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APS ANALYTICAL STANDARDS, INC.
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Interest Rates, Payments, and Calculations . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Crediting Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. CONDITIONS OF LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Conditions Precedent to Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Conditions Subsequent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Bona Fide Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 Merchantable Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.6 Name; Location of Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 No Material Adverse Change in Financial Statements . . . . . . . . . . . . . . . . . . 9
5.9 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Regulatory Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.14 Government Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.15 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Government Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Financial Statements, Reports, Certificates . . . . . . . . . . . . . . . . . . . . . 11
6.4 Inventory; Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 Principal Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8 EBITDA/Bank Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Debt-Net Worth Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.10 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.11 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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6.12 Registration of Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . 12
6.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Mergers or Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.5 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.6 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.7 Advances to Employees or Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 13
7.8 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.9 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.10 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.11 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.12 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.13 Intercompany Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Payment Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Covenant Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.6 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.7 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.8 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.9 Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.7 Demand; Protest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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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This LOAN AND SECURITY AGREEMENT is entered into as of September
27, 1995, by and between VENTURE LENDING ("Bank") and APS ANALYTICAL STANDARDS,
INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefore, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"Advance" means an Advance under the Loan Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of Borrower's books and records
including ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Loan" means Three Million Dollars ($3,000,000).
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"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.
"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 Advances made under this Agreement, including all Indebtedness that
is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or 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.
"Daily Balance" means the amount of the Obligations owed at
the end of a given day.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"EBITDA" means, for any period, income of Borrower before
charges for interest, taxes, depreciation, and amortization determined in
accordance with GAAP.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or
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informal moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above, and Borrower's Books
relating to any of the foregoing.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Loan Facility" means the facility under which Borrower may
request a loan from Bank, as specified in Section 2.1 hereof.
"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 March 27, 1999.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Net Worth" means at any date as of which the amount thereof
shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus Total Liabilities.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay
to Bank pursuant to the terms and provisions of any instrument, or agreement
now or hereafter in existence between Borrower and Bank.
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"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt; and
(d) Indebtedness to trade creditors incurred in the
ordinary course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed
in the Schedule; and
(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, provided the same have no priority over
any of Bank's security interests;
(c) Liens (i) upon or in any equipment acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently published in The Wall Street Journal, as the "prime rate,"
whether or not such published rate is the lowest rate available from Bank.
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"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through
an Affiliate.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made in accordance with GAAP. When used
herein, the terms "financial statements" shall include the notes and schedules
thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Loan Facility.
(a) Subject to and upon the terms and conditions
of this Agreement, Bank agrees to lend to Borrower the Committed Loan amount.
(b) Interest shall accrue from the Closing Date
at the rate specified in Section 2.2(a), and shall be payable monthly for each
month through the month in which the Loan Facility expires.
2.2 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in
Section 2.3(b), any Advances shall bear interest, on the average Daily Balance,
at a rate equal to two (2) 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 five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of the Event of Default.
(c) Payments.
(i) Interest hereunder shall be due and
payable on the fifteenth calendar day of each month during the term hereof.
Bank shall, at its option, charge such interest, all Bank Expenses, and all
Periodic Payments against any of Borrower's deposit accounts. 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.
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(ii) Principal. Borrower shall make
quarterly principal payments as follows:
Payment Date Payment Amount
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12/01/96 $50,000
03/01/97 50,000
06/01/97 50,000
09/01/97 50,000
12/01/97 250,000
03/01/98 250,000
06/01/98 250,000
09/01/98 250,000
12/01/98 250,000
03/01/99 1,550,000
Borrower shall establish a separate demand deposit account with Bank. Borrower
shall deposit monthly, and maintain thereafter, an amount of one-third (1/3) of
the next scheduled principal payment then due in such account.
(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.
