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SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
by and between
SILICON VALLEY BANK
as Lender
and
ENDOCARE, INC.
as Borrower
Dated: March 24, 1998
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION...................................................1
1.1 Definitions.............................................................1
1.2 Accounting and Other Terms..............................................5
2. LOAN AND TERMS OF PAYMENT......................................................6
2.1 Credit Extensions.......................................................6
2.2 Overadvances............................................................6
2.3 Interest Rates, Payments, and Calculations..............................6
2.4 Crediting Payments......................................................7
2.5 Fees....................................................................7
2.6 Additional Costs........................................................7
2.7 Term....................................................................8
3. CONDITIONS OF LOANS............................................................8
3.1 Conditions Precedent to Initial Credit Extension........................8
3.2 Conditions Precedent to all Credit Extensions...........................8
4. CREATION OF SECURITY INTEREST..................................................9
4.1 Grant of Security Interest..............................................9
4.2 Delivery of Additional Documentation Required...........................9
4.3 Right to Inspect........................................................9
5. REPRESENTATIONS AND WARRANTIES.................................................9
5.1 Due Organization and Qualification......................................9
5.2 Due Authorization.......................................................9
5.3 No Prior Encumbrances...................................................9
5.4 [Reserved]..............................................................9
5.5 Merchantable Inventory..................................................9
5.6 [Reserved]..............................................................9
5.7 Name....................................................................10
5.8 Litigation..............................................................10
5.9 No Material Adverse Change in Financial Statements......................10
5.10 Solvency................................................................10
5.11 Regulatory Compliance...................................................10
5.12 Environmental Condition.................................................10
5.13 Taxes...................................................................10
5.14 Subsidiaries............................................................11
5.15 Government Consents.....................................................11
5.16 Full Disclosure.........................................................11
6. AFFIRMATIVE COVENANTS..........................................................11
6.1 Good Standing...........................................................11
6.2 Government Compliance...................................................11
6.3 Financial Statements, Reports, Certificates.............................11
6.4 Inventory...............................................................12
6.5 Taxes...................................................................12
6.6 Insurance...............................................................12
6.7 Principal Depository....................................................12
6.8 Quick Ratio.............................................................13
6.9 Debt-Net Worth Ratio....................................................13
6.10 Tangible Net Worth......................................................13
6.12 Profitability...........................................................13
6.13 Further Assurances......................................................13
7. NEGATIVE COVENANTS.............................................................13
7.1 Dispositions............................................................13
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TABLE OF CONTENTS (CONTD)
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7.2 Changes in Business, Ownership, or Management, Business Locations.......13
7.3 Mergers or Acquisitions.................................................14
7.4 Indebtedness............................................................14
7.5 Encumbrances............................................................14
7.6 Distributions...........................................................14
7.7 Investments.............................................................14
7.8 Transactions with Affiliates............................................14
7.9 [Reserved]..............................................................14
7.10 Subordinated Debt.......................................................14
7.11 Inventory...............................................................14
7.12 Compliance..............................................................14
8. EVENTS OF DEFAULT..............................................................15
8.1 Payment Default.........................................................15
8.2 Covenant Default........................................................15
8.3 Material Adverse Change.................................................15
8.4 Attachment..............................................................15
8.5 Insolvency..............................................................15
8.6 Other Agreements........................................................15
8.7 Subordinated Debt.......................................................16
8.8 Judgments...............................................................16
8.9 Misrepresentations......................................................16
8.10 Guaranty................................................................16
9. BANK'S RIGHTS AND REMEDIES.....................................................16
9.1 Rights and Remedies.....................................................16
9.2 Power of Attorney.......................................................17
9.3 Accounts Collection.....................................................17
9.4 Bank Expenses...........................................................17
9.5 Bank's Liability for Collateral.........................................18
9.6 Remedies Cumulative.....................................................18
9.7 Demand..................................................................18
10. NOTICES........................................................................18
11. CHOICE OF LAW AND VENUE........................................................18
12. GENERAL PROVISIONS.............................................................19
12.1 Successors and Assigns..................................................19
12.2 Indemnification.........................................................19
12.3 Time of Essence.........................................................19
12.4 Severability of Provisions..............................................19
12.5 Amendments in Writing, Integration......................................19
12.6 Counterparts............................................................19
12.7 Survival................................................................19
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of March 24, 1998 by and
between SILICON VALLEY BANK ("Bank") and ENDOCARE, INC., a Delaware corporation
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
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"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
$1,000,000.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Advance or any other extension of credit
by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
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"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Liquidity Quick Assets" means (A) cash on hand or on deposit in
banks, readily marketable securities issued by the United States, readily
marketable commercial paper rated "A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating organization), and certificates of deposit
and banker's acceptances plus (B) the net amount of accounts receivable of the
Borrower.
