible Officer or his or her designee or without instructions if the Advances are necessary
to meet Obligations which have become due. Bank may rely on any telephone notice given by a person
whom Bank believes is a Responsible Officer or designee.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and
performance in full of all of the Obligations, a continuing security interest in, and pledges to
Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof.
4.2 Priority of Security Interest. Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens that may have
superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial
tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general
details thereof and grant to Bank in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to Bank.
If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment
in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions
has terminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the
Collateral and all rights therein shall revert to Borrower.
4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file
financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or
protect Bank’s interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization; Power and Authority. Borrower is duly existing and in
good standing in its jurisdiction of formation and is qualified and licensed to do business and is
in good standing in any jurisdiction in which the conduct of its business or its ownership of
property requires that it be qualified except where the failure to do so could not reasonably be
expected to have a material adverse effect on Borrower’s business. In connection with this
Agreement, Borrower has delivered to Bank a completed certificate entitled “Perfection
Certificate”. Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is
that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an
organization of the type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the Perfection Certificate
accurately sets forth Borrower’s place of business, or, if more than one, its chief executive
office as well
as Borrower’s mailing address (if different than its chief executive office); (e) Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of
formation, organizational structure or type, or any organizational number assigned by its
jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to
Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that
Borrower may from time to time update certain information in the Perfection Certificate after the
Effective Date to the extent permitted by one or more specific provisions in this Agreement). If
Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with Borrower’s organizational identification number. The
Perfection Certificate will only have to be delivered on the date hereof.
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The execution, delivery and performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational
documents, (ii) to Borrower’s knowledge, contravene, conflict with, constitute a default under or
violate any material Requirement of Law, (iii) to Borrower’s knowledge contravene, conflict or
violate any applicable order, writ, judgment, injunction, decree, determination or award of any
Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or
assets may be bound or affected, (iv) require any action by, filing, registration, or qualification
with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals
which have already been obtained and are in full force and effect, other than filings required by
applicable securities laws, or (v) constitute an event of default under any material agreement 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 in which the default could reasonably be expected to have a material adverse
effect on Borrower’s business.
5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each
item of the Collateral upon which it purports to xxxxx x Xxxx hereunder, free and clear of any and
all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts
with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank
in connection herewith, or of which Borrower has given Bank notice and taken such actions as are
necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing
obligations of the Account Debtors.
The Collateral is not in the possession of any third party bailee (such as a warehouse) except
as otherwise provided in the Perfection Certificate. None of the components of the Collateral
shall be maintained at locations other than as provided in the Perfection Certificate or as
permitted pursuant to Section 7.2.
All Inventory is in all material respects of good and marketable quality, free from material
defects subject to review and approval by quality assurance and quality control.
Borrower is the sole owner of the Intellectual Property which it owns or purports to own
except for (a) non-exclusive licenses granted to its customers in the ordinary course of business,
(b) over-the-counter software that is commercially available to the public, and (c) material
Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent
which it owns or purports to own and which is material to Borrower’s business is valid and
enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and
which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in
part. To Borrower’s knowledge, no claim has been made that any part of the Intellectual Property
violates the rights of any third party except to the extent such claim would not reasonably be
expected to have a material adverse effect on Borrower’s business. Except as noted on the
Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.
5.3 Accounts Receivable; Inventory.
(a) For each Account with respect to which Advances are requested, on the date each Advance is
requested and made, such Account shall be an Eligible Account.
(b) All statements made and all unpaid balances appearing in all invoices, instruments and
other documents evidencing the Eligible Accounts are and shall be true and correct and all such
invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all
respects what they purport to be. Whether or not an Event of Default has occurred and is
continuing, Bank may notify any Account Debtor owing
Borrower money of Bank’s security interest in such funds and verify the amount of such
Eligible Account. All sales and other transactions underlying or giving rise to each Eligible
Account shall comply in all material respects with all applicable laws and governmental rules and
regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any
Account Debtor whose accounts are Eligible Accounts in any Transaction Report. To Borrower’s
knowledge, all signatures and endorsements on all documents, instruments, and agreements relating
to all Eligible Accounts are genuine, and all such documents, instruments and agreements are
legally enforceable in accordance with their terms.
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(c) For any item of Inventory consisting of Eligible Inventory in any Transaction Report, such
Inventory (i) consists of finished goods, in good, new, and salable condition, returned, consigned,
obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom
inventory, works in progress, packaging or shipping materials, or supplies prior to the expiration
date; (ii) meets all applicable governmental standards; (iii) is not subject to any Liens, except
the first priority Liens granted or in favor of Bank under this Agreement or any of the other Loan
Documents; and (iv) is located in the United States at the locations identified by Borrower in the
Perfection Certificate where it maintains Inventory (or at any location permitted under Section
7.2).
5.4 Litigation. There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than One Hundred Thousand Dollars ($100,000.00), individually or in the aggregate.
5.5 Financial Statements; Financial Condition. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.
There has not been any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.6 Solvency. The fair salable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay
its debts (including trade debts) as they mature.
5.7 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not
engaged as one of its important activities in extending credit for margin stock (under Regulations
X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries
is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a
“holding company” as each term is defined and used in the Public Utility Holding Company Act of
2005. To Borrower’s knowledge, Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to have a material adverse effect on its business.
None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or
any Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all Government Authorities that are necessary to continue
their respective businesses as currently conducted, except where the failure to do so could not
reasonably be expected to have a material adverse effect on Borrower’s business.
5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments or as set forth in the Perfection Certificate.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any
contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in
writing of the commencement of, and any material development in, the proceedings, (c) posts bonds
or takes any other steps required to prevent the governmental authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.
Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years
which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not withdrawn from participation in, and has not permitted
partial or complete termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of Borrower, including
any liability to the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency.
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5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely to fund
its general business requirements and not for personal, family, household or agricultural purposes.
5.11 Full Disclosure. To Borrower’s knowledge, no written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as of the date such
representation, warranty, or other statement was made, taken together with all such written
certificates and written statements given to Bank, contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and forecasts provided
by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that
actual results during the period or periods covered by such projections and forecasts may differ
from the projected or forecasted results).
5.12 Definition of “Knowledge.” For purposes of the Loan Documents, whenever a representation
or warranty is made to Borrower’s knowledge or awareness, or with a similar qualification,
knowledge or awareness means the actual knowledge, after reasonable investigation, of the
Responsible Officers.
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance.
(a) Maintain its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s
business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws,
ordinances and regulations to which it is subject, noncompliance with which could have a material
adverse effect on Borrower’s business.