2.3 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 3:00 p.m. California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the
Loan Documents would otherwise be due (except by reason of acceleration) on a
date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.4 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Thirty
Thousand Dollars ($30,000), which fee shall be payable (i) in cash or (ii) in
common stock of Advanced Polymer Systems, Inc. provided that Borrower shall
deliver to Bank Thirty Thousand Dollars ($30,000) worth of such common stock
based on the closing market price of such common stock on the date prior to the
Closing Date which shares shall be unrestricted, duly authorized, fully
tradeable and fully paid shares. The Facility Fee shall be due on the Closing
Date and shall be fully earned and nonrefundable;
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(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of
Borrower's Accounts, and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents;
(c) Bank Expenses. Upon the date hereof, all
Bank Expenses incurred through the Closing Date, including reasonable
attorneys' fees and expenses, and, after the date hereof, all Bank Expenses,
including reasonable attorneys' fees and expenses, as and when they become due.
2.5 Additional Costs. In case any change in any law,
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force
of law), in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United
States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.6 Term. This Agreement shall become effective on the
Closing Date and, subject to Section 12.7, shall continue in full force and
effect for a term ending on the Maturity Date. Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOAN
3.1 Conditions Precedent to Loan. The obligation of Bank
to make the Loan is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower
with respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a collateral assignment and patent mortgage;
(d) subordination agreements by certain Persons;
(e) an opinion of Borrower's counsel;
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(f) guaranties by certain Persons;
(g) warrant to purchase stock;
(h) warrant to purchase additional stock;
(i) anti-dilution agreement;
(j) registration rights agreement;
(k) financing statements (Forms UCC-1);
(l) insurance certificate;
(m) payment of the fees and Bank Expenses then
due specified in Section 2.4 hereof; and
(n) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate;
(o) timely receipt by Bank of the Payment/Advance
Form in substantially the form of Exhibit B hereto; and
(p) 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 no Event of Default shall have
occurred and be continuing, or would result from the Loan.
3.2 Conditions Subsequent.
(a) Warrant to Grant Additional Stock. Borrower
has granted to Bank a Warrant to Purchase Additional Stock of even date
herewith, provided that if by November 27, 1995, (i) Borrower receives
Subordinated Debt in an amount of One Million Five Hundred Thousand Dollars
($1,500,000) or greater through Xxxxxxx Xxxxx & Company on terms acceptable to
Bank, and (ii) such additional Subordinated Debt holders execute Subordination
Agreements on terms acceptable to Bank, such Warrant to Purchase Additional
Stock shall automatically cancel.
(b) Advanced Polymer Systems, Inc. Subordination
Agreement. Advanced Polymer Systems, Inc. has entered into a Subordination
Agreement with Bank, provided that if by November 27, 1995, (i) Borrower
receives Subordinated Debt in an amount of One Million Five Hundred Thousand
Dollars ($1,500,000) or greater through Xxxxxxx Xxxxx & Company on terms
acceptable to Bank, and (ii) such Subordinated Debt holders execute
Subordination Agreements on terms acceptable to Bank, the Subordination
Agreement entered into with Advanced Polymer Systems, Inc. shall automatically
cancel.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt repayment of
any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Except as set
forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof.
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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 Articles of Incorporation or Bylaws,
nor will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Accounts. The Accounts are bona fide
existing obligations. The property giving rise to such Accounts has been
delivered to the account debtor or to the account debtor's agent for immediate
shipment to and unconditional acceptance by the account debtor.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all material
defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office
of Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule,
there are no actions or proceedings pending by or against Borrower or any
Subsidiary before any court or administrative agency in which an adverse
decision could have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower
does not have knowledge of any such pending or threatened actions or
proceedings.
5.8 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.
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5.9 Solvency. Borrower is solvent and able to pay its
debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary
has met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result in
Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 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.
