---------------------------
LOAN AND SECURITY AGREEMENT
----------------------------
TABLE OF CONTENTS
PAGE
1. ACCOUNTING AND OTHER TERMS. . . . . . . . . . . . . . . . . . . . . . .1
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Credit Extensions. . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Interest Rate, Payments. . . . . . . . . . . . . . . . . . . . . .2
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.1 Conditions Precedent to Initial Credit Extension . . . . . . . . .3
3.2 Conditions Precedent to all Credit Extensions. . . . . . . . . . .3
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . .3
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . .3
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . .3
5.1 Due Organization and Authorization . . . . . . . . . . . . . . . .3
5.2 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.4 No Material Adverse Change in Financial Statements . . . . . . . .4
5.5 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.6 Regulatory Compliance. . . . . . . . . . . . . . . . . . . . . . .4
5.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.8 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . .5
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .5
6.1 Government Compliance. . . . . . . . . . . . . . . . . . . . . . .5
6.2 Financial Statements, Reports, Certificates. . . . . . . . . . . .5
6.3 Inventory; Returns . . . . . . . . . . . . . . . . . . . . . . . .5
6.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.6 Primary Accounts . . . . . . . . . . . . . . . . . . . . . . . . .6
6.7 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . .6
6.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . .7
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.1 Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . .7
i.
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.2 Changes in Business, Ownership, Management or Business Locations .7
7.3 Mergers or Acquisitions. . . . . . . . . . . . . . . . . . . . . .7
7.4 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.5 Encumbrance. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.6 Distributions; Investments . . . . . . . . . . . . . . . . . . . .8
7.7 Transactions with Affiliates . . . . . . . . . . . . . . . . . . .8
7.8 Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . .8
7.9 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .8
8.1 Payment Default. . . . . . . . . . . . . . . . . . . . . . . . . .9
8.2 Covenant Default . . . . . . . . . . . . . . . . . . . . . . . . .9
8.3 Material Adverse Change. . . . . . . . . . . . . . . . . . . . . .9
8.4 Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.5 Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.6 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . .9
8.7 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.8 Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . 10
9. BANK'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . 10
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Accounts Collection. . . . . . . . . . . . . . . . . . . . . . . 11
9.4 Bank Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.5 Bank's Liability for Collateral. . . . . . . . . . . . . . . . . 11
9.6 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . 11
9.7 Demand Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 12
10. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER. . . . . . . . . . . . . . 12
12. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 12
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 12
ii.
TABLE OF CONTENTS
(CONTINUED)
PAGE
12.3 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . 13
12.4 Severability of Provision. . . . . . . . . . . . . . . . . . . . 13
12.5 Amendments in Writing, Integration . . . . . . . . . . . . . . . 13
12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 13
13. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
iii.
THIS LOAN AND SECURITY AGREEMENT dated February 13, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx,
Xxxxxxxxxx 00000 with a loan production office located at 0000 Xxxxxxxxxxx, Xxx.
000, Xxxx Xxxx, Xxxxxxxxxx 00000 and SCIENTIFIC LEARNING CORPORATION
("Borrower"), whose address is 0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000. Xxxxxxxx,
Xxxxxxxxxx 00000 provides the terms on which Bank will lend to Borrower and
Borrower will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 TERM LOAN.
(A) Bank will make a Term Loan available to Borrower.
(b) Borrower will pay 15 equal installments of $16,136.37
in principal plus interest (the "Term Loan Payment"). Each Term Loan Payment is
payable on the 20th of each month, commencing April 20, 1998, during the term of
the loan. Borrower's final Term Loan Payment, due June 20, 1999, includes all
outstanding Term Loan principal and accrued interest.
(c) The Term Loan accrues interest at three percentage
points (3.000%) above the Prime Rate.
2.1.2 CASH MANAGEMENT FACILITY.
Borrower may use up to $45,000 for Bank's Cash Management
Services, which may include merchant services, direct deposit of payroll,
business credit card, and check cashing services identified in the Cash
Management Services Agreement (the "Cash Management Services"). All amounts
Bank pays for any Cash Management Services will be treated as a Credit Extension
and shall accrue interest at three percentage points (3.000%) above the Prime
Rate. The Cash Management Facility terminates on June 20, 1999, when all
amounts due under this facility are immediately payable.