(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its
obligations under the Loan Documents to which it is a party and the grant of a security interest to
Bank in all of its property. Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Bank.
6.2 Financial Statements, Reports, Certificates. Provide Bank with the following:
(a) weekly, a Transaction Report (and any schedules related thereto); provided, that during a
Streamline Period, and provided no Event of Default has occurred and is continuing, such
Transaction Report will be delivered monthly as soon as available, but no later than thirty (30)
days after the last day of each month;
(b) within fifteen (15) days after the end of each month, (A) monthly accounts receivable
agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers, if any, (C) monthly reconciliations of accounts receivable
agings (aged by invoice date), transaction reports and general ledger, and (D) monthly perpetual
inventory reports for Inventory valued on a first-in, first-out basis at the lower of cost or
market (in accordance with GAAP) or such other inventory reports as are requested by Bank in its
good faith business judgment;
(c) as soon as available, but no later than thirty (30) days after the last day of each
month, a company prepared consolidated balance sheet and income statement covering Borrower’s
consolidated operations for such month certified by a Responsible Officer and in a form acceptable
to Bank (the “Monthly Financial Statements”);
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(d) within thirty (30) days after the last day of each month and together with the Monthly
Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer,
certifying that as of the end of such month, Borrower was in full compliance with all of the terms
and conditions of this Agreement, and setting forth calculations showing compliance with the
financial covenants set forth in this Agreement and such other information as Bank shall
reasonably request, including, without limitation, a statement that at the end of such month there
were no held checks; provided, that during any Access Period, Borrower’s Compliance Certificate
shall be delivered within thirty (30) days after the last day of each fiscal quarter, rather than
after the last day of each month;
(e) within fifteen (15) days prior to the end of each fiscal year of Borrower, (A) annual
operating budgets (including income statements, balance sheets and cash flow statements, by month)
for the upcoming fiscal year of Borrower, and (B) annual financial projections for the following
fiscal year (on a quarterly basis) as approved by Borrower’s board of directors, together with any
related business forecasts used in the preparation of such annual financial projections; and
(f) as soon as available, and in any event within one hundred fifty (150) days following the
end of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial statements from an
independent certified public accounting firm acceptable to Bank in its reasonable discretion.
(g) while Borrower is subject to the reporting requirements under the Exchange Act within five
(5) days of filing, copies of all periodic and other reports, proxy statements and other materials
filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the
functions of the SEC or with any national securities exchange, or distributed to its shareholders,
as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent
any such documents are included in materials otherwise filed with the SEC) may be delivered
electronically and if so delivered, shall be deemed to have been delivered on the date on which
Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at
Borrower’s website address;
(h) within ten (10) days of delivery, copies of all material notices sent to Borrower’s
security holders or to any holders of Subordinated Debt;
(i) prompt written notice of (i) any material change in the composition of the Intellectual
Property, (ii) the registration of any copyright, including any subsequent ownership right of
Borrower in or to any copyright, patent or trademark arising after the date hereof, and
(iii) Borrower’s knowledge of an event that could reasonably be expected to materially and
adversely affect the value of the Intellectual Property; and
(j) prompt report of any legal actions pending or threatened in writing against Borrower or
any of its Subsidiaries that could result in damages or costs to Borrower or any of its
Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or
more; and
(k) other financial information reasonably requested by Bank.
6.3 Accounts Receivable.
(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s
standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall
not affect or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s
failure to advance or lend against a specific Account affect or limit Bank’s Lien and other rights
therein. If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request,
originals) of all contracts, orders, invoices, and other similar documents, and all shipping
instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Accounts. In addition, Borrower shall deliver to
Bank, on its request, the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any Accounts, in the same form
as received, with all necessary indorsements, and copies of all credit memos.
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(b) Disputes. Borrower shall promptly notify Bank of all disputes or claims relating
to Accounts in which the matter in dispute is greater than or equal to $25,000. Borrower may
forgive (completely or partially), compromise, or settle any Account for less than payment in full,
or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in arm’s-length transactions,
and reports the same to Bank in the regular reports provided to Bank; (ii) no Event of Default has
occurred and is continuing; and (iii) after taking into account all such discounts, settlements and
forgiveness, the total outstanding Advances will not exceed the the lesser of the Revolving Line or
the Aggregate Borrowing Base.
(c) Collection of Accounts. Borrower shall have the right to collect all Accounts,
unless and until an Event of Default has occurred and is continuing. Bank shall require that all
proceeds of Accounts be deposited by Borrower into a lockbox account, or such other “blocked
account” as specified by Bank, pursuant to a blocked account agreement in such form as Bank may
specify in its good faith business judgment. Whether or not an Event of Default has occurred and
is continuing, Borrower shall hold all payments on, and proceeds of, Accounts in trust for Bank,
and Borrower shall immediately deliver all such payments and proceeds to Bank in their original
form, duly endorsed, to be applied (i) prior to an Event of Default, pursuant to the terms of
Section 2.5(b) hereof, and (ii) after the occurrence and during the continuance of an Event
of Default, pursuant to the terms of Section 9.4 hereof.
(d) Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower except in the ordinary course of business,
Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to
the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to
Bank, upon request from Bank. In the event any attempted return occurs after the occurrence and
during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust
for Bank, and immediately notify Bank of the return of the Inventory.
(e) Verification. Bank may, from time to time, verify directly with the respective
Account Debtors the validity, amount and other matters relating to the Accounts, either in the name
of Borrower or Bank or such other name as Bank may choose.
(f) No Liability. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of
which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any Account, or for settling
any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence
or willful misconduct.
6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver,
in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form
in which received by Borrower not later than the following Business Day after receipt by Borrower,
to be applied to the Obligations (a) prior to an Event of Default, pursuant to the terms of
Section 2.5(b) hereof, and (b) after the occurrence and during the continuance of an Event
of Default, pursuant to the terms of Section 9.4 hereof; provided that, if no Event of
Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the
proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an
arm’s length transaction for an aggregate purchase price of $50,000 or less (for all such
transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower’s other funds or property. Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this Agreement.
6.5 Taxes; Pensions. Timely file all required tax returns and reports and timely pay all
foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower,
except for deferred payment of any taxes contested pursuant to the terms of Section 5.9
hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments,
and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.
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6.6 Access to Collateral; Books and Records. At reasonable times, on three (3) Business Day’s
notice (provided no notice is required if an Event of Default has occurred and is continuing),
Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy
Borrower’s Books ; provided, that during any Streamline Period, and provided no Event of Default
has occurred, such audits shall be conducted no more often than every nine (9) months. The
foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be
$850 per person per day (or such higher amount as shall represent Bank’s then-current standard
charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank
schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedules
the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s
rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses
incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or
rescheduling.
