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EXHIBIT 10.4
LOAN & SECURITY AGREEMENT
THIS AGREEMENT, dated for reference purposes only as of this 9th day of
April, 1999, is entered into by and between COMERICA BANK-CALIFORNIA ("Bank") as
secured party, whose Headquarters Office is 000 Xxxx Xxxxx Xxxxx Xxxxxx, Xxx
Xxxx, Xxxxxxxxxx, and Masimo Corporation ("Borrower"), a Delaware corporation
whose sole place of business (if it has only one) or chief executive office (if
it has more than one place of business) is located at 0000 Xxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxx 00000. The parties agree as follows:
1. DEFINITIONS.
1.1 "Agreement" as used in this Agreement means and includes this Loan &
Security Agreement, any concurrent or subsequent rider to this Loan & Security
Agreement, and any concurrent or subsequent extensions, supplements, amendments
or modifications to this Loan & Security Agreement or to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement which are
paid or advanced by Bank; taxes and insurance premiums of every nature and kind
of Borrower paid by Bank; filing, recording, publication and search fees,
appraiser fees, auditor fees and costs, and title insurance premiums paid or
incurred by Bank in connection with Bank's transactions with Borrower; costs and
expenses incurred by Bank in collecting the Receivables (with or without suit)
to correct any default or enforce any provision of this Agreement, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
disposing of, preparing for sale and/or advertising to sell the Collateral,
whether or not a sale is consummated; costs and expenses of suit incurred by
Bank in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain relief
from any stay, restraining order, injunction or similar process which prohibits
Bank from exercising any of its rights or remedies; and attorneys' fees and
expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing or defending, or otherwise concerning or
relating to, this Agreement, or any portion hereof or any other agreement
related hereto, whether or not suit is brought. Bank Expenses shall include
Bank's in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means the rate published in
The Wall Street Journal from time to time as the "Prime Rate," presently
calculated as the base rate on corporate loans posted by at least seventy five
percent (75%) of the thirty (30) largest banks of the United States.
1.4 "Borrower's Books" as used in this Agreement means and includes all
of the Borrower's books and records including but not limited to: minute books;
ledgers; records indicating, summarizing or evidencing Borrower's assets,
liabilities, Receivables, business operations or financial conditions, and all
information relating thereto; computer programs,
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computer disk or tape files; computer printouts; computer runs; and other
computer prepared information and Equipment of any kind.
1.5 "Collateral" as used in this Agreement means and includes all right,
title and interest of Borrower in and to all of the following property now owned
or later acquired by Borrower, wherever located: all accounts, general
intangibles, chattel paper, contract rights, deposit accounts, documents,
instruments, inventory, returned or repossessed goods, Equipment and fixtures,
and all additions, attachments, accessions, parts, replacements, substitutions,
renewals and records (including without limit computer software) pertaining to
the foregoing property, and all products and proceeds of any of the foregoing
(whether cash or non-cash proceeds), including without limit insurance and
condemnation proceeds. Notwithstanding anything to the contrary contained
herein, collateral shall not include any waste or other materials which have
been or may be designated as toxic or hazardous by Bank.
1.6 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract, instrument,
note, or other separate agreement which, by its terms, provides for a specified
interest rate and term.
1.7 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination (i) all liabilities of a person that should be
classified as current in accordance with GAAP, including without limitation any
portion of the principal of the indebtedness classified as current, plus (ii) to
the extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP. Without
limiting the foregoing, Current Liabilities shall include the amount of all
letters of credit issued for the account of Borrower (whether or not drawn
upon).
1.8 "Equipment" as used in this Agreement means and includes all present
and future machinery, equipment, tenant improvements, furniture, fixtures,
vehicles, and tools, and parts therefor and attachments thereto in which
Borrower has any interest.
1.9 "Equipment Advance Final Availability Date" as used in this
Agreement means December 31, 1999.
1.10 "Equipment Term Loan" as used in this Agreement has the meaning set
forth in Section 2.3 of this Agreement.
1.11 "Equipment Term Loan Default Rate" as used in this Agreement shall
mean a rate of four and 250/1000 (4.250) percentage points per annum above the
Base Rate.
1.12 "Equipment Term Loan Maturity Date" as used in this Agreement means
January 31, 2004.
1.13 "Equipment Term Note" as used in this Agreement has the meaning set
forth in Section 2.3 of this Agreement.
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1.14 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.15 "Existing Term Loan" as used in this Agreement has the meaning set
forth in Section 2.4 of this Agreement
1.16 "GAAP" as used in this Agreement means, as of any applicable
period, generally accepted accounting principles in effect during such period.
1.17 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrower's Obligations, or any of Borrower's account debtors, under
any provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking reorganization, arrangement or any
other relief under the Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.18 "Intangibles" as used in this Agreement means and includes all
Borrower's present and future general intangibles and other personal property
(including, without limitation, any and all rights in any legal proceeding,
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and Receivables, as
well as Borrower's Books relating to any of the foregoing.
1.19 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest including, but
not limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials and packing
and shipping materials, wherever located and any documents of title representing
any of the above, and any Equipment, fixtures or other property used in the
storing, moving, preserving, identifying, accounting for and shipping or
preparing for the shipping of inventory, and any and all other items hereafter
acquired by Borrower by way of substitution, replacement, return, repossession
or otherwise, and all additions and accessions thereto, and the resulting
product or mass, and any documents of title respecting any of the above.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the benefit
of creditors or any other person or entity having powers or duties like or
similar to the powers and duties of trustee, receiver, controller, custodian or
assignee for the benefit of creditors.
1.21 "Letter of Credit Facility" as used in this Agreement has
the meaning set forth in Section 2.5 of this Agreement.
1.22 "Net Income" as used in this Agreement means the net income
(or loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
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a. any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital assets, and any
taxes on the excluded gains and any tax deductions or credits on account on any
excluded losses; and
b. in the case of Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have actually
been received by Borrower in the form of cash distributions.
1.23 "Obligations" as used in this Agreement means and includes any and
all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), obligations, lease
payments, guaranties, covenants and duties now or hereafter owing by Borrower to
Bank of any kind and description, whether advanced pursuant to or evidenced by
this Agreement; by any note or other instrument; or by any other agreement
between Bank and Borrower and whether or not for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including, without
limitation, all interest not paid when due and all Bank Expenses which Borrower
is required to pay or reimburse by this Agreement, by law, or otherwise. Without
limiting the foregoing, Obligations includes, but is not limited to, all
obligations now or hereafter owing to Bank pursuant to the Equipment Term Loan,
the Existing Term Loan or the Letter of Credit Facility.
