ARTES MEDICAL, INC. LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of November 27, 2006, by and between
COMERICA BANK (“Bank”) and ARTES MEDICAL, INC. (“Borrower”).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend
credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to
Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have the
following definitions:
“Accounts” means all presently existing and hereafter arising accounts, contract rights,
payment intangibles, and all other forms of obligations owing to Borrower arising out of the sale
or lease of goods (including, without limitation, the licensing of software and other technology)
or the rendering of services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.
“Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is under common control
with such Person, and each of such Person’s senior executive officers, directors, and partners.
“Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees
and expenses, whether generated in-house or by outside counsel) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether generated
in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.
“Borrower State” means Delaware, the state under whose laws Borrower is organized.
“Borrower’s Books” means all of Borrower’s books and records including: ledgers; records
concerning Borrower’s assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment, containing such
information.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in
the State of California are authorized or required to close.
“Cash” means unrestricted cash and cash equivalents.
“Change in Control” shall mean a transaction in which any “person” or “group” (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of a sufficient number of shares of all classes of stock then outstanding of
Borrower ordinarily entitled to vote in the election of directors,
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empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower,
who did not have such power before such transaction.
“Chief Executive Office State” means California, where Borrower’s chief executive office is
located.
“Closing Date” means the date of this Agreement.
“Code” means the California Uniform Commercial Code, as amended or supplemented from time to
time.
“Collateral” means the property described on Exhibit A attached hereto and all Negotiable
Collateral to the extent not described on Exhibit A, except to the extent any such property (i) is
nonassignable by its terms without the consent of the licensor thereof or another party (but only
to the extent such prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a security interest
therein is contrary to applicable law, provided that upon the cessation of any such restriction or
prohibition, such property shall automatically become part of the Collateral; provided that in no
case shall the definition of “Collateral” exclude any Accounts, proceeds of the disposition of any
property, or general intangibles consisting of rights to payment.
“Collateral State” means the state where the Collateral is located, which is California.
“Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any
Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges,
determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring
items of income.
“Consolidated Total Interest Expense” means with respect to any Person for any period, the
aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during
such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any
part of such period, whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of any capitalized lease or
any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency
fees and similar fees or expenses in connection with the borrowing of money.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend,
letter of credit or other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services
issued for the account of that Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement,
or other agreement or arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof as determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
“Credit Extension” means each Advance, the Term Loan, or any other extension of credit by Bank
to or for the benefit of Borrower hereunder.
“EBITDA” means with respect to any fiscal period an amount equal to the sum of (a)
Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in
each case to the extent deducted in the calculation of the Borrower’s Consolidated Net Income and
without duplication, (i) depreciation and amortization for such period, plus (ii) income tax
expense for such period, plus
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(iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense
associated with granting stock options, and minus, to the extent added in computing Consolidated
Net Income, and without duplication, all extraordinary and non-recurring revenue and gains
(including income tax benefits) for such period, all as determined in accordance with GAAP.
“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any
federal state, local foreign or other governmental or quasi-governmental authority or any agency
pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable,
explosive or radioactive materials, asbestos or other similar materials.
“Equipment” means all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.
“Event of Default” has the meaning assigned in Article 8.
“GAAP” means generally accepted accounting principles, consistently applied, as in effect from
time to time.
“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of
property or services, including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.
“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity
under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Inventory” means all present and future inventory in which Borrower has any interest.
“Investment” means any beneficial ownership of (including stock, partnership or limited
liability company interest other securities) any Person, or any loan, advance or capital
contribution to any Person.
“IPO” means the initial public offering of Borrower’s common stock.
“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower,
and any other document, instrument or agreement entered into in connection with this Agreement, all
as amended or extended from time to time.
“Material Adverse Effect” means a material adverse effect on (i) the business operations,
condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole,
(ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under
the Loan Documents, (iii) Borrower’s interest in, or the value, perfection or priority of Bank’s
security interest in the Collateral.
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“Negotiable Collateral” means all of Borrower’s present and future letters of credit of which
it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of
title, and chattel paper, and Borrower’s Books relating to any of the foregoing.
“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to
Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent,
due or to become due, now existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
“Periodic Payments” means all installments or similar recurring payments that Borrower may now
or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between Borrower and Bank.