6.7 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Bank may reasonably request. All property
policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee and waive
subrogation against Bank. All liability policies shall show, or have endorsements showing, Bank as
an additional insured. All policies (or the loss payable and additional insured endorsements)
shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At Bank’s request, Borrower shall deliver certified
copies of policies and evidence of all premium payments. Proceeds payable under any property
policy shall, at Bank’s option, be payable to Bank on account of the Obligations. If Borrower
fails to obtain insurance as required under this Section 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make all or part of such
payment or obtain such insurance policies required in this Section 6.7, and take any action
under the policies Bank deems prudent. Bank acknowledges and agrees that Borrower’s insurance
policies as of the date hereof are in acceptable form and in acceptable amounts. Insurance
policies shall be in a form, with companies, and in amounts that are satisfactory to Bank.
6.8 Operating Accounts.
(a) Maintain its primary and its Subsidiaries’ primary operating and other deposit accounts
and securities accounts with Bank and Bank’s Affiliates, which accounts shall represent at least
eighty-five percent (85%) of the dollar value of Borrower’s and such Subsidiaries accounts at all
financial institutions.
(b) Except as provided in Section 6.8(a), provide Bank five (5) days prior written
notice before establishing any Collateral Account at or with any bank or financial institution
other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at
or with which any Collateral Account is maintained to execute and deliver a Control Agreement or
other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such
Collateral Account in accordance with the terms hereunder which Control Agreement may not be
terminated without the prior written consent of Bank. The provisions of the previous sentence
shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by
Borrower as such.
6.9 Financial Covenants: Tangible Net Worth. Maintain at all times, to be tested as of the
last day of each month, a Tangible Net Worth of at least the sum of (a) $1.00, plus (b) as adjusted
on the first day of each fiscal quarter for the fiscal quarter just ended, fifty percent (50%) of
the aggregate amount of Borrower’s positive quarterly Net Income; provided, that such amount shall
not be adjusted downward in the event Borrower suffers a loss for any fiscal quarter. In the event
Borrower raises new equity investment in an aggregate amount of $5,000,000 or more, Bank may within
thirty (30) days of such equity investment notify Borrower of its intent to adjust the financial
covenant set forth herein relative to such new equity investment.
6.10 Protection and Registration of Intellectual Property Rights.
(a) (i) Protect, defend and maintain the validity and enforceability of its Intellectual
Property; (ii) promptly advise Bank in writing of material infringements of its Intellectual
Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.
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(b) If Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered
mask work, or any pending application for any of the foregoing, whether as owner, licensee or
otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall
immediately provide written notice thereof to Bank and shall execute such intellectual property
security agreements and other documents and take such other actions as Bank shall request in its
good faith business judgment to perfect and maintain a first priority perfected security interest
in favor of Bank in such property. If Borrower registers any Copyrights or mask works in the
United States Copyright Office, Borrower shall: (y) execute an intellectual property security
agreement and such other documents and take such other actions as Bank may request in its good
faith business judgment to perfect and maintain a first priority perfected security interest in
favor of Bank in the Copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security agreement with the United
States Copyright Office contemporaneously with filing the Copyright or mask work application(s)
with the United States Copyright Office. Borrower shall promptly provide to Bank copies of all
applications that it files for Patents or for the registration of Trademarks, Copyrights or mask
works, together with evidence of the recording of the intellectual property security agreement
necessary for Bank to perfect and maintain a first priority perfected security interest in such
property.
(c) Provide written notice to Bank within ten (10) days of entering or becoming bound by any
Restricted License (other than over-the-counter software that is commercially available to the
public). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by,
any person whose consent or waiver is necessary for (i) any Restricted License to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such Restricted License, whether now existing or entered
into in the future, and (ii) Bank to have the ability in the event of a liquidation of any
Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this
Agreement and the other Loan Documents.
6.11 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Bank, without expense to Bank, Borrower and its officers,
employees and agents and Borrower’s books and records, to the extent that Bank may deem them
reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or
against Bank with respect to any Collateral or relating to Borrower.
6.12 Access to Collateral; Books and Records. Allow Bank, or its agents, to inspect the
Collateral and audit and copy Borrower’s Books. Such inspections or audits shall be conducted at
least once every six months. The foregoing inspections and audits shall be at Borrower’s expense,
and the charge therefor shall be $850 per person per day (or such higher amount as shall represent
Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the
event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels
or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without
limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any
out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses
of the cancellation or rescheduling.
6.13 Formation or Acquisition of Subsidiaries. At the time that Borrower forms any direct or
indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date,
Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to the Loan Agreement to
cause such Subsidiary to become a co-borrower hereunder, together with such appropriate financing
statements and/or Control Agreements, all in form and substance satisfactory to Bank (including
being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the
assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates
and powers and financing statements, pledging all of the direct or beneficial ownership interest in
such new Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank all other
documentation in form and substance satisfactory to Bank which in its opinion is appropriate with
respect to the execution and delivery of the applicable documentation referred to above. Any
document, agreement, or instrument executed or issued pursuant to this Section 6.15 shall
be a Loan Document.
6.14 Further Assurances. Execute any further instruments and take further action as Bank
reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes
of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received,
copies of all correspondence, reports, documents and
other filings with any Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could reasonably be expected to have a
material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or
any of its Subsidiaries.
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7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent:
7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of
(collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its
business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b)
of worn-out or obsolete Equipment; and (c) in connection with Permitted Liens and Permitted
Investments.
7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or
permit any of its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b)
liquidate or dissolve; or (c) have a change in a Responsible Officer; or (ii) enter into any
transaction or series of related transactions in which the stockholders of Borrower who were not
stockholders immediately prior to the first such transaction own more than 10% of the voting stock
of Borrower immediately after giving effect to such transaction or related series of such
transactions (other than by the sale of Borrower’s equity securities in a public offering or to
venture capital investors so long as Borrower identifies to Bank the venture capital investors
prior to the closing of the transaction and provides to Bank a description of the material terms of
the transaction).
Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add
any new offices or business locations, including warehouses (unless such new offices or business
locations contain less than Ten Thousand Dollars ($10,000) in Borrower’s assets or property) or
deliver any portion of the Collateral valued, individually or in the aggregate, in excess of
Twenty-Five Thousand Dollars ($25,000) to a bailee at a location other than to a bailee and at a
location already disclosed in the Perfection Certificate, (2) change its jurisdiction of
organization, (3) change its organizational structure or type, (4) change its legal name, or
(5) change any organizational number (if any) assigned by its jurisdiction of organization. If
Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate,
in excess of Twenty-Five Thousand Dollars ($25,000) to a bailee at a location other than as
provided in the Perfection Certificate, Borrower will first receive the written consent of Bank,
and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to
Bank in its sole discretion.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person. A Subsidiary may
merge or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign
or convey any right to receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the
first priority security interest granted herein,or enter into any agreement, document, instrument
or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly
prohibits or has the effect of prohibiting Borrower from assigning, mortgaging, pledging, granting
a security interest in or upon, or encumbering any of Borrower’s Intellectual Property, except as
is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens”
herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.8(b) hereof.
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7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock; or (b) directly or indirectly make any Investment
other than Permitted Investments, or permit any of its Subsidiaries to do so.
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 non-affiliated Person.
7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under
the terms of the subordination, intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or adversely affect the subordination
thereof to Obligations owed to Bank.
7.10 Compliance. Become an “investment company” or a company controlled by an “investment
company”, under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as defined in Regulation U
of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of
its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in,
permit partial or complete termination of, or permit the occurrence of any other event with respect
to, any present pension, profit sharing and deferred compensation plan which could reasonably be
expected to result in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days
after such Obligations are due and payable (which three (3) Business Day cure period shall not
apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to
make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but
no Credit Extension will be made during the cure period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2,
6.5, 6.7, 6.8, 6.9, 6.10(c), 6.12, 6.13 or
violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure the default within ten (10)
days after the occurrence thereof; provided, however, that if the default cannot by its nature be
cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within
such ten (10) day period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional 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 cure the
default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such
cure period). Cure periods provided under this section shall not apply, among other things, to
financial covenants or any other covenants set forth in clause (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
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8.4 Attachment; Levy; Restraint on Business.
(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of
Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or
otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed
against any of Borrower’s assets by any government agency, and the same under subclauses (i) and
(ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall
be made during any ten (10) day cure period; or
(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes
into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents
Borrower from conducting any material part of its business;
8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts) as they
become due or otherwise becomes insolvent; or Borrower fails to be solvent as described under
Section 5.6 hereof; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency
Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no
Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or
until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. There is, under any agreement to which Borrower or any Guarantor is a
party with a third party or parties, (a) any default resulting in a right by such third party or
parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount
individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any
default by Borrower or Guarantor, the result of which could have a material adverse effect on
Borrower’s or any Guarantor’s business;
8.7 Judgments. One or more final judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not
covered by independent third-party insurance as to which liability has been accepted by such
insurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days
after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay (provided that no Credit
Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or
decree);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated
Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and
effect, any Person shall be in breach thereof or contest in any manner the validity or
enforceability thereof or deny that it has any further liability or obligation thereunder, or the
Obligations shall for any reason be subordinated or shall not have the priority contemplated by
this Agreement or the Subordination Agreement; or
8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a
full term or (b) subject to any decision by a Governmental Authority that designates a hearing with
respect to any applications for renewal of any of such Governmental Approval or that could result
in the Governmental Authority taking any of the actions described in clause (a) above, and such
decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could
reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal
qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal
could reasonably be expected to affect the status of or legal qualifications of Borrower or any of
its Subsidiaries to hold any Governmental Approval in any other jurisdiction.
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9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without
notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.5 occurs all Obligations are immediately due and payable without any action by
Bank);
(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Bank;
(c) demand that Borrower (i) deposit cash with Bank in an amount equal to 110% of the Dollar
Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all
interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its
good faith business judgment)), to secure all of the Obligations relating to such Letters of
Credit, as collateral security for the repayment of any future drawings under such Letters of
Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all
letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of
Credit;
(d) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s
security interest in such funds, and verify the amount of such account;
(e) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Bank requests and make it available as Bank designates. Bank may enter premises where the
Collateral is located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank’s rights or remedies;
(f) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Bank owing to or for the credit or the account of Borrower;
(g) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of
use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of, advertising for sale, and
selling any Collateral and, in connection with Bank’s exercise of its rights under this Section,
Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(h) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to any Control
Agreement or similar agreements providing control of any Collateral;
(i) demand and receive possession of Borrower’s Books; and
(j) exercise all rights and remedies available to Bank under the Loan Documents or at law or
equity, including all remedies provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).
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9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or xxxx of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust
all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of Bank’s security interest in the Collateral regardless of whether an
Event of Default has occurred until all Obligations have been satisfied in full and Bank is under
no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as
Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to
provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section
6.7 or fails to pay any premium thereon or fails to pay any other amount which Borrower is
obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or
make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then highest rate applicable to the Obligations, and secured by
the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank
obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No
payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of
any Event of Default.
9.4 Application of Payments and Proceeds. If an Event of Default has occurred and is
continuing, Bank may apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole
discretion. Any surplus shall be paid to Borrower by credit to the Designated Deposit Account or
to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.
If Bank, in its good faith business judgment, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have
the option, exercisable at any time, of either reducing the Obligations by the principal amount of
the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank
of cash therefor.
9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under the control of
Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act
or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral.
9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict
performance by Borrower of any provision of this Agreement or any other Loan Document shall not
waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance
herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting
the waiver and then is only effective for the specific instance and purpose for which it is given.
Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank
has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one
right or remedy is not an election and shall not preclude Bank from exercising any other remedy
under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event
of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver,
election, or acquiescence.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by
Bank on which Borrower is liable.
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10 NOTICES
All notices, consents, requests, approvals, demands, or other communication by any party to
this Agreement or any other Loan Document must be in writing and shall be deemed to have been
validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business
Days after deposit in the U.S. mail, first class, registered or certified mail return receipt
requested, with proper postage prepaid; (b) upon transmission, when
sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with
a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or Borrower may change its mailing or
electronic mail address or facsimile number by giving the other party written notice thereof in
accordance with the terms of this Section 10.