1.24 "Person" or "persons" as used in this Agreement means and includes
any individual, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated association, joint stock company,
government, municipality, political subdivision or agency, or other entity.
1.25 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all contracts
or agreements (whether or not yet earned or due), all merchandise returned to or
reclaimed by Borrower and the Borrower's books (except minutes books) relating
to any of the foregoing.
1.26 "Subordinated Debt" as used in this Agreement means indebtedness of
the Borrower to third parties which has been subordinated to the Obligations
pursuant to a subordination agreement in form and content satisfactory to the
Bank.
1.27 "Tangible Effective Net Worth" as used in the Agreement means net
worth as determined in accordance with GAAP consistently applied, increased by
Subordinated Debt (if any) and decreased by the following: patents, licenses,
goodwill, subscription lists, organization expenses, trade receivables converted
to notes, other Intangibles, and money due from affiliates of Borrower
(including officers, directors, shareholders, subsidiaries and commonly held or
controlled companies).
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1.28 "Total Senior Liabilities" as used in this Agreement means the
total of all items of indebtedness, obligation or liability which, in accordance
with GAAP consistently applied, would be included in determining the total
liabilities of Borrower as of the date of determination, including without
limitation (a) all obligations secured by any mortgage, pledge, security
interest or other lien on property owned or acquired by Borrower, whether or not
the obligations secured thereby have been assumed by Borrower; (b) all
obligations which are capitalized lease obligations; and (c) all guaranties,
endorsements or other contingent or surety obligations with respect to the
indebtedness of others, whether or not reflected on the balance sheets of
Borrower, but excluding therefrom Subordinated Debt and deferred revenue.
1.29 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under and
pursuant to the California Uniform Commercial Code (hereinafter referred to as
the "Code") as amended.
2. LOAN AND TERMS OF PAYMENTS.
2.1 For value received, Borrower promises to pay to the order of Bank such
amounts, as provided for below, together with interest as provided for below.
2.2 Equipment Term Loan. Upon the request of Borrower made at any time and
from time to time prior to the Equipment Advance Final Availability Date, and so
long as no Event of Default has occurred, Bank shall lend to Borrower pursuant
to this Section 2.3 (the "Equipment Term Loan") advances in the aggregate
principal amount of up to Two Million Five Hundred Thousand Dollars
($2,500,000.00) on the terms and conditions set forth herein.
a. Each advance under the Equipment Term Loan ("Equipment Advance")
shall be used to purchase Equipment approved from time to time by Bank (which
shall in any case have been purchased within ninety (90) days of the requested
Equipment Advance) and shall not exceed eighty percent (80%) of the documented
purchase price of such Equipment less all soft costs of such Equipment (such as
installation expense, freight discounts, warranty charges and taxes.) Prior to
April 30, 1999, Borrower may also request Equipment Advances for Equipment
purchased since June 1, 1998.
b. Except as hereinbelow provided, all sums owing under the
Equipment Term Loan shall bear interest, on the balance owing, at a rate of One
and 250/1000 (1.250) percentage points per annum above the Base Rate (the
"Rate"). Such sums shall bear interest, from and after the occurrence of an
Event of Default and without constituting a waiver of any such Event of Default,
at the Equipment Term Loan Default Rate. All such interest shall be computed on
the basis of a three hundred sixty (360) day year for actual days elapsed. In
the event that the Base Rate announced is, from time to time hereafter changed,
adjustment in the rate shall be made and based on the Base Rate in effect on the
date of such change. The interest rate, as adjusted, shall apply until the Base
Rate is adjusted again.
c. Prior to the Equipment Advance Final Availability Date,
Borrower shall make monthly payments of interest only on the last day of each
calendar month. If Borrower owes any amount under the Equipment Term Loan after
the Equipment Advance Final
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Availability Date, such amount shall be paid in forty-eight (48) equal monthly
installments of principal plus accrued interest, on the last day of each
calendar month beginning January 31, 2000. All unpaid principal, interest and
other sums due under the Equipment Term Loan shall be due and payable on the
Equipment Term Loan Maturity Date. Borrower may prepay the Equipment Term Loan,
in full or in part, at any time without penalty.
d. Each Equipment Advance shall be made upon the written request of
Borrower received by Bank not later than 10:00 a.m. California time on the
business day that is at least three (3) business days before the requested date
of such Advance, which shall be a business day. Each request shall specify: the
date such Equipment Advance is to be made, which shall be a business day; and
the amount of such Equipment Advance. Each such request shall include a schedule
in form and substance satisfactory to Bank evidencing the Equipment purchased, a
copy of the purchase invoice, and such other information as Bank shall desire.
e. The Equipment Term Loan shall be evidenced by a promissory note
in form satisfactory to Bank (the "Equipment Term Note") executed by Borrower
concurrently herewith, in substantially the form attached hereto as Exhibit "A."
The outstanding amount of the Equipment Term Loan entered on the records of Bank
as outstanding from time to time shall be prima facie evidence of the principal
amount thereof owing and unpaid to Bank, but the failure to enter, or any error
in so entering, any such amount shall not limit or otherwise affect the
obligations of Borrower hereunder or under the Equipment Term Note to make
payments of principal, interest and other amounts due hereunder and thereunder.
f. As a condition to the granting of the Equipment Term Loan,
Borrower shall pay to Bank, in addition to Bank's expenses, (i) a documentation
fee of Seven Hundred Fifty Dollars ($750.00), payable upon execution of this
Agreement, and (ii) a commitment fee in the amount of Two Thousand Five Hundred
Dollars ($2,500.00), which shall be deemed fully earned, and shall be due and
payable upon execution of this Agreement.
g. If any payment of principal, interest or other amount due under
the Equipment Term Loan is not paid in full within ten (10) days after the same
is due, Borrower shall pay to Bank a late fee in the amount of five percent (5%)
of the amount not paid when due. Payment of such sum shall not affect Bank's
right to exercise any of its, rights or remedies arising upon the occurrence of
an Event of Default.
h. All payments made hereunder shall be applied first to the
payment of all Bank Expenses and fees due and payable at such time, then to
interest due and payable at such time, and then to all accrued interest and
principal. Any payment which is received after 3:00 p.m. (San Jose, California
time) on the date made shall be deemed received on the next business day.