“Permitted Indebtedness” means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate
in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term
“Permitted Liens;” provided such Indebtedness does not exceed the lesser of the cost or fair market
value of the equipment financed with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary course of business; and
(f) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided
that the principal amount is not increased or the terms modified to impose more burdensome terms
upon Borrower or its Subsidiary, as the case may be.
“Permitted Investment” means:
(a) Investments existing on the Closing Date disclosed in the Schedule; and
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or ▇▇▇▇▇’▇ Investors Service, (iii) Bank’s certificates of deposit maturing no more
than one year from the date of investment therein, and (iv) Bank’s money market accounts;
(c) Repurchases of stock from former employees or directors of Borrower under the terms of
applicable repurchase agreements (i) in an aggregate amount not to exceed Two Hundred Fifty
Thousand Dollars ($250,000) in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the
consideration for the repurchase is the cancellation of indebtedness owed by such former employees
to Borrower regardless of whether an Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
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(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate in any fiscal year;
(f) Investments not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate
in any fiscal year consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;
(g) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;
(h) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business,
provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary;
and
(i) Joint ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the non-exclusive licensing of technology, the development of technology or the
providing of technical support, provided that any cash Investments by Borrower do not exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year.
“Permitted Liens” means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to
be satisfied with the proceeds of the Advances) or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings and for which Borrower
maintains adequate reserves, provided the same have no priority over any of Bank’s security
interests;
(c) Liens not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate (i)
upon or in any Equipment acquired or held by Borrower or any of its Subsidiaries to secure the
purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so acquired and improvements
thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that
any extension, renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced
does not increase; and
(e) Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Sections 8.5 or 8.9.
“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or
any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business;
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(c) worn-out or obsolete Equipment; or
(d) other assets of Borrower or its Subsidiaries that do not in the aggregate exceed Two
Hundred Fifty Thousand Dollars ($250,000) during any fiscal year.
“Person” means any individual, sole proprietorship, partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or governmental agency.
“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank,
as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer,
the Chief Financial Officer and the Controller of Borrower.
“Revolving Line” means a Credit Extension of up to Five Million Dollars ($5,000,000)
“Revolving Maturity Date” means November 27, 2007.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“SOS Reports” means the official reports from the Secretaries of State of each Collateral
State, Chief Executive Office State and the Borrower State and other applicable federal, state or
local government offices identifying all current security interests filed in the Collateral and
Liens of record as of the date of such report.
“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the
debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such
by Borrower and Bank).
“Subsidiary” means any corporation, partnership or limited liability company or joint venture
in which (i) any general partnership interest or (ii) more than fifty percent (50%) of the stock,
limited liability company interest or joint venture of which by the terms thereof has the ordinary
voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of
which any determination is being made, is owned by Borrower, either directly or through an
Affiliate.
“Term Loan” has the meaning set forth in Section 2.1(c).
“Term Loan Maturity Date” means November 27, 2010.
1.2 Accounting Terms. Any accounting term not specifically defined herein shall be
construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The
term “financial statements” shall include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United
States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to
Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates
in accordance with the terms hereof.
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(b) Advances Under Revolving Line.
(i) Amount. Subject to and upon the terms and conditions of this Agreement (1)
Borrower may request Advances in an aggregate outstanding amount not to exceed the Revolving Line,
and (2) amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time
prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be
immediately due and payable. Borrower may prepay any Advances without penalty or premium.
(ii) Form of Request. Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Pacific time (1:00 p.m. Pacific time
for wire transfers), on the Business Day that the Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B
hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received
from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in
Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank
will credit the amount of Advances made under this Section 2.1(b) to Borrower’s deposit account.
(c) Term Loan.
(i) Subject to and upon the terms and conditions of this Agreement, on the Closing Date or as
soon thereafter as is practical, Bank shall make one term loan to Borrower in an aggregate amount
not to exceed Five Million Dollars ($5,000,000) (the “Term Loan”), which amount shall be used for
general corporate and working capital purposes.
(ii) Interest shall accrue from the date the Term Loan is made at the rate specified in
Section 2.3(a), and shall be payable monthly on the twenty seventh (27th) day of each month
commencing on December 27, 2006. The Term Loan shall be repaid in forty eight (48) equal monthly