| If to Borrower: | XxxxxxXxxxx Pharmaceuticals, Inc. | |||
| 0 Xxxxxxx Xxxxxx, Xxxxx 000 | ||||
| Xxxxxxxx, Xxxxx 00000 | ||||
| Attn: Chief Financial Officer | ||||
| Fax: | ||||
| With a copy to: | XxxxxxXxxxx Pharmaceuticals, Inc. | |||
| 0 Xxxxxxx Xxxxxx, Xxxxx 000 | ||||
| Xxxxxxxx, Xxxxx 00000 | ||||
| Attn: General Counsel | ||||
| Fax: 000-000-0000 | ||||
| If to Bank: | Silicon Valley Bank | |||
| 00000 Xxxxx Xxxxxx Xxxxxxx, Xxxxx 000 | ||||
| Xxxxxx, XX 00000 | ||||
| Attn: Xxxxxxxx Xxxxxxx | ||||
| Fax: 000-000-0000 |
11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE
Texas law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in
Dallas County, Texas; provided, however, that nothing in this Agreement shall be deemed to operate
to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to
realize on the Collateral or any other security for the Obligations, or to enforce a judgment or
other court order in favor of Bank. Borrower expressly submits and consents in advance to such
jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any
objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and
other process issued in such action or suit and agrees that service of such summons, complaints,
and other process may be made by registered or certified mail addressed to Borrower at the address
set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to occur of
Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN
DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH
PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
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12 GENERAL PROVISIONS
12.1 Termination Prior to Revolving Line Maturity Date. This Agreement may be terminated
prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after
written notice of termination is given to Bank. Notwithstanding any such termination, Bank’s lien
and security interest in the Collateral shall continue until Borrower fully satisfies its
Obligations. If such termination is at Borrower’s election prior to the first anniversary of the
Effective Date or at Bank’s election due to the occurrence and continuance of an
Event of Default, Borrower shall pay to Bank, in addition to the payment of any other expenses
or fees then-owing, a termination fee in an amount equal to one half of one percent (0.50%) of the
Revolving Line; provided that no termination fee shall be charged if the credit facility hereunder
is replaced with a new facility from another division of Bank.
12.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors
and permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Bank’s prior written consent (which may be granted or withheld in
Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell,
transfer, assign, negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.
12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors,
officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank
(each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and
liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank
Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of,
following from, consequential to, or arising from transactions between Bank and Borrower (including
reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such
Indemnified Person’s gross negligence or willful misconduct.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.
12.5 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.6 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in
the Loan Documents consistent with the agreement of the parties.
12.7 Amendments in Writing; Waiver; Integration. No purported amendment or modification of
any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document,
shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing
signed by the party against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure
to require performance or course of conduct shall operate as, or evidence, an amendment, supplement
or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to
the specific circumstance expressly described in it, and shall not apply to any subsequent or other
circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or
commitment to grant any further waiver. The Loan Documents represent the entire agreement about
this subject matter and supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the parties about the subject
matter of the Loan Documents merge into the Loan Documents.
12.8 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, is an
original, and all taken together, constitute one Agreement.
12.9 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of Borrower in Section
12.3 to indemnify Bank shall survive until the statute of limitations with respect to such
claim or cause of action shall have run.
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12.10 Confidentiality. In handling any confidential information, Bank shall exercise the same
degree of care that it exercises for its own proprietary information, but disclosure of information
may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers
of any interest in the Credit Extensions
(provided, however); (c) as required by law, regulation, subpoena, or other order; (d) to
Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as
Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party
service providers of Bank so long as such service providers have executed a confidentiality
agreement with Bank with terms no less restrictive than those contained herein. Confidential
information does not include information that is either: (i) in the public domain or in Bank’s
possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank;
or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.
Bank may use confidential information for the development of databases, reporting purposes,
and market analysis so long as such confidential information is aggregated and anonymized prior to
distribution unless otherwise expressly permitted by Borrower. The provisions of the immediately
preceding sentence shall survive the termination of this Agreement.
12.11 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and
Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.
12.12 Electronic Execution of Documents. The words “execution,” “signed,” “signature” and
words of like import in any Loan Document shall be deemed to include electronic signatures or the
keeping of records in electronic form, each of which shall be of the same legal effect, validity
and enforceability as a manually executed signature or the use of a paper-based recordkeeping
systems, as the case may be, to the extent and as provided for in any applicable law, including,
without limitation, any state law based on the Uniform Electronic Transactions Act.
12.13 Captions. The headings used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
12.14 Construction of Agreement. The parties mutually acknowledge that they and their
attorneys have participated in the preparation and negotiation of this Agreement. In cases of
uncertainty this Agreement shall be construed without regard to which of the parties caused the
uncertainty to exist.
12.15 Relationship. The relationship of the parties to this Agreement is determined solely by
the provisions of this Agreement. The parties do not intend to create any agency, partnership,
joint venture, trust, fiduciary or other relationship with duties or incidents different from those
of parties to an arm’s-length contract.
12.16 Third Parties. Nothing in this Agreement, whether express or implied, is intended to:
(a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons
other than the express parties to it and their respective permitted successors and assigns; (b)
relieve or discharge the obligation or liability of any person not an express party to this
Agreement; or (c) give any person not an express party to this Agreement any right of subrogation
or action against any party to this Agreement.
13 DEFINITIONS
13.1 Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word
“may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not
limiting, the singular includes the plural, and numbers denoting amounts that are set off in
brackets are negative. As used in this Agreement, the following capitalized terms have the
following meanings:
“Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
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“Affiliate” is, with respect to any Person, each other Person that owns or controls directly
or indirectly the Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person’s senior executive officers, directors, partners and, for
any Person that is a limited liability company, that Person’s managers and members.
“Agreement” is defined in the preamble hereof.
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available
under the Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash Management
Services, and minus (e) the outstanding principal balance of any Advances.
“Bank” is defined in the preamble hereof.
“Bank Expenses” are all reasonable audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering,
defending and enforcing the Loan Documents (including, without limitation, those incurred in
connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
“Borrower” is defined in the preamble hereof
“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state
tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.
“Borrowing Base” is (a) 80% of Eligible Accounts, plus (b) the lesser of (i) thirty-five
percent (35%) of the value of Borrower’s Eligible Inventory (valued at the lower of cost or
wholesale fair market value) or (ii) $1,000,000, as determined by Bank from Borrower’s most recent
Transaction Report; provided, that in no event shall the amount of Advances supported by Borrower’s
Eligible Inventory exceed twenty-five percent (25%) of all Advances. Bank may decrease the
foregoing percentage in its good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely affect Collateral.
“Borrowing Resolutions” are, with respect to any Person, those resolutions substantially in
the form attached hereto as Exhibit D.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally
guaranteed by the United States or any agency or any State thereof having maturities of not more
than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1)
year after its creation and having the highest rating from either Standard & Poor’s Ratings Group
or Xxxxx’x Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than
one (1) year after issue.
“Cash Management Services” is defined in Section 2.1.4(b).
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of Texas; provided, that, to the extent that the Code is used to define any
term herein or in any Loan Document and such term is defined differently in different Articles or
Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any
Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the
State of Texas, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in
such other jurisdiction solely for purposes of the provisions thereof relating to such attachment,
perfection, priority, or remedies and for purposes of definitions relating to such provisions.
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“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit
A.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.