2.1.3 EQUIPMENT ADVANCES.
1.
(a) Through August 13, 1998 (the "Equipment Availability
End Date"), Bank will make advances ("Equipment Advance" and, collectively,
"Equipment Advances") not exceeding the Committed Equipment Line. The Equipment
Advances may only be used to finance Equipment and may not exceed 100% of the
equipment invoice excluding taxes, shipping, warranty charges, freight discounts
and installation expense.
(b) Interest accrues from the date of each Equipment
Advance at the rate in Section 2.2(a) and is payable monthly until the Equipment
Availability End Date occurs. Equipment Advances outstanding on the Equipment
Availability End Date are payable in twenty-four (24) equal monthly installments
of principal, plus accrued interest, beginning on the thirteenth (13th) of each
month following the Equipment Availability End Date and ending on August 13,
2000 (the "Equipment Maturity Date"). Equipment Advances when repaid may not be
reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify
Bank (the notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific
time 1 Business Day before the day on which the Equipment Advance is to be made.
The notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed.
2.2 INTEREST RATE, PAYMENTS.
(a) INTEREST RATE. Equipment Advances accrue interest on the
outstanding principal balance at a per annum rate of three percentage points
(3.000%) above the Prime Rate. After an Event of Default. Obligations accrue
interest at five percentage points (5.000%) above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual
number of days elapsed.
(b) PAYMENTS. Interest due on the Equipment Advances is payable on
the thirteenth (13th) of each month. Bank may debit any of Borrower's deposit
accounts including Account Number __________ for principal and interest payments
or any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.3 FEES.
Borrower will pay:
(a) FACILITY FEE. A fully earned, non-refundable Facility Fee of
$1,125 due on the Closing Date; and
(b) BANK EXPENSES. All Bank Expenses (including reasonable
attorneys' fees and expenses) incurred through and after the date of this
Agreement, are payable when due.
3. CONDITIONS OF LOANS
2.
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the
initial Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause a Material Adverse Change.
3.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable 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 in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower is not
engaged as one of its important activities in extending credit for margin stock
(under Regulations G, T and U of the Federal Reserve Board of Governors).
Borrower has complied with the Federal Fair Labor Standards Act. Borrower has
not violated any laws, ordinances or rules, the violation of which could cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
4.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements misleading.
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(A) Borrower will deliver to Bank: (i) annual cash flow projections
(ii) as soon as available, but no later than 30 days after the last day of each
month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in a form and
certified by a Responsible Officer acceptable to Bank; (iii) as soon as
available, but no later than 120 days after the last day of Borrower's fiscal
year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm acceptable to
Bank; (iv) a prompt 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 $100,000 or more; and (v) budgets, sales projections,
operating plans or other financial information Bank requests.
(b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition,
free from material defects. Returns and allowances between Borrower and its
account debtors will follow Borrower's customary, practices as they exist at
execution of this Agreement. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims, that involve more than $50,000.
5.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make. timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 FINANCIAL COVENANTS.
Borrower shall maintain a Liquidity Coverage ratio as follows:
Beginning with the month ended January 31, 1998 and for each of the months
ending February 28, 1998 and March 31, 1998, Borrower shall maintain a minimum
Liquidity Coverage ratio defined as, unrestricted cash plus 50% of Accounts
divided by the Total Potential Liability of 1.25 to 1.00;
Beginning with the month ending April 30, 1998, Borrower shall maintain a
minimum Liquidity Coverage ratio defined as, unrestricted cash plus 50% of
Accounts plus 50% of projected revenue for the following month, divided by the
Total Potential Liability of 1.25 to 1.00, increasing to 1.50 to 1.00 for the
months ending May 31, 1998 and June 30, 1998;
Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 1.50 to 1.00 for the month ending July 31, 1998;
Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 1.75 to 1.00 for the months ending August 31, 1998 and September 30, 1998;
and
Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 2.00 to 1.00 for the months ending October 31, 1998 and thereafter.