"Liquidity Coverage Ratio" means the ratio of (a) Liquidity Quick
Assets to (b) the aggregate amount of the Committed Revolving Line, as in effect
from time to time.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any
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debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the first calendar day of each month commencing
on the first such date after the Closing Date and ending on the Revolving
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
and
(e) Indebtedness secured by Permitted Liens, provided that such
Indebtedness incurred in the future for the purchase price of or lease of
equipment shall not exceed, in the aggregate a total of $500,000 at any
time outstanding.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Xxxxx'x Investors Service, Inc.,
and (iii) certificates of deposit maturing no more than one (1) year from
the date of investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith
by appropriate proceedings and as to which adequate reserves are maintained
on Borrower's Books in accordance with GAAP, provided the same have no
priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment;
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(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date that is one day prior to the
first anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/"includes"
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shall always be read as meaning "including (or includes) without limitation",
when used herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of all Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed the Committed Revolving Line. Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to
this Section 2.1 may be repaid and reborrowed at any time during the term
of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific
time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled
to rely on any telephonic notice given by a person who Bank reasonably
believes to be a Responsible Officer or a designee thereof, and Borrower
shall indemnify and hold Bank harmless for any damages or loss suffered by
Bank as a result of such reliance. Bank will credit the amount of Advances
made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the Committed Revolving Line, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof, at a per annum rate
equal to 1.00% percentage points above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and after
the occurrence of an Event of Default, at a rate equal to three and one-half
percentage (3 1/2%) points above the interest rate applicable immediately prior
to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number _____________________ for payments
of principal and interest due
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on the Obligations and any other amounts owing by Borrower to Bank. Bank will
notify Borrower of all debits which Bank has made against Borrower's accounts.
Any such debits against Borrower's accounts in no way shall be deemed a set-off.
Any interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to $7,500, which fee shall be
due on the Closing Date and shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for
each appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal
or interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the overall
net income of Bank imposed by the United States of America or any political
subdivision thereof);
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(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Maturity Date. Notwithstanding
the foregoing, Bank shall have the right to terminate its obligation to make
Credit Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(f) Certificate of Foreign Qualification (if applicable); and
(g) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
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(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 [Reserved]
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5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 [Reserved]
5.7 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.10 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting
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in the release, or other disposition of hazardous waste or hazardous substances
into the environment.
5.13 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.16 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within thirty (30) days after
the end of each month for which quarter end and fiscal year end reports are not
otherwise required to be delivered to the Bank in accordance with this
Agreement, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a form and
certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon
as available, but in any event within the strict time period referred to in
clause (c) hereof with respect to submission of Form 10-K to the Securities and
Exchange Commission, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) within five (5) days
of filing, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
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any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; and (e) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within thirty (30) days after the last day of each month (other than with
respect to fiscal quarter end and fiscal year end periods), Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
With respect to all other month end periods, Borrower shall deliver to Bank with
the applicable quarter or year end financial statements together with a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every twelve (12) months unless an Event of Default has occurred
and is continuing. The first of such audits shall be conducted within 90 days of
the date hereof.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (I) contested in good faith by
appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. All such policies of property insurance shall
contain a lender's loss payable endorsement, in a form satisfactory to Bank,
showing Bank as an additional loss payee thereof and all liability insurance
policies shall show the Bank as an additional insured, and shall specify that
the insurer must give at least twenty (20) days notice to Bank before canceling
its policy for any reason. At Bank's
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request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.00
to 1.0.