“Committed Availability” means, as the date of determination, an amount equal to the
Availability Amount minus all outstanding Credit Extensions.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.
“Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit B.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed,
co-made, discounted or sold with recourse by that Person, or for which that Person is directly or
indirectly liable; (b) any obligations for undrawn letters of credit for the account of that
Person; and (c) all obligations from any interest rate, currency or commodity swap agreement,
interest rate cap or collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or commodity prices; but
“Contingent Obligation” does not include endorsements in the ordinary course of business. The
amount of a Contingent Obligation is the stated or determined amount of the primary obligation for
which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not exceed the maximum
of the obligations under any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank
pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
“Copyrights” are any and all copyright rights, copyright applications, copyright registrations
and like protections in each work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret.
“Credit Extension” is any Advance, Letter of Credit, FX Forward Contract, amount utilized for
Cash Management Services, or any other extension of credit by Bank for Borrower’s benefit.
“Default Rate” is defined in Section 2.3(b).
“Deferred Revenue” is all amounts received or invoiced in advance of performance under
contracts and not yet recognized as revenue.
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.
“Designated Deposit Account” is Borrowers’ deposit account, account number ,
maintained with Bank.
“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and
not any other currency, regardless of whether that currency uses the “$” sign to denote its
currency or may be readily converted into lawful money of the United States.
“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars,
such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent
amount therefor in Dollars as
determined by Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such
Foreign Currency.
- 23 -
“Effective Date” is defined in the preamble hereof.
“Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business
that meet all Borrower’s representations and warranties in Section 5.3. Bank reserves the
right at any time after the Effective Date to adjust any of the criteria set forth below and to
establish new criteria in its good faith business judgment. Unless Bank otherwise agrees in
writing, Eligible Accounts shall not include:
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date
regardless of invoice payment period terms;
(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have
not been paid within ninety (90) days of invoice date;
(c) Accounts owing from an Account Debtor which does not have its principal place of business
in the United States;
(d) Accounts billed and/or payable outside of the United States;
(e) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated
in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise — sometimes called
“contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;
(f) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(g) Accounts with credit balances over ninety (90) days from invoice date;
(h) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, except for Account Debtors Amerisource
Bergen, Cardinal Health and McKesson for which the percentage for any one of the foregoing during
any period may be forty percent (40%) during any Streamline Period and fifty percent (50%) during
all other periods, while the percentage for the other two during such period is thirty-five percent
(35%), for the amounts that exceed that percentage, unless Bank approves in writing;
(i) Accounts owing from an Account Debtor which is a United States government entity or any
department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to
Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940,
as amended;
(j) Accounts for demonstration or promotional equipment, or in which goods are consigned, or
sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account
Debtor’s payment may be conditional;
(k) Accounts owing from an Account Debtor that has not been invoiced or where goods or
services have not yet been rendered to the Account Debtor (sometimes called memo xxxxxxxx or
pre-xxxxxxxx);
(l) Accounts subject to contractual arrangements between Borrower and an Account Debtor where
payments shall be scheduled or due according to completion or fulfillment requirements where the
Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to
perform in accordance with the contract (sometimes called contracts accounts receivable, progress
xxxxxxxx, milestone xxxxxxxx, or fulfillment contracts);
- 24 -
(m) Accounts owing from an Account Debtor the amount of which may be subject to withholding
based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the
extent of the amount withheld; sometimes called retainage xxxxxxxx);
(n) Accounts subject to trust provisions, subrogation rights of a bonding company, or a
statutory trust;
(o) Accounts owing from an Account Debtor that has been invoiced for goods that have not been
shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an
agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that
(i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the
goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from
Borrower (sometimes called “xxxx and hold” accounts);
(p) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred
Revenue (but only to the extent of such Deferred Revenue);
(q) Accounts for which the Account Debtor has not been invoiced;
(r) Accounts that represent non-trade receivables or that are derived by means other than in
the ordinary course of Borrower’s business;
(s) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90
days;
(t) Accounts subject to chargebacks or others payment deductions taken by an Account Debtor
(but only to the extent the chargeback is determined invalid and subsequently collected by
Borrower);
(u) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding,
or becomes insolvent, or goes out of business; and
(v) Accounts for which Bank in its good faith business judgment determines collection to be
doubtful.
“Eligible Inventory” means Inventory that meets all of Borrower’s representations and
warranties in Section 5.3, is located in the United States and is otherwise acceptable to Bank in
all respects.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Event of Default” is defined in Section 8.
“Excess Availability” is the sum of Borrowers’ (a) unrestricted cash on deposit with Bank,
plus (b) the Availability Amount.
“Exchange Act” is the Securities Exchange Act of 1934, as amended.
“Foreign Currency” means lawful money of a country other than the United States.
“Foreign Exchange Sublimit” is an amount equal to Two Million Dollars ($2,000,000).
“Funding Date” is any date on which a Credit Extension is made to or for the account of
Borrower which shall be a Business Day.
- 25 -
“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its
normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to
Bank from the entity from which Bank shall buy or sell such Foreign Currency.
“FX Forward Contract” is defined in Section 2.1.3.
“FX Reduction Amount” is defined in Section 2.1.3.
“FX Reserve” is defined in Section 2.1.3.
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date of determination.
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all Intellectual Property, claims, income and other tax refunds, security and other
deposits, payment intangibles, contract rights, options to purchase or sell real or personal
property, rights in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any kind.
“Governmental Approval” is any consent, authorization, approval, order, license, franchise,
permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or
other act by or in respect of, any Governmental Authority.
“Governmental Authority” is any nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions
of or pertaining to government, any securities exchange and any self-regulatory organization.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.
“Indemnified Person” is defined in Section 12.3.
“Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Intellectual Property” means all of Borrower’s right, title, and interest in and to the
following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any
rights to unpatented inventions, know-how, operating manuals;
(c) any and all source code;
(d) any and all design rights which may be available to a Borrower;
- 26 -
(e) any and all claims for damages by way of past, present and future infringement of any of
the foregoing, with the right, but not the obligation, to xxx for and collect such damages for said
use or infringement of the Intellectual Property rights identified above; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash)
determined in accordance with GAAP for the relevant period ending on such date, including, in any
event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower,
including, without limitation or duplication, all commissions, discounts, or related amortization
and other fees and charges with respect to letters of credit and bankers’ acceptance financing and
the net costs associated with interest rate swap, cap, and similar arrangements, and the interest
portion of any deferred payment obligation (including leases of all types).
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of Borrower’s custody
or possession or in transit and including any returned goods and any documents of title
representing any of the above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.