2.3 Existing Term Loan. By execution hereof, the parties hereto agree that
(i) this Agreement replaces that certain loan evidenced by that certain
promissory note executed by Borrower in the original amount of One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000.00) dated April 30, 1998 (the
"Existing Term Loan"), (ii) all terms of this
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Agreement apply to the Existing Term Loan, and (iii) a default under any of the
terms of this Agreement shall be a default under the Existing Term Loan.
2.4 Letter of Credit Facility. On or before the date hereof, Bank has also
extended to Borrower a standby letter of credit facility evidenced by that
certain (undated) Standby Letter of Credit Application and Agreement executed by
Borrower ("Letter of Credit Facility"), the terms of which are incorporated
herein by this reference..
3. TERM.
3.1 This Agreement shall remain in full force and effect until all
Obligations are fully paid and performed. Notwithstanding the foregoing, upon
the occurrence of an uncured Event of Default, Bank may terminate its obligation
to make any further advances pursuant to Section 2 of this Agreement at any time
without notice. Until all Obligations have been fully satisfied, Bank shall
retain its security interest in all existing Collateral and Collateral arising
thereafter, and Borrower shall continue to perform all of its Obligations.
3.2 When Bank has received payment in full of Borrower's Obligations to
Bank, Bank shall reassign to Borrower all Collateral held by Bank, and shall
execute a termination of all security agreements and security interests given by
Borrower to Bank, upon the execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST.
4.1 Borrower hereby grants to Bank a continuing security interest in all
presently existing and hereafter arising Collateral in order to secure prompt
repayment of any and all Obligations owed by Borrower to Bank and in order to
secure prompt performance by Borrower of each and all of its covenants and
obligations under this Agreement and otherwise created. Bank's security interest
in the Collateral shall attach to all Collateral without further action on the
part of Bank or Borrower. In the event that any Collateral, including proceeds,
is evidenced by or consists of a letter of credit, advance of credit,
instrument, money, negotiable documents, chattel paper or similar property
(collectively "Negotiable Collateral"), Borrower shall, immediately upon receipt
thereof, endorse and assign such Negotiable Collateral over to the Bank and
deliver actual physical possession of the Negotiable Collateral to Bank.
4.2 Without limiting Section 4.1 or any other provision of this Agreement,
Banks security interest in Receivables shall attach to all Receivables without
further act on the part of Bank or Borrower. In addition to the monthly
Receivables aging schedules required pursuant to Section 6.16 below, upon
request from Bank, Borrower shall provide Bank with detailed schedules in form
satisfactory to Bank describing all Receivables created or acquired by Borrower
(including without limitation agings listing the names and addresses of all
account debtors, and amounts owing by date and by account debtor), and shall
execute and deliver written assignments of all Receivables to Bank all in a form
acceptable to Bank, provided, however, Borrower's failure to execute and deliver
such schedules and/or assignments shall not affect or limit Bank's security
interest and other rights in and to the Receivables. Together with each
schedule, Borrower shall furnish Bank with copies of Borrower's customers'
invoices or the
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equivalent, and original shipping or delivery receipts for all merchandise sold,
and Borrower warrants the genuineness thereof Bank shall not make more than one
request per calendar month for the detailed Receivables schedules required
pursuant to this Section unless an Event of Default has occurred. After an Event
of Default, Bank or Bank's designee may notify customers or account debtors of
the assignment of such Receivables to Bank and to direct such customers or
account debtors to make payment of all amounts due or to become due to Borrower
thereunder directly to Bank and, upon such notification and at the expense of
Borrower, to enforce collection of any such Receivables and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as Borrower might have done, and to charge such collection costs and
expenses to Borrower's account, but unless and until Bank does so or gives
Borrower other written instructions, Borrower shall collect all Receivables for
Bank, receive in trust all payments thereon as Bank's trustee, and, if so
requested to do so from Bank, Borrower shall immediately deliver said payments
to Bank in their original form as received from the account debtor and all
letters of credit, advices of credit, instruments, documents, chattel paper or
any similar property evidencing or constituting Collateral. After an Event of
Default, or to the extent necessary to avoid an Overadvance, if sales of
Inventory are made for cash, Borrower shall immediately deliver to Bank, in
identical form, all such cash, checks, or other forms of payment which Borrower
receives. The receipt of any check or other item of payment by Bank shall not be
considered a payment on account until such check or other item of payment is
honored when presented for payment, in which event, said check or other item of
payment shall be deemed to have been paid to Bank two (2) calendar days after
the date Bank actually receives such check or other item of payment. Borrower
shall make appropriate entries in Borrower's Books disclosing Bank's security
interest in the Receivables.
4.3 Without limiting Section 4.1 or any other provision of this Agreement
Bank's security interest in Inventory shall attach to all Inventory without
further act on the part of Bank or Borrower. Upon Bank's request after an Event
of Default Borrower will from time to time at Borrower's expense pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account or store the same in a
warehouse in Bank's name; or deliver to Bank documents of title representing
said Inventory; or evidence of Bank's security interest in some other manner
acceptable to Bank. Until a default by Borrower under this Agreement or any
other Agreement between Borrower and Bank, Borrower may, subject to the
provisions hereof and consistent herewith, sell the Inventory, but only in the
ordinary course of Borrower's business. A sale of Inventory in Borrower's
ordinary course of business does not include an exchange or a transfer in
partial or total satisfaction of a debt owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of the Agreement, and at any time or times hereafter at the
request of Bank, all financing statements, continuation financing statements,
security agreements, mortgages, assignments, certificates of title, affidavits,
reports, notices, schedules of accounts, letters of authority and all other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and in
order to fully consummate all of the transactions contemplated under this
Agreement. Borrower hereby irrevocably makes, constitutes and appoints Bank (and
any of Bank's officers, employees or
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agents designated by Bank) as Borrower's true and lawful attorney-in-fact with
owner to sign the name of Borrower on any financing statements, continuation
financing statement, security agreement, mortgage, assignment, certificate of
title, affidavit, letter of authority, notice of other similar documents which
must be executed and/or filed in order to perfect or continue perfected Bank's
security interest in the Collateral.