6.
Notwithstanding the foregoing, should Borrower fail to comply with the
above stated Liquidity Coverage ratio, it will not be deemed an Event of
Default, provided Borrower pledges cash to Bank to secure the outstandings under
the Committed Equipment Line until such time as Borrower meets or exceeds the
minimum Liquidity Coverage ratio for such period.
At such time as Borrower achieves two (2) consecutive quarters of
profitability, the minimum Liquidity Coverage ratio will be replaced with a
minimum Debt Service Coverage ratio of 1.50 to 1.00 defined as, net income plus
non-cash expenses plus interest expense, divided by the current portion of
amortizing debt plus interest expense, monitored on a rolling two (2)-quarter
basis.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"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, or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.
7.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit
any Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock without Bank's prior written
consent and provided further, that such payment, distribution, redemption,
retirement or purchase does not cause an Event of Default.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that purpose; fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or
priority of the Bank's security interest in the Collateral or in the value of
such Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period (subject to the conditions provided
therein).
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets. or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
9.
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Advances will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or ail of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale. and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
10.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or xxxx of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
11.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10. NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Xxxxx County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing. This Agreement
represents the entire agreement about this subject matter, and supersedes prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement merge 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, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.
13.
13. DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the Committed
Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CASH MANAGEMENT SERVICES" are defined in Section 2.1.2.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $450,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation
14.
in interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Equipment Advance or advance under the Cash
Management Facility or any other extension of credit by Bank for Borrower's
benefit.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUIPMENT ADVANCE" is defined in Section 2.1.3.
"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.3.
"EQUIPMENT MATURITY DATE" is defined in Section 2.1.3.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
15.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing
Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Xxxxx'x Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on
16.
equipment when acquired, IF the Lien is confined to the property and
improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, IF the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank)-
"SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"TERM LOAN" is a loan of $242,046.41.
"TOTAL POTENTIAL LIABILITY" is all Obligations under this Agreement or that
certain QuickStart Loan and Security Agreement dated December 20, 1996, (and all
Schedules thereto), between Borrower and Bank and any other Obligations owing by
Borrower to Bank.
17.
BORROWER:
SCIENTIFIC LEARNING CORPORATION
By: [signature]
-------------------------------
Title:
----------------------------
BANK:
SILICON VALLEY BANK
By: [signature]
-------------------------------
Title:
----------------------------
18.
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
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;
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;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, 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, excluding patent and patent
applications;
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;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;
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. NOTWITHSTANDING (i) THAT GRANTOR HAS GRANTED TO LENDER A SECURITY
INTEREST IN THE UNPATENTED INVENTIONS, TRADEMARKS, COPYRIGHTS, MASK WORKS AND,
(ii) THAT THE UNPATENTED INVENTIONS, TRADEMARKS, MASK WORKS AND COPYRIGHTS ARE
INCLUDED IN THE COLLATERAL, BANK SHALL NOT ENFORCE ITS SECURITY INTEREST IN THE
UNPATENTED INVENTIONS, TRADEMARKS, MASK WORKS, AND COPYRIGHTS, OTHER THAN SOLELY
TO THE EXTENT NECESSARY TO ENABLE FOR BANK TO ENFORCE ITS PERFECTED SECURITY
INTEREST IN THE COLLATERAL OTHER THAT THE UNPATENTED INVENTIONS, TRADEMARKS,
MASK WORKS AND COPYRIGHTS.
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
1.
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#: (000) 000-0000 TIME:
---------------------------------
FROM: SCIENTIFIC LEARNING CORPORATION
----------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------
PHONE NUMBER:
-------------------------------------------------------
FROM ACCOUNT# TO ACCOUNT#
-------------------- ------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
-------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $__________________________________
PRINCIPAL PAYMENT (ONLY) $__________________________________
INTEREST PAYMENT (ONLY) $__________________________________
PRINCIPAL AND INTEREST (PAYMENT) $__________________________________
OTHER INSTRUCTIONS:
-------------------------------------------------
All Borrower's representations and warranties in the Loan and
Security Agreement are true, correct and complete in all material
respects on the date of the telephone request for and Advance
confirmed by this Borrowing Certificate; but those representations
and warranties expressly referring to another date shall be true,
correct and complete in all material respects as of that 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)
1.