“Letter of Credit” means a standby letter of credit issued by Bank or another institution
based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set
forth in Section 2.1.4(a).
“Letter of Credit Application” is defined in Section 2.1.4(a).
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.4(a).
“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other
encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise
against any property.
“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, any note, or
notes or guaranties executed by Borrower or any Guarantor, and any other present or future
agreement between Borrower any Guarantor and/or for the benefit of Bank in connection with this
Agreement, all as amended, restated, or otherwise modified.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s
Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment
of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon
information available to it and in its good faith business judgment, that there is a reasonable
likelihood that Borrower shall fail to comply with one or more of the financial covenants in
Section 6 during the next succeeding financial reporting period.
“Monthly Financial Statements” is defined in Section 6.2(c).
“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries
for any period as at any date of determination, the net profit (or loss), after provision for
taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.
“Non-Formula Sublimit” is an amount equal to Two Million Dollars ($2,000,000).
“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan
Documents (other than the Warrant), or otherwise, including, without limitation, all obligations
relating to letters of credit (including
reimbursement obligations for drawn and undrawn letters of credit), cash management services,
and foreign exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to
perform Borrower’s duties under the Loan Documents.
- 27 -
“Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in
current form, (b) if such Person is a limited liability company, its limited liability company
agreement (or similar agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current amendments or
modifications thereto.
“Other Services Sublimit” is an amount equal to Two Million Dollars ($2,000,000).
“Overadvance” is defined in Section 2.2.
“Patents” means all patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
“Payment” means all checks, wire transfers and other items of payment received by Bank
(including proceeds of Accounts and payment of the Obligations in full) for credit to Borrower’s
outstanding Credit Extensions or, if the balance of the Credit Extensions has been reduced to zero,
for credit to its deposit accounts.
“Perfection Certificate” is defined in Section 5.1.
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;
(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of
“Permitted Liens” hereunder;
(g) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
“Permitted Investments” are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date
and shown on the Perfection Certificate;
(b) Investments consisting of Cash Equivalents;
(c) Investments made (i) pursuant to Borrower’s investment policy, as shown on Schedule 13,
attached hereto, as may be amended from time to time with Bank’s consent, or (ii) through a
securities or investment account established with Bank or Bank’s affiliates;
- 28 -
(d) Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;
(e) Investments consisting of deposit accounts in which Bank has a perfected security
interest;
(f) Investments accepted in connection with Transfers permitted by Section 7.1;
(g) Investments by Borrower in Subsidiaries not to exceed One Hundred Thousand Dollars
($100,000) in the aggregate in any fiscal year;
(h) Investments consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;
(i) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of business; and
(j) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (j) shall not apply to Investments of Borrower in any Subsidiary.
“Permitted Liens” are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not
due and payable or (ii) being contested in good faith and for which Borrower maintains adequate
reserves on its Books, provided that no notice of any such Lien has been filed or recorded
under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted
thereunder;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment, or (ii) existing on Equipment when acquired, if the Lien
is confined to the property and improvements and the proceeds of the Equipment;
(d) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature
arising in the ordinary course of business so long as such Liens attach only to Inventory and which
are not delinquent or remain payable without penalty or which are being contested in good faith and
by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale
of the property subject thereto;
(e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business (other than
Liens imposed by ERISA);
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (c), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary course of Borrower’s business
(or, if referring to another Person, in the ordinary course of such Person’s business), and leases,
subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual
Property) granted in the ordinary course of Borrower’s business (or, if referring to another
Person, in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest therein;
- 29 -
(h) non-exclusive license of Intellectual Property granted to third parties in the ordinary
course of business;
(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 8.4 and 8.7; and
(j) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Bank has a perfected
security interest in the amounts held in such deposit and/or securities accounts.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made
“Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.
“Reserves” means, as of any date of determination, such amounts as Bank may from time to time
establish and revise in its good faith business judgment, reducing the amount of Advances and other
financial accommodations which would otherwise be available to Borrower (a) to reflect events,
conditions, contingencies or risks which, as determined by Bank in its good faith business
judgment, do or may adversely affect (i) the Collateral or any other property which is security for
the Obligations or its value (including without limitation any increase in delinquencies of
Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Bank in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Bank’s good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any Guarantor to Bank is
or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of
any state of facts which Bank determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.
“Restricted License” is any material license or other agreement with respect to which Borrower
is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security
interest in Borrower’s interest in such license or agreement or any other property, or (b) for
which a default under or termination of could interfere with the Bank’s right to sell any
Collateral.
“Revolving Line” is an Advance or Advances in an amount equal to Ten Million Dollars
($10,000,000).
“Revolving Line Maturity Date” is the second anniversary of the Effective Date.
“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any
analogous Governmental Authority.
“Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.
- 30 -
“Streamline Period” is any period during which Borrowers’ Excess Availability is greater than
$15,000,000.
“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now
or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Bank entered into between Bank and the other
creditor), on terms acceptable to Bank.
“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or
other entity of which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such
Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a
reference to a Subsidiary of Borrower.
“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its
Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items
including unamortized debt discount and expense and any book-up offset asset, Patents, Trademarks,
Copyrights, and research and development expenses except prepaid expenses, (iii) notes, accounts
receivable and other obligations owing to Borrower from its officers or other Affiliates, and (iv)
reserves not already deducted from assets, minus (b) Total Liabilities.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, but excluding all
other Subordinated Debt.
“Trademarks” means any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized by such trademarks.
“Transaction Report” is that certain report of transactions and schedule of collections in the
form attached hereto as Exhibit C.
“Transfer” is defined in Section 7.1.
“Unused Revolving Line Facility Fee” is defined in Section 2.4(d).
[Signature page follows.]
- 31 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
| BORROWER: | ||||||
| XXXXXXXXXXX PHARMACEUTICALS, INC., a Delaware corporation |
||||||
By |
/s/ Xxxxx Xxxxxx | |||||
| Name: Xxxxx Xxxxxx | ||||||
| Title: EVP & CFO | ||||||
| BANK: | ||||||
| SILICON VALLEY BANK | ||||||
By |
/s/ Xxxxxx X. Xxxx | |||||
| Name: Xxxxxx X. Xxxx | ||||||
| Title: Senior Vice President | ||||||
SCHEDULE 3.1(e)
Kentucky
Tennessee
New Jersey
California
Florida
Texas
Georgia
New York
Indiana
Illinois
West Virginia
North Carolina
Missouri
Massachusetts
Tennessee
New Jersey
California
Florida
Texas
Georgia
New York
Indiana
Illinois
West Virginia
North Carolina
Missouri
Massachusetts
SCHEDULE 3.1(f)
Integrated Commercialization Solutions (Brooks, Kentucky)
SCHEDULE 13
Investment Policy
EXHIBIT A
Collateral
The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles, commercial tort claims, documents, instruments (including any promissory notes),
chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and
all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
Notwithstanding the foregoing, the Collateral does not include any Intellectual Property;
provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual
Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security
interest in the underlying Intellectual Property is necessary to have a security interest in such
Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall
automatically, and effective as of the Effective Date, include the Intellectual Property to the
extent necessary to permit perfection of Bank’s security interest in such Accounts and such other
property of Borrower that are proceeds of the Intellectual Property.