4.5 Borrower appoints Bank, or any other person whom Bank may designate,
commencing upon an Event of Default, as Borrower's attorney-in-fact, with power
to endorse Borrower's name on any checks, notes acceptances, money order, drafts
or other forms of payment or security that may come into Bank's possession; to
sign Borrower's name on any invoice or xxxx of lading relating to any
Receivables, on drafts against account debtors, on schedules and assignments of
Receivables, on verifications of Receivables and on notices to account debtors;
to establish a lock box arrangement and/or to notify the post office authorities
to change the address for delivery of Borrower's mail addressed to Borrower to
an address designated by Bank, to receive and open all mail addressed to
Borrower, and to retain all mail related to the Collateral and forward all other
mail to Borrower; to send, whether in writing or by telephone, requests for
verification of Receivables; and to do all things necessary to carry out this
Agreement. Borrower ratifies and approves all acts of the attorney-in-fact.
Neither Bank nor its attorney-in-fact will be liable for any acts or omissions
or for any error of judgment or mistake of fact or law. This power being coupled
with an interest, is irrevocable so long as any Receivables in which Bank has a
security interest remain unpaid and until the Obligations have been fully
satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen,
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Obligation and
shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates, subsidiaries and
services providers.
5. CONDITIONS PRECEDENT.
5.1 As conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause to
be executed, and deliver to Bank, in form and substance satisfactory to Bank and
its counsel, the following:
a. This Agreement, the Equipment Term Note and other
appropriate documentation as required by Bank.
b. Certified extracts from the minutes of the meeting of its
board of directors, authorizing the borrowings and the granting of the security
interest provided for herein and authorizing specific officers to execute and
deliver the agreements provided for herein.
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c. A certificate of good standing showing that Borrower is in good
standing under the laws of the state of its incorporation and certificates
indicating that Borrower is qualified to transact business and is in good
standing in any other state in which it is required to be qualified to transact
business.
d. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other similar
documents which Bank may reasonably require and in such form as Bank may
reasonably require, in order to reflect, perfect or protect Bank's first
priority security interest in the Collateral and in order to fully consummate
all of the transactions contemplated under the Agreement.
e. Evidence that Borrower has obtained insurance and acceptable
endorsements.
f. Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located.
g. Customary warranties and representations of officers on behalf
of Borrower.
h. Evidence that Borrower has paid all Bank Expenses incurred in
connection herewith, including but not limited to, commitment fees,
documentation fees, attorneys' fees, audit fees and filing fees.
i. Evidence that Borrower maintains its primary bank accounts with
Bank.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS.
6.1 All representations and warranties of Borrower contained in this
Agreement shall be true in all respects as of the date of execution of this
Agreement and as of the date of each advance by Bank. Any request for an advance
by Borrower shall be deemed to be a reaffirmation of each representation and
warranty contained herein.
6.2 Bank shall retain its security interest in all Receivables until all
Obligations have been fully paid and satisfied. Returns and allowances, if any,
as between Borrower and its customers, will be on the same basis and in
accordance with the usual customary practices of the Borrower, as they exist at
this time. Any merchandise which is returned by an account debtor or otherwise
recovered shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all disputes
and claims and settle or adjust them on terms approved by Bank. After default by
Borrower hereunder, no discount, credit or allowance shall be granted to any
account debtor by Borrower and no return of merchandise shall be accepted by
Borrower without Bank's consent. Bank may, after default by Borrower, settle or
adjust disputes and claims directly with account debtors for amounts and upon
terms which Bank considers advisable, and in such cases Bank will credit
Borrower's account with only the net amounts received by Bank in payment of the
accounts, after deducting all Bank Expenses in connection therewith.
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6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral. Bank
has and shall continue to have a first priority perfected security interest in
and to the Collateral. The Collateral shall at all times remain free and clear
of all liens, encumbrances and security interests except those in favor of Bank,
and except for purchase money security interests in Equipment purchased by
Borrower given after the date of this Agreement to equipment vendors or finance
companies (other than Bank) in connection with purchases of Equipment, which
purchases in the aggregate total less than Two Hundred Fifty Thousand Dollars
($250,000.00) in any fiscal year of Borrower.
b. All accounts are and will, at all times pertinent hereto, be
bona fide existing obligations created by the sale and delivery of merchandise
or the rendition of services to account debtors in the ordinary course of
business, free of liens, claims, encumbrances and security interests (except as
held by Bank and except as may be consented to, in writing, by Bank) and are
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, rights of return or cancellation, and Borrower shall have
received no notice of actual or imminent bankruptcy or insolvency of any account
debtor at the time an account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the account debtor or
to the agent for the account debtor for immediate shipment to, and unconditional
acceptance by, the account debtor. Borrower shall deliver to Bank, as Bank may
from time to time require, delivery receipts, customer's purchase orders,
shipping instruction, bills of lading and any other evidence of shipping
arrangements. Absent such a request by Bank, copies of all such documentation
shall be held by Borrower as custodian for Bank.
6.4 Except to the extent permitted in Section 6.6(f) hereof, Borrower
shall keep the Inventory only at the following location: 0000 Xxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxx 00000; and, as of the date of this Agreement, the owner
thereof is Xxxxxxx Associates No. 5, a California limited partnership, 000 Xxxxx
Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxxx, Xxxxxxxxxx 00000.
a. Borrower, immediately upon demand by Bank therefor, shall now
and from time to time hereafter, at such intervals as are requested by Bank,
deliver to Bank, designations of Inventory specifying Borrower's cost of
Inventory, the wholesale market value thereof and such other matters and
information relating to the Inventory as Bank may request;
b. All of the Inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except as held by
Bank.
c. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type, quality
and quantity of the Inventory, its cost therefor and selling price thereof, and
the daily withdrawals therefrom and additions thereto, all of which records
shall be available upon demand to any of Bank's officers, agents and employees
for inspection and copying.
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d. All Inventory, now and hereafter at all times, shall be new Inventory
of good and merchantable quality free from defects.
e. Except as allowed pursuant to Section 6.6(f)), Inventory is not now and
shall not at any time or times hereafter be located or stored with a bailee,
warehouseman or other third party without Bank's prior written consent, and, in
such event, Borrower will concurrently therewith cause any such bailee,
warehouseman or other third party to issue and deliver to Bank, in a form
acceptable to Bank, warehouse receipts in Bank's name evidencing the storage of
Inventory or other evidence of Bank's prior rights in the Inventory. In any
event, Bank shall instruct any third party to hold all such Inventory for Bank's
account subject to Bank's security interests and its instructions; and
f. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and examine the
Inventory and to check and test the same as to quality, quantity, value and
condition and Borrower agrees to reimburse Bank for Bank's reasonable costs and
expenses in so doing.