5.15 Full Disclosure. No representation, warranty or
other statement made by Borrower in any certificate or written statement
furnished to Bank contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in its jurisdiction
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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 of Borrower's fiscal quarters, a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, certified by a
Responsible Officer; (b) as soon as available, but in any event with thirty
(30) days of the end of Borrower's fiscal quarter, a report, signed by a
Responsible Officer, of aged listings of Borrower's accounts receivable and
accounts payable; (c) as soon as available, but in any event within fifty (50)
days after the end of each of Advanced Polymer Systems, Inc.'s fiscal quarters,
all reports of Advanced Polymer Systems, Inc.'s Form 10-Q filed with the
Securities and Exchange Commission; (d) as soon as available, but in any event
within one hundred and twenty (120) days after the end of Borrower's fiscal
year for the year ending December 31, 1995, consolidated financial statements
of Borrower prepared in accordance with GAAP, consistently applied; (e) as soon
as available, but in any event within one hundred and twenty (120) days after
the end of Borrower's fiscal year for each fiscal year after the fiscal year
ending December 31, 1995, 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; (f) as soon as available,
but in any event within one hundred and twenty (120) days after the end of
Advanced Polymer System's fiscal year, all reports of Advanced Polymer Systems,
Inc.'s Form 10-K filed with the Securities and Exchange Commission; (g) within
five (5) days upon becoming available, copies of all statements, reports and
notices sent or made available generally by Borrower and Advanced Polymer
Systems, Inc. to its security holders or to any holders of Subordinated Debt
and all reports on Form 10-K and 10-Q filed with the Securities and Exchange
Commission; (h) as soon as available, but in any event within thirty (30) days
after the end of Borrower's and Advanced Polymer Systems, Inc.'s fiscal
quarters, respectively, annual financial forecasts on the balance sheet, income
statement, and cash flow statement for the upcoming four quarters for Borrower
and Advanced Polymer Systems, Inc.; (i) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (j) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Borrower shall deliver to Bank with the quarterly financial statements
a Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit C hereto.
Borrower 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 than every six (6) months unless an Event of Default has
occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all
Inventory in good and marketable condition, free from all material defects.
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
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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 contested in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower's.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Upon Bank's request, Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefore. 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 EBITDA/Bank Interest Payments. Borrower shall
maintain, as of the last day of each of Borrower's fiscal quarters, a ratio of
quarterly EBITDA to quarterly Bank interest due on the Loan Facility of at
least 2.0 to 1.0.
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of
the last day of each fiscal quarter, a ratio of Total Liabilities less
Subordinated Debt to Net Worth plus Subordinated Debt of not more than 2.25 to
1.0.
6.10 Net Worth. Borrower shall maintain, as of the last
day of each of Borrower's fiscal quarters, a Net Worth of not less than One
Million Four Hundred and Fifty Thousand Dollars ($1,450,000), plus,
cumulatively, fifty percent (50%) of net profit after taxes for the preceding
quarter.
6.11 Profitability. EBITDA shall not be less than One
Dollar ($1.00) for each of Borrower's fiscal quarters.
6.12 Registration of Intellectual Property Rights.
Borrower shall register or cause to be registered (to the extent not already
registered) with the United States Patent and Trademark Xxxxxx
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xx xxx Xxxxxx Xxxxxx Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Collateral Assignment,
Patent Mortgage and Security Agreement delivered to Bank by Borrower in
connection with this Agreement within thirty (30) days of the date of this
Agreement. Borrower shall register or cause to be registered with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to any third party, including without limitation
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C. Borrower shall provide evidence to Bank of the extension
or enlargement of any rights to the intellectual property listed on such
Exhibits A, B, and C or any such additional intellectual property rights
developed or acquired by Borrower from time to time thirty (30) days prior to
the expiration of such rights. Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect Bank's security interest in such additional intellectual
property rights.
6.13 Further Assurances. At any time and from time to
time Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any
Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; or (iii) Transfers of worn-out or
obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership. Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Advances to Employees or Shareholders. Borrower
shall not advance by way of payment, credit or other manner any unearned funds
to employees or shareholders of the Borrower.
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7.8 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.9 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.