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
FROM: SCIENTIFIC LEARNING CORPORATION
The undersigned authorized officer of SCIENTIFIC LEARNING CORPORATION
certifies that under 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 in the Agreement are
true and correct in all material respects on this date. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Officer acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Monthly Basis:
Minimum Liquidity See below ___: 1.00 Yes No
Minimum Debt Service Coverage See below ____:1.00 Yes No
Beginning with the month ended January 31, 1998 and for each of the months
ending February 28, 1998 and March 31, 1998, Borrower shall maintain a minimum
Liquidity Coverage ratio defined as, unrestricted cash plus 50% of Accounts
divided by the Total Potential Liability of 1.25 to 1.00;
Beginning with the month ending April 30, 1998, Borrower shall maintain a
minimum Liquidity Coverage ratio defined as, unrestricted cash plus 50% of
Accounts plus 50% of projected revenue for the following month, divided by the
Total Potential Liability of 1.25 to 1.00, increasing to 1.50 to 1.00 for the
months ending May 31, 1998 and June 30, 1998;
1.
Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 1.50 to 1.00 for the month ending July 31, 1998;
Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 1.75 to 1.00 for the months ending August 31, 1998 and September 30, 1998;
and
Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 2.00 to 1.00 for the months ending October 31, 1998 and thereafter.
Notwithstanding the foregoing, should Borrower fail to comply with the
above stated Liquidity Coverage ratio, it will not be deemed an Event of
Default, provided Borrower pledges cash to Bank to secure the outstandings under
the Committed Equipment Line until such time as Borrower meets or exceeds the
minimum Liquidity Coverage ratio for such period.
At such time as Borrower achieves two (2) consecutive quarters of
profitability, the minimum Liquidity Coverage ratio will be replaced with a
minimum Debt Service Coverage ratio of 1.50 to 1.00 defined as, net income plus
non-cash expenses plus interest expense, divided by the current portion of
amortizing debt plus interest expense, monitored on a rolling two (2)-quarter
basis.
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Sincerely, Received by:
----------------------
AUTHORIZED SIGNER
SCIENTIFIC LEARNING CORPORATION Date:
--------------------------
/s/ XXXXX X. XXXXXXX Verified:
------------------------------------ ----------------------
Signature AUTHORIZED SIGNER
CFO Date:
------------------------------------ --------------------------
Compliance Status: Yes No
4/15/98
------------------------------------
Date
2.
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: SCIENTIFIC LEARNING CORPORATION
LOAN OFFICER: Xxxx Xxxxx
DATE: February 13, 1998
Equipment Line Loan Fee $1,125.00
Credit Report 35.00
UCC Filing Fee 20.00
IP Filing Fee *
TOTAL FEE DUE $1,180.00
---------
---------
* $550.00 TO BE TAKEN FROM LOAN FEE
Please indicate the method of payment:
/ / A check for the total amount is attached.
/X/ Debit DDA # 3300018829 for the total amount.
/ / Loan proceeds
Borrower:
By: /s/ [signature]
------------------------------------------------
(Authorized Signer)
----------------------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
1.
CORPORATE BORROWING RESOLUTION
Borrower: SCIENTIFIC LEARNING Bank: Silicon Valley Bank
CORPORATION 1731 Embarcadero, Ste. 220
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000 Xxxx Xxxx, XX 00000
Xxxxxxxx, XX 00000
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF SCIENTIFIC LEARNING
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of De[aware.
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
--------------------- ------------------------ ---------------------
--------------------- ------------------------ ---------------------
--------------------- ------------------------ ---------------------
--------------------- ------------------------ ---------------------
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
1.
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.
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 tines 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 Borrower and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Borrower; 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 February 13, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------------
*Secretary or Assistant Secretary
X
-------------------------------------
* NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, this resolution
should also be signed by a second Officer or Director of Borrower.
2.