6.5 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent, which consent will not be
unreasonably withheld:
x. Xxxxx a security interest in or permit a lien, claim or encumbrance
upon any of the Collateral to any person, association, firm, corporation, entity
or government agency or instrumentality, except for purchase money security
interests allowed pursuant to Section 6.3(a) above;
b. Permit any levy, attachment or restraint to be made affecting any of
Borrower's assets;
c. Permit any Judicial Officer or Assignee to be appointed or to take
possession of any or all of Borrower's assets;
d. Except to the extent permitted in Sections 6.6(f) and 6.6(n) hereof,
and other than sales of Inventory in the ordinary course of Borrower's business,
sell, lease, or otherwise dispose of, move, or transfer, whether by sale or
otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate identity or structure;
add any new fictitious names, liquidate, merge or consolidate with or into any
other business organization;
f. Move or relocate Collateral with value at any one time in excess of Two
Hundred Twenty-Five Thousand Dollars ($225,000.00) in the aggregate (and any
Collateral located on any premise not owned or leased by Borrower and under the
exclusive control of Borrower shall be adequately marked as the property of
Borrower and Borrower shall take all further steps necessary to maintain Bank's
perfected security in such Collateral);
g. Acquire any other business organization;
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h. Enter into any transaction not in the usual course of Borrower's
business;
i. Make any investment in securities of any person, association, firm,
entity, or corporation other than the securities of the United States of
America; provided, however, nothing herein shall prohibit Borrower from making
deposits in "Treasury Fund 695" or "Money Market Class One Fund 059" included in
Fidelity Institutional Money Market Funds (the "Fidelity Funds");
j. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely affect the
ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's business
greater than Two Hundred Fifty Thousand Dollars ($250,000.00) outstanding at any
one time;
l. Make loans, advances or extensions of credit to any Person, except for
(i) sales on open account and otherwise in the ordinary course of business, and
(ii) loans to employees in the ordinary course of business not exceeding Two
Hundred Thousand Dollars ($200,000.00) outstanding at any time;
m. Except to the extent permitted by Section 6.27, guarantee or otherwise,
directly or indirectly, in any way be or become responsible for obligations of
any other Person, whether by agreement to purchase the indebtedness of any other
Person, agreement for furnishing of funds to any other Person through the
furnishing of goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging (or
causing the payment or discharge of) the indebtedness of any other Person, or
otherwise, except for the endorsement of negotiable instruments by the Borrower
in the ordinary course of business for deposit or collection;
n. (a) Sell, lease, transfer or otherwise dispose of properties and assets
having an aggregate book value of more than Two Hundred Thousand Dollars
($200,000.00) (whether in one transaction or in a series of transactions) except
as to the sale of inventory in the ordinary course of business; (b) change its
name, consolidate with or merge into any other corporation, permit another
corporation to merge into it, acquire all or substantially all the properties or
assets of any other Person, enter into any reorganization or recapitalization or
reclassify its capital stock; or (c) enter into any sale-leaseback transaction;
o. Subordinate any indebtedness due to it from a person to indebtedness of
other creditors of such person;
p. Purchase or hold beneficially any stock or other securities of, or make
any investment or acquire any interest whatsoever in, any other Person, except
for the common stock of the Subsidiaries owned by the Borrower on the date of
this Agreement and except for certificates of deposit with maturities of one
year or less of United States commercial banks with capital, surplus and
undivided profits in excess of $100,000,000 and direct obligations of the
United States Government maturing within one year from the date of acquisition
thereof; and
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provided further that nothing shall prohibit Borrower from making deposits in
the Fidelity Funds; or
q. Allow any fact, condition or event to occur or exist with respect to any
employee pension or profit sharing plans established or maintained by it which
might constitute grounds for termination of any such plan or for the court
appointment of a trustee to administer any such plan.
6.6 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the 12 months preceding the
filing by Bank of a financing statement describing the Collateral. At no time
hereafter shall Borrower's sales for resale of goods for personal, family or
household purpose exceed seventy-five (75%) in dollar volume of its total sales.
6.7 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.8 Borrower represents, warrants and covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its capital
stock, of any class, whether now or hereafter outstanding, or purchase, acquire,
repurchase, redeem or retire any such capital stock; provided, however, that any
such transactions shall not exceed an aggregate value of $100,000;
b. Borrower is and shall at all times hereafter be a corporation
duly organized and existing in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in California or any
other state in which it is required to be qualified;
c. Borrower has the right and power and is duly authorized to enter
into this Agreement; and
d. The execution by Borrower of this Agreement shall not constitute
a breach of any provision contained in Borrower's certificate of incorporation
or by-laws.
6.9 The execution of and performance by Borrower of all of the terms and
provisions contained in this Agreement shall not result in a breach of or
constitute an Event of Default under any agreement to which Borrower is now or
hereafter becomes a party.
6.10 Borrower shall promptly notify Bank in writing of its acquisition
by purchase, lease or otherwise of any after acquired property of the type
included in the Collateral, with the exception of purchase of inventory in the
ordinary course of business or otherwise not exceeding Two Hundred Fifty
Thousand Dollars ($250,000.00) in the aggregate in any fiscal year.
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6.11 All assessments and taxes, whether real, personal or otherwise, due
or payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
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. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay any
such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion, and without
notice to Borrower, (i) make payment of the same or any part thereof, or (ii)
set up such reserves in Borrower's account as Bank deems necessary to satisfy
the liability therefor, or both, unless Borrower provides to Bank a bond or
other security satisfactory to Bank prior to the date payment is due. Bank may
conclusively rely on the usual statements of the amount owing or other official
statements issued by the appropriate governmental agency. Each amount so paid or
deposited by Banks shall constitute a Bank Expense and an additional advance to
Borrower.
6.12 There are no actions or proceedings pending by or against Borrower or
any guarantor of Borrower before any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the Agreement,
Borrower shall immediately notify Bank in writing of all pending actions in the
event that the aggregate of all claims asserted in all actions pending exceed or
could exceed One Hundred Thousand Dollars ($100,000.00).