7.10 Subordinated Debt. Make any payment in respect of
any Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the Subordinated
Debt without Bank's prior written consent.
7.11 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives
Bank prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company"
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for
such purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
7.13 Intercompany Receivable. Borrower shall not incur
aggregate accounts receivables due to Borrower from Advanced Polymer Systems,
Inc. in excess of One Million Five Hundred Thousand Dollars ($1,500,000)
through and including December 31, 1996. Beginning and including January 1,
1997, Borrower shall not incur aggregate accounts receivables due to Borrower
from Advanced Polymer Systems, Inc. for the first half and the second half of
the Borrower's fiscal year in excess of the lesser of (i) One Million Five
Hundred Thousand Dollars ($1,500,000), plus seventy-five percent (75%) of the
Borrower's EBITDA for the previous half of the Borrower's fiscal year, or (ii)
One Million Seven Hundred and Fifty Thousand Dollars ($1,750,000).
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the
principal of, or any interest on, any Advances when due and payable; or fails
to pay any portion of any other Obligations not constituting such principal or
interest, including without limitation Bank Expenses, within thirty (30) days
of receipt by Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Sections 6.7, 6.8, 6.9, 6.10, or 6.11 or violates any of the
covenants contained in Article 7 of this Agreement, or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and
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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)
business days after Borrower receives notice thereof or any officer of Borrower
becomes aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten (10) business day period or cannot after diligent
attempts by Borrower be cured within such ten (10) business day period, and such
default is likely to be cured within a reasonable time, then Borrower shall have
an additional reasonable period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of repayment of any portion of the
Obligations or a material impairment of the value or priority of Bank's
security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice thereof,
provided that none of the foregoing shall constitute an Event of Default where
such action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrower (provided that no Advances will be required to
be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within thirty (30)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could 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 Advances 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 delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to
enter into this Agreement or any other Loan Document.
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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.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower,
make such payments and do such acts as Bank considers necessary or reasonable
to protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, for up to one hundred twenty (120) days
in order to exercise any of Bank's rights or remedies provided herein, at law,
in equity, or otherwise;
(e) Without notice to Borrower set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral and,
in connection with Bank's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure
to Bank's benefit;
(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Bank determines is commercially reasonable, and apply any proceeds
to the Obligations in whatever manner or order Bank deems appropriate;
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(h) Bank may credit bid and purchase at any
public sale; and
(i) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the
occurrence and during the continuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank's designated officers, or employees)
as Borrower's true and lawful attorney to: (a) send requests for verification
of Accounts or notify account debtors of Bank's security interest in the
Accounts; (b) endorse Borrower's name on any checks or other forms of payment
or security that may come into Bank's possession; (c) sign Borrower's name on
any invoice or 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.
9.3 Accounts Collection. At any time from the date of
this Agreement, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and immediately deliver such payments to Bank
in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank 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 inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any Event of Default on Borrower's part shall be deemed a continuing waiver.
No delay by Bank shall constitute a waiver, election, or acquiescence by it.
No waiver by Bank shall be effective unless made in a written document signed
on behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
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9.7 Demand; Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: Advanced Polymer Systems, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxx Xxxx, XX 00000
Attn: Xxxxxxx X.X. X'Xxxxxxx
Senior Vice President/CFO
FAX: (000) 000-0000
If to Bank: Venture Lending
Three Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxxx
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 TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard
to principles of conflicts of law. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of Santa Xxxxx, 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.
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12.2 Indemnification. Borrower shall defend, indemnify
and hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement. Except as
expressly set forth herein, all references to days shall mean calendar days.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
APS ANALYTICAL STANDARDS, INC.