EXHIBIT B
Compliance Certificate
TO:
|
SILICON VALLEY BANK | Date: | ||
FROM:
|
XXXXXXXXXXX PHARMACEUTICALS, INC. |
The undersigned authorized officer of XxxxxxXxxxx Pharmaceuticals, Inc. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank
(the “Agreement”), (1) Borrower is in complete compliance for the period ending
with all required covenants except as noted below, (2) there are no Events of Default, (3) all
representations and warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in all material
respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to
the terms of Section 5.6 of the Agreement, and (5) no Liens have been levied or claims made
against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank. Attached are the required
documents supporting the certification. The undersigned certifies that these are prepared in
accordance with generally GAAP consistently applied from one period to the next except as explained
in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be
requested at any time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given
them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | ||
Monthly financial statements with
Compliance Certificate* |
Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + XX |
XXX within 150 days | Yes No | ||
A/R & A/P Agings; Inventory Reports |
Monthly within 15 days | Yes No | ||
Transaction Report |
Weekly or monthly | Yes No |
The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”)
| Financial Covenant | Required | Actual | Complies | |||||||||
Maintain on a Monthly Basis, |
||||||||||||
Minimum Tangible Net Worth: |
$ | 1.00 | $ | Yes No | ||||||||
| Streamline Reporting | Required | Actual | Complies | |||||||||
Excess Availability |
$ | 15,000,000 | $ | Yes No | ||||||||
| Performance Pricing* | Applies | |||
During Streamline Period |
Prime + 1.0% | Yes No | ||
All other times |
Prime + 2.0% | Yes No |
The following financial covenant analysis and information set forth in Schedule 1 attached
hereto are true and accurate as of the date of this Certificate.
The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)
| XXXXXXXXXXX PHARMACEUTICALS, INC., | BANK USE ONLY | |||||||||||
| a Delaware corporation | ||||||||||||
| By: | Received by: | |||||||||||
| authorized signer | ||||||||||||
Name:
|
Date: | |||||||||||
Title:
|
Verified: | |||||||||||
| authorized signer | ||||||||||||
| Date: | ||||||||||||
| Compliance Status: Yes No | ||||||||||||
Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
Financial Covenants of Borrower
In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan
Agreement shall govern.
Dated:
1. Tangible Net Worth (Section 6.9)
Required: 1.00, plus 50% of quarterly net income
Actual:
| A. | Aggregate value of liabilities of Borrower (including all Indebtedness) and current
portion of Subordinated Debt permitted by Bank to be paid by Borrower (but no other
Subordinated Debt)
|
$ |
||
| B. | Aggregate value of Indebtedness of Borrower subordinated to Borrower’s Indebtedness to Bank
|
$ | ||
| C. | Debt (line A minus line B)
|
$ | ||
| D. | Aggregate value of total assets of Borrower
|
$ | ||
| E. | Aggregate value of goodwill of Borrower
|
$ | ||
| F. | Aggregate value of intangible assets of Borrower
|
$ | ||
| G. | Aggregate value of any reserves not already deducted from assets
|
$ | ||
| H. | Value of line A.
|
$ | ||
| I. | 50% of all Net Income
|
$ | ||
| J. | Tangible Net Worth (line D minus line E minus line F minus line G minus line H plus line I)
|
$ |
Is line K equal to or greater than 1.00
No, not in compliance Yes, in compliance
EXHIBIT C
Transaction Report
Transaction Report
EXHIBIT D
|
Silicon Valley Bank |
CORPORATE BORROWING CERTIFICATE
Borrower:
|
XxxxxxXxxxx Pharmaceuticals, Inc. | Date: June , 2009 | ||
Bank:
|
Silicon Valley Bank |
I hereby certify as follows, as of the date set forth above:
1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My title is as set
forth below.
2. Borrower’s exact legal name is set forth above. Borrower is a corporation existing under the
laws of the State of
.
[print name of state]
.
[print name of state]
3. Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of
Incorporation (including amendments), as filed with the Secretary of State of the state in which
Borrower is incorporated as set forth in paragraph 1 above. Such Articles/Certificate of
Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in
full force and effect as of the date hereof.
4. The following resolutions were duly and validly adopted by Borrower’s Board of Directors at a
duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized
corporate action). Such resolutions are in full force and effect as of the date hereof and have
not been in any way modified, repealed, rescinded, amended or revoked, and Bank may rely on them
until Bank receives written notice of revocation from Borrower.
Resolved, that any one of the following officers or employees of Borrower, whose names,
titles and signatures are below, may act on behalf of Borrower:
| Authorized to | ||||||
| Add or Remove | ||||||
| Name | Title | Signature | Signatories | |||
| o | ||||||
| o | ||||||
| o | ||||||
| o | ||||||
Resolved Further, that any one of the persons designated above with a checked box
beside his or her name may, from time to time, add or remove any individuals to and from the
above list of persons authorized to act on behalf of Borrower.
Resolved Further, that such individuals may, on behalf of Borrower:
Borrow Money. Borrow money from Silicon Valley Bank (“Bank”).
Execute Loan Documents. Execute any loan documents Bank requires.
Grant Security. Grant Bank a security interest in any of Borrower’s assets.
Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or
other indebtedness in which Borrower has an interest and receive cash or otherwise use the
proceeds.
Letters of Credit. Apply for letters of credit from Bank.
Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.
Further Acts. Designate other individuals to request advances, pay fees and costs and
execute other documents or agreements (including documents or agreement that waive Borrowers
right to a jury trial) they believe to be necessary to effectuate such resolutions.
Resolved Further, that all acts authorized by the above resolutions and any prior acts
relating thereto are ratified.
5. The persons listed above are Borrower’s officers or employees with their titles and signatures
shown next to their names.
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
*** If the Secretary, Assistant Secretary or other certifying officer executing above is
designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers,
this Certificate must also be signed by a second authorized officer or director of Borrower.
I, the of Borrower, hereby certify as to paragraphs 1 through 5
above, as of the date
[print title]
set forth above.
[print title]
set forth above.
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