6.13 a. Borrower, at its expense, shall keep and maintain all its assets
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form reasonably satisfactory to Bank showing
Bank as a loss payee thereof, with a waiver of warranties (Form 438-BFU), and
all proceeds payable thereunder shall be payable to Bank and, upon receipt by
Bank, shall be applied on account of the Obligations owing to Bank. To secure
the payment of the Obligations, Borrower grants Bank a security interest in and
to all such policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to Bank.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's attorney for the
purpose of making,
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selling and adjusting claims under such policies of insurance, endorsing the
name of Borrower or any check, draft, instrument or other item of payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. Borrower will not cancel
any of such policies without Bank's prior written consent. Each such insurer
shall agree by endorsement upon the policy or policies of insurance issued by it
to Borrower as required above, or by independent instruments furnished to Bank,
that it will give Bank at least ten (10) days written notice before any such
policy or policies of insurance shall be altered or canceled, and that no act or
default of Borrower, or any other person, shall affect the right of Bank to
recover under such policy or policies of insurance required above or to pay any
premium in whole or in part relating thereto. Bank, without waiving or releasing
any Obligations or any Event of Default, may, but shall have no obligation to do
so, obtain and maintain such policies of insurance and pay such premiums and
take any other action with respect to such policies which Bank deems advisable.
All sums so disbursed by Bank, as well as reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall constitute Bank
Expenses and are payable on demand.
6.14 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with GAAP consistently applied and there
has been no material adverse change in the financial condition since the
submission of such financial information to Bank.
6.15 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied with
ledger and account cards and/or computer tapes and computer disks, computer
printouts and computer records pertaining to the Collateral which contain
information as may from time to time be requested by Bank, not modify or change
its method of accounting or enter into, modify or terminate any agreement
presently existing, or at any time hereafter entered into with any third party
accounting firm and/or service bureau for the preparation and/or storage of
Borrower's accounting records without the written consent of Bank first obtained
and without said accounting firm and/or service bureau agreeing to provide
information regarding the Receivables and Inventory and Borrower's financial
condition to Bank; permit Bank and any of its employees, officers or agents,
upon demand, during Borrower's usual business hours, or the usual business hour
of third persons having control thereof, to have access to and examine all of
the Borrower's Books relating to the Collateral, Borrower's Obligations to Bank,
Borrower's financial condition and the results of Borrower's operations and in
connection therewith, permit Bank or any of its agents, employees or officers to
copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the
end of each month, a company prepared balance sheet, income statement, and
statement of cash flow covering Borrower's operations. Borrower shall deliver to
Bank within one hundred twenty (120) days after the end of each of Borrower's
fiscal year a statement of the financial condition of the Borrower for each such
fiscal year which has been audited by, and which contains an unqualified opinion
from, an independent CPA firm acceptable to Bank, including but not limited to,
a balance sheet and profit and loss statement and any other report requested by
Bank relating to the Collateral and the financial condition of Borrower, and a
certificate signed by an
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authorized employee of Borrower to the effect that all reports, statements,
computer disk or tape files, computer printouts, computer runs, or other
computer prepared information of any kind or nature relating to the foregoing or
documents delivered or caused to be delivered to Bank under this subparagraph
are complete, correct and thoroughly present the financial condition of Borrower
and that there exists on the date of delivery to Bank no condition or event
which constitutes a breach or Event of Default under this Agreement.
During such time as Borrower is subject to the reporting
requirements of the Securities Exchange Act of 1934, within forty five (45) days
of quarter end Borrower will deliver to Bank a 10-Q Report including balance
sheet and profit and loss statement covering Borrower's operations, and within
ninety (90) days after the end of each fiscal year end, a 10-K report with a
balance sheet and profit and loss statement covering Borrower's operations;
provided, however, that Borrower shall be entitled to deliver such Reports to
Bank at a later date if an extension has been granted to Borrower by the SEC
pursuant to Rule 12b-25 of the Securities and Exchange Act of 1934, in which
event Borrower shall deliver such Reports to Bank no later than ten (10)
calendar days after the expiration of any such extension.
C. In addition to the financial statements requested above,
Borrower agrees to provide Bank with the following schedules:
(i) Receivables agings, in a form approved by Bank, on
a monthly basis, within twenty (20) days of the end of each calendar month;
(ii) Accounts payable agings, in a form approved by
Bank, on a monthly basis, within twenty (20) days of the end of each calendar
month; and
(iii) Copies of all other projections or other financial
exhibits which the Bank may reasonably require from time to time.
6.16 Borrower shall maintain the following financial ratios and
covenants on a consolidated and non-consolidated basis, which ratios and
covenants will be monitored monthly unless otherwise stated:
a. Tangible Effective Net Worth in an amount not less than:
$6,000,000.00 through April 30, 1999; $5,000,000.00 from May 1, 1999 through
June 30, 1999; $4,000,000.00 from July 1, 1999 through May 31, 2000;
$5,000,000.00 from June 1, 2000 through July 31, 2000; $6,000,000.00 from
August 1, 2000 through September 30, 2000; $8,000,000.00 from October 1, 2000
through December 31, 2000; and $10,000,000.00 thereafter.
b. A "quick ratio" of cash plus marketable securities not
classified as longterm investments plus Receivables to Current Liabilities of
not less than: 2.00:1.00 through April 30, 1999; not less than 1.50:1.00 from
May 31, 1999 through December 31, 1999; and not less than 1.25:1.00 thereafter.
c. A ratio of Total Senior Liabilities to Tangible Effective Net
Worth not to exceed 2.00:1.00 through November 30, 1999; and thereafter, not to
exceed 1.75:1.00.
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d. A debt service coverage ratio of at least 1.50:1.00 to be
determined as of the end of each calendar quarter beginning as of March 31,
2000. For purposes of this Section 6.17, debt service coverage ratio shall be
the ratio of Borrower's annualized net income (plus amortization and
depreciation) for that portion of the current fiscal year then ended to the
current portion of long-term debt plus capital expenditures made in cash (and
not financed). As used herein, "capital expenditures" means any expenditure
(including any capitalized lease expenditure) that is considered a capital
expenditure under generally accepted accounting principles, consistently
applied, including, without limitation, any amount that is required to be
treated as a capitalized asset pursuant to GAAP.
e. Borrower shall not without Bank's prior written consent acquire
or expend for, or commit itself to acquire or expend for, capital expenditures
by lease, purchase or otherwise in excess of Three Million Dollars
($3,000,000.00) in the fiscal year 1999, or in excess of One Million Dollars
($1,000,000.00) in each fiscal year thereafter. As used herein, "capital
expenditures" means any expenditure (including any capitalized lease
expenditure) that is considered a capital expenditure under generally accepted
accounting principles, consistently applied, including, without limitation, any
amount that is required to be treated as a capitalized asset pursuant to GAAP.