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the last day of
each calendar month, a ratio of Total Liabilities less Subordinated Debt to
Tangible Net Worth plus Subordinated Debt of not more than 1.00 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than $2,500,000 through
and including the month ending March 31, 1998. For the month ending April 30,
1998 Borrower shall maintain, as of the last day of such month, a Tangible Net
Worth of not less than $1,750,000. For the month ending May 31 1998 Borrower
shall maintain, as of the last day of such month, a Tangible Net Worth of not
less than $1,250,000. Thereafter, through and including the month ending August
31, 1998, Borrower shall maintain, as of the last day of each calendar month, a
Tangible Net Worth of not less than $1,000,000. Thereafter, Borrower shall
maintain, as of the last day of each calendar month, a Tangible Net Worth of not
less than $2,500,000.
6.11 Liquidity Coverage Ratio. Borrower shall maintain, as of the last day
of each calendar month, a Liquidity Coverage Ratio of at least 1.75 to 1.0
through and including the month ending April 30, 1998. Thereafter, through and
including the month ending August 31, 1998, Borrower shall maintain, as of the
last day of each calendar month, a Liquidity Coverage Ratio of at least 1.50 to
1.0. Thereafter, Borrower shall maintain, as of the last day of each calendar
month, a Liquidity Coverage Ratio of at least 1.75 to 1.0.
6.12 Profitability. Borrower shall have a maximum net loss of $1,250,000
for each fiscal quarter, other than for a single fiscal quarter during the term
hereof in which the maximum quarterly net loss shall be $1,500,000. The maximum
loss for the Borrower's 1998 fiscal year shall be $5,250,000.
6.13 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; (iii) of worn-out or
obsolete Equipment; or (iv) relating to the disposition of the Borrower's
prolase product.
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7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership of greater than 40%. Borrower will not,
without at least thirty (30) days prior written notification to Bank, relocate
its chief executive office or add any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, other than
the proposed acquisition transaction as disclosed in writing to the Bank on or
prior to the date hereof (the "Proposed Acquisition") provided that (I) any such
acquisition target, if a stock or other entity acquisition, shall become a loan
or accommodation party to the Agreement and related documents and (II) any
assets acquired, or the assets of any target entity that is acquired, shall be
free of all liens and encumbrances.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Investments; Loans; Guarantees. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments, or make any loans of any money or any
other assets to any Person, or guarantee or otherwise become liable with respect
to the obligations of any other Person, other than a loan to the seller party in
connection with the Proposed Acquisition as long as the amount of indebtedness
thereunder shall not exceed $200,000.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 [Reserved]
7.10 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
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7.12 Compliance. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13, or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after 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 reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith
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contest by Borrower (provided that no Credit Extensions will be required to be
made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that reasonably could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
8.10 Guaranty. Any guaranty of all or a portion of the Obligations ceases
for any reason to be in full force and effect, or any Guarantor fails to perform
any obligation under any guaranty of all or a portion of the Obligations, or any
material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth in any guaranty of all or a portion of
the Obligations or in any certificate delivered to Bank in connection with such
guaranty, or any of the circumstances described in Sections 8.4, 8.5 or 8.8
occur with respect to any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
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(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or xxxx of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
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9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Endocare, Inc.
7 Studebaker
Xxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx Xxxxxx
-18-
22
FAX: (000) 000-0000
If to Bank Silicon Valley Bank
00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxx, V.P.
FAX: 000-000-0000
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The Loan Documents shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Orange,
State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
-19-
23
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
ENDOCARE, INC.