By:
----------------------------------
Title:
-------------------------------
By: /s/ Xxxxxxx X.X. X'Xxxxxxx
----------------------------------
Title: CFO
-------------------------------
VENTURE LENDING, a division of
CUPERTINO NATIONAL BANK & TRUST
By: /s/ Xxxxxx Xxxxxxxx
----------------------------------
Title: VP
-------------------------------
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EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefore, 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 including, but not
limited to, the deposit account established in Section 2.2 of that certain Loan
and Security Agreement by and between Venture Lending and APS Analytical
Standards, Inc. dated September 27, 1995, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter
acquired; all trade secret rights, including all rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; all mask work or
similar rights available for the protection of semiconductor chips, now owned
or hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds thereof.
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EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: VENTURE LENDING DATE: ________________________________
FAX#: (000) 000-0000 TIME: ________________________________
FROM: APS ANALYTICAL STANDARDS, INC.
--------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY: __________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: __________________________________________________________
PHONE NUMBER: __________________________________________________________________
FROM ACCOUNT # ________________________ TO ACCOUNT # _________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL PAYMENT (ONLY) $____________________________________
INTEREST PAYMENT (ONLY) $____________________________________
PRINCIPAL AND INTEREST (PAYMENT) $____________________________________
OTHER INSTRUCTIONS: ____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the
date of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_______________________________________ ______________________________________
Authorized Requester Phone #
_______________________________________ ______________________________________
Received By (Bank) Phone #
______________________________________
Authorized Signature (Bank)
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EXHIBIT C
COMPLIANCE CERTIFICATE
TO: VENTURE LENDING
FROM: APS ANALYTICAL STANDARDS, INC.
The undersigned authorized officer of APS Analytical Standards, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i)
Borrower is in complete compliance for the period ending _________________ with
all required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- -----------
Quarterly financial statements
Borrower Quarterly within 30 days Yes No
Advanced Polymer Systems, Inc. Quarterly within 50 days Yes No
Annual FYE within 120 days
Borrower Yes No
Advanced Polymer Systems, Inc. Yes No
Financial Forecasts FYE within 30 days
Borrower Yes No
Advanced Polymer Systems, Inc. Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ -----------
Maintain on a Quarterly Basis:
Minimum EBITDA/Interest 2.0:1.0 ______:1.0 Yes No
Minimum Net Worth $1,450,000 $_________ Yes No
Maximum Debt/Net Worth 2.25:1.0 ______:1.0 Yes No
Profitability: Quarterly $_________ $_________ Yes No
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Received by: ___________________
Sincerely, AUTHORIZED SIGNER
___________________________________________ Date: __________________________
SIGNATURE
Verified: ______________________
___________________________________________ AUTHORIZED SIGNER
TITLE
Date: __________________________
___________________________________________
DATE Compliance Status: Yes No
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DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower APS ANALYTICAL STANDARDS, INC. Bank: VENTURE LENDING
-------------------------------------------------------------------------------
LOAN TYPE. This is a Variable Rate, Loan Facility of a principal amount up to
$3,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: .
----------------------
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Loan Facility
-------------
Amount paid to Borrower directly: $3,000,000
Undisbursed Funds $0
Principal $3,000,000
CHARGES PAID IN CASH. Borrower has paid or will pay in cash, unless otherwise
agreed, the following charges:
Prepaid Finance Charges Paid in Stock:
$30,000 Loan Fee
$______ Accounts Receivables Audit $9,775
Other Charges Paid in Cash:
$100 UCC Search Fees
$50 UCC Filing Fees
$150 Patent Filing Fees
$75 Trademark Filing Fees
$0 Copyright Filing Fees
$9,350 Outside Counsel Fees and
Expenses (Estimate)
Total Charges Paid in Cash $9,775
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered 0000000 the amount of any loan payment. If
the funds in the account are insufficient to cover any payment, Bank shall not
be obligated to advance funds to cover the payment. At any time and for any
reason, Borrower or Bank may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF SEPTEMBER 27, 1995.
BORROWER:
/s/ Xxxxxxx X.X. X'Xxxxxxx
---------------------------------------
/s/ Xxxx X. Xxxxxx, Xx.
---------------------------------------
Authorized Officer
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