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.17 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may reasonably request from
time to time hereafter, and shall promptly notify Bank of any material adverse
change in Borrower's financial condition and of any condition or event which
constitute a breach of or an event which constitutes an Event of Default under
this Agreement.
6.18 Borrower is now and shall be at all times hereafter solvent and able
to pay its debts (including trade debts) as they mature.
6.19 Borrower shall immediately and without demand reimburse Bank for all
sums expended by Bank in connection with any act brought by Bank to correct any
default or enforce any provision of this Agreement, including all Bank Expenses;
Borrower authorizes and approves all advances and payments by Bank for items
described in this Agreement as Bank Expenses.
6.20 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank either now or hereafter.
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6.21 Borrower shall keep all of its principal bank accounts with Bank and
shall notify the Bank immediately in writing of the existence of any other bank
account, or any other account into which money can be deposited.
6.22 Borrower shall furnish to the Bank: (a) as soon as possible, but in
no event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of chief financial officer of Borrower setting forth the
details concerning such reportable event and the action which Borrower proposes
to take with respect thereto, together with a copy of the notice of such
reportable event given to the Pension Benefit Guaranty Corporation, if a copy of
such notice is available to Borrower; (b) promptly after the filing thereof with
the United States Secretary of Labor or the Pension Benefit Guaranty
Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other forms of
information from time to time disseminated to the participants by the
administrator of the deferred compensation plan.
6.23 Borrower is now and shall at all times hereafter remain in compliance
with all federal, state and municipal laws, regulations and ordinances relating
to the handling, treatment and disposal of toxic substances, wastes and
hazardous material and shall maintain all necessary authorizations and permits.
6.24 Borrower shall perform all acts reasonably necessary to ensure that
Borrower and any business in which Borrower holds a substantial interest become
Year 2000 Compliant in a timely manner. Such acts shall include, without
limitation, performing a comprehensive review and assessment of all of
Borrower's systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. Borrower shall make
reasonable inquiry of all customers, suppliers and vendors material to
Borrower's business to ensure that such third parties have a plan and intend to
become Year 2000 Compliant in a timely manner. As used in this Section, "Year
2000 Compliant" shall mean, in regard to any entity, that all software,
hardware, firmware, Equipment, goods or systems utilized by or material to the
business operations or financial condition of such entity, will properly perform
date sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's compliance with terms of this paragraph as Bank may from time to
time require.
6.25 Once each six (6) months, and upon the occurrence of an Event of
Default, Bank (through any of its officers, employees or agents) shall have the
right during Borrower's usual business hours, or during the usual business hours
of any third party having control over the records of Borrower, to conduct an
audit of Borrower's Books in order to verify the amount or condition of, or any
other matter relating to, the Receivables and the other Collateral and
Borrower's financial condition. Borrower shall reimburse Bank for Bank's
reasonable costs and expenses incurred in connection with such audits.
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6.26 Borrower shall keep and maintain the Equipment in good operating
condition and repair, except ordinary wear and tear, make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any items of
Equipment to become a fixture to real estate or accession to other property, and
the Equipment is now and shall at all times remain and be personal property.
Bank shall have the right upon demand now and/or at all times hereafter, during
Borrower's usual business hours to inspect and examine the Equipment and
Borrower agrees to reimburse Bank for its reasonable costs and expenses in so
doing.
6.27 During the term of this Agreement, without the prior written consent
of Bank, Borrower shall not guaranty the obligations of any other Person, except
for amounts in the aggregate of less than $100,000.
7. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
a. If, within five (5) days of written notice by Bank to do so,
Borrower fails or neglects to perform, keep or observe any term, provision,
condition, covenant, agreement, warranty or representation contained in this
Agreement (other than for the payment of money, which shall be governed by
Section 7(c) below), or any other present or future agreement between Borrower
and Bank;
b. If any material representation, statement, report or certificate
made or delivered by Borrower, or any of its officers, employees or agents to
Bank is not true and correct;
c. If Borrower fails to pay when due and payable or declared due
and payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of repayment
of all or any portion of Borrower's Obligations or a material impairment of the
value or priority of Bank's security interest in the Collateral;
e. If all or any of Borrower's assets are attached, seized, subject
to a writ or distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee and the same are not released, discharged or
bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by or against
Borrower, or if any involuntary Insolvency Proceeding is filed or commenced
against Borrower without such involuntary Insolvency Proceeding being dismissed
within thirty (30) days thereafter;
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g. If any proceeding is filled or commenced by or against Borrower
for its dissolution or liquidation;
h. 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;
i. If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States Government, or
any department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether xxxxxx or
otherwise, upon any or all of the Borrower's assets and the same is not paid on
the payment date thereof unless Borrower provides to Bank a bond or other
security satisfactory to Bank prior to such payment date;
j. If any judgments or other claims aggregating in excess of One
Hundred Fifty Thousand Dollars ($150,000.00) become a lien or encumbrance upon
any or all of Borrower's assets other than the Collateral, or if any other
judgments or other claims become a lien or encumbrance upon the Collateral, and
the same is not satisfied, dismissed or bonded against within ten (10) days
thereafter;
k. If Borrower's records are prepared and kept by an outside
computer service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the written
consent of Bank, Borrower terminates, modifies, amends or changes its
contractual relationship with said computer service bureau or said computer
service bureau fails to provide Bank with any request information or financial
data pertaining to Bank's Collateral, Borrower's financial condition or the
results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration of the
maturity of Borrower's indebtedness to others, whether under any indenture,
agreement or otherwise;
m. If Borrower makes any payment on account of indebtedness which
has been subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any
warranty or representation made by Bank by any officer or director of Borrower,
or if any such warranty or representation is withdrawn by any officer or
director;
o. If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its subordination or
guaranty, becomes insolvent or an Insolvency Proceeding is commenced by or
against any such subordinating party or guarantor;
p. If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate United
States District Court of a trustee to administer
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any such plan, shall have occurred and be continuing thirty (30) days after
written notice of such determination shall have been given to Borrower by Bank,
or any such Plan shall be terminated within the meaning of Title IV of the
Employment Retirement Income Security Act ("ERISA"), or a trustee shall be
appointed by the appropriate United States District Court to administer any such
plan, or the Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any plan and in case of any event described in this Section 7.0, the
aggregate amount of the Borrower's liability to the Pension Benefit Guaranty
Corporation under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent
(5) of Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary,
Bank shall refrain from exercising its rights and remedies and Event of Default
shall thereafter not be deemed to have occurred by reason of the occurrence of
any of the events set forth in Sections 7(e), 7(f), 7(i) or 7(j) of this
Agreement if, within ten (10) days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; provided, however, if the
event is the institution of Insolvency Proceedings against Borrower, Bank shall
not be obligated to make advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES.