By: /s/ XXXX X. XXXXX
--------------------------------
Title: Chairman and CEO
--------------------------------
By: /s/ XXXXXXX X. XXXXXX
--------------------------------
Title: Senior Vice President and CFO
--------------------------------
SILICON VALLEY BANK
By: /s/ XXXXXX XXXXXXXX
--------------------------------
Title: Vice President
--------------------------------
-20-
24
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower in and
to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not include or be
deemed to include any copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
any patents, trademarks, servicemarks and applications therefor; any trade
secret rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements, now owned or hereafter
acquired; or any claims for damages by way of any past, present and future
infringement of any of the foregoing.
25
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________
FAX#: (408) __________ TIME: ______________
FROM:___________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:__________________________________________________________________________
FROM ACCOUNT #__________________________ TO ACCOUNT#____________________________
--------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $___________________________________
PRINCIPAL PAYMENT (ONLY) $___________________________________
INTEREST PAYMENT (ONLY) $___________________________________
PRINCIPAL AND INTEREST (PAYMENT) $___________________________________
OTHER INSTRUCTIONS:___________________________________________________________
--------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for and Advance confirmed by this Advance Request;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
--------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
--------------------------------------------------------------------------------
Authorized Requester
----------------------------------------
Authorized Signature (Bank)
Phone #_________________________________
--------------------------------------------------------------------------------
26
EXHIBIT C
[Reserved]
27
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM:
The undersigned authorized officer of _________________________ hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ___________________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that h no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements Monthly within 30 days (when no qtr end rpts) Yes No
Annual (CPA Audited) Within 5 days after filing with the SEC Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.00:1.0 _____:1.0 Yes No
Minimum Liq Coverage Ratio 1.75:1.0 (thru 4/30/98) _____:1.0 Yes No
Minimum Liq Coverage Ratio 1.50:1.0 (thru 8/31/98) _____:1.0 Yes No
Minimum Liq Coverage Ratio 1.75:1.0 (thereafter) _____:1.0 Yes No
Minimum Tangible Net Worth $2.5MM (thru 3/31/98) $________ Yes No
Minimum Tangible Net Worth $1.75MM (for 4/30/98) $________ Yes No
Minimum Tangible Net Worth $1.25MM (for 5/31/98) $________ Yes No
Minimum Tangible Net Worth $1MM (thru 8/31/98) $________ Yes No
Minimum Tangible Net Worth $2.5MM (thereafter) $________ Yes No
Maximum Debt/Tangible Net Worth 1.00:1.0 _____:1.0 Yes No
Profitability:Quarterly ($1.25MM) $________ Yes No
Quarterly ($1.5MM for 1 qtr only) $________ Yes No
Annually (98) ($5.25MM) $________ Yes No
=============================================
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
=============================================
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
_______________________ Date:_______________
SIGNATURE
_______________________
TITLE
28
CORPORATE BORROWING RESOLUTION
BORROWER: ENDOCARE, INC. BANK: SILICON VALLEY BANK
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ENDOCARE, INC. (THE
"BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
Xxxx X. Xxxxx Chairman and CEO /s/ XXXX X. XXXXX
---------------------------------
Xxxxxxx X. Xxxxxx Senior Vice President
and CFO /s/ XXXXXXX X. XXXXXX
---------------------------------
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to Borrower or in which Borrower may have an interest, and
either to receive cash for the same or to cause such proceeds to be
credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment of the officer or officers herein authorized.
29
CORPORATE BORROWING RESOLUTION
Page 2
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock, for
such class, series and number, and on such terms, as an officer of Borrower
shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of
the Corporation and occupy the positions set opposite their respective names;
that the foregoing Resolutions now stand of record on the books of the
Corporation; and that they are in full force and effect and have not been
modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on March 24, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ XXXXXXX X. XXXXXX
--------------------------------------
*Secretary or Assistant Secretary
X ______________________________________