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its selection and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
a. Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately due and
payable to the Bank;
b. Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, or any other agreement between Borrower and
Bank;
c. Terminate this Agreement as to any future liability or obligation
of Bank, but without affecting Bank's rights and security interests in the
Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, 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 my designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, take and maintain possession of the Collateral and the
premises (at no charge to Bank), or any part thereof, and to pay, purchase,
contest or compromise any encumbrance, charge or lien which in the opinion of
Bank appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith;
e. Without limiting Bank's rights under any security interest, Bank
is hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secret, trade
names, trademarks and advertising matter, or any property of a similar nature as
it pertains to the Collateral, in completing production of,
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advertising for sale and selling any Collateral and Borrower's rights under all
licenses and all franchise agreement shall inure to Bank's benefit, and Bank
shall have the right and power to enter into sublicense agreements with respect
to all such rights with third parties on terms acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sales and sell (in the manner provided for
herein) the inventory;
g. Sell or dispose 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 is
commercially reasonable in the opinion of Bank. It is not necessary that the
Collateral be present at any such sale. Bank shall give notice of the
disposition of the Collateral as follows:
(i) Bank shall give the Borrower and each holder of a
security interest in the collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some disposition other than a public sale is to be
made of the Collateral, the time on or after which the private sale or the
disposition is to be made;
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower's address appearing in this Agreement, at least
five (5) calendar days before the date fixed for the sale, or at least five (5)
calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to Bank;
(iii) If the sale is to be a public sale, Bank shall also
give notice of the time and place by publishing a notice one time at least five
(5) calendar days before the date of this sale in a newspaper of general
circulation in the county in which the sale is to be held; and
(iv) Bank may credit bid and purchase at any public sale.
h. Borrower shall pay all Bank Expenses incurred in connection
with Bank's enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Bank;
i. Any deficiency which exists after disposition of the Collateral
as provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, to
Borrower by Bank, or, in Bank's discretion, to any party who Bank believes, in
good faith, is entitled to the excess; and
j. Without constituting a retention of Collateral in satisfaction
of an obligation within the meaning of 9505 of the Uniform Commercial Code or an
action under California Code of Civil Procedure 726, apply any and all amounts
maintained by Borrower as
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deposit accounts (as that term is defined under 9105 of the Uniform Commercial
Code) or other accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided 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
default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or entity,
monies which Borrower is required to pay by reason of any provision in this
Agreement, Bank may, but need not, pay the same and charge Borrower's account
therefor, and Borrower shall promptly reimburse Bank. All such sums shall become
additional indebtedness owing to Bank, shall bear interest at the Equipment Term
Loan Default Rate, and shall be secured by all Collateral. Any payments made by
Bank shall not constitute (i) an agreement by it to make similar payments in the
future; or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by Bank
in payment or on account of Borrower's Obligations constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank on account of Borrower's Obligations and Borrower agrees that
Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry by
Bank upon its books.
10.2 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
any or all commercial paper, accounts, documents, instruments chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10.3 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 Collateral shall be borne by Borrower.
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10.4 Borrower waives the right of and to a confidential relationship, if
any, it may have with any accountant, accounting firm and/or service bureau or
consultant in connection with any information requested by Bank pursuant to or
in accordance with this Agreement, and agrees that a Bank may contact directly
any such accountants, accounting firm and/or service bureau or consultant in
order to obtain such information. Nothing in this Section 10.4 shall be
construed by Bank as a waiver by Borrower of any attorney-client privilege.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO TIES AGREEMENT OR ANY TRANSACTION HEREUNDER, OR
CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any terms, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
11. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
either party on the other relating to this Agreement shall be in writing and
sent by regular United States mail, postage prepaid, properly addressed to
Borrower or to Bank at the addresses stated in this Agreement, or to such other
addresses as Borrower or Bank may from time to time specify to the other in
writing. Requests to Borrower by Bank hereunder may be made orally.
12. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances hereunder upon
telephonic or other instructions received from anyone purporting to be an
officer, employee, or representative of Borrower, or at the discretion of Bank
if said loans and advances are necessary to meet any Obligations of Borrower to
Bank. Bank shall have no duty to make inquiry or verify the authority of any
such party, and Borrower shall hold the Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
13. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers delivered to Bank,
may be destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
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14. CHOICE OF LAW.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Xxxxx.
15. GENERAL PROVISIONS.
15.1 This Agreement shall be binding and deemed effective when executed
by the Borrower and accepted and executed by Bank at its Headquarters Office.
15.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided, however,
that Borrower may not assign this Agreement or any rights hereunder without
Bank's prior written consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Bank shall release Borrower or any
guarantor from their Obligations to Bank. Bank may assign this Agreement and its
rights and duties hereunder. Bank reserves the right to sell, assign, transfer,
negotiate or grant participation in all or any part of, or any interest in
Bank's rights and benefits hereunder. In connection therewith, Bank may disclose
all documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
15.3 Paragraph headings and paragraph numbers have been set forth herein
for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
15.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
15.5 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.
15.6 This Agreement cannot be changed or terminated orally. Except as to
currently existing Obligations owing by Borrower to Bank, all prior agreements,
understandings, representations, warranties, and negotiations, if any, with
respect to the subject matter hereof, are merged into this Agreement.
15.7 The parties intend and agree that their respective rights, duties,
powers liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.
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IN WITNESS WHEREOF, the parties hereto have caused this Loan & Security
Agreement to be executed on the respective dates set forth next to their
signatures below.
Date of Execution: April 5, 1999 BORROWER: MASIMO CORPORATION
By: /s/ XXXX XXXXXXXX
-----------------------------------
Print Name Xxxx Xxxxxxxx
Print Title: Exec. V.P., CFO
By:
-----------------------------------
Print Name:
Print Title:
Date of Execution: April 5, 1999 BANK: COMERICA BANK-CALIFORNIA
By: /s/ XXXXXX X. XXXX
-----------------------------------
Print Name: Xxxxxx X. Xxxx
Print Title: Vice President/Regional Mgr.
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Exhibit "A"
[Form of Equipment Term Note]
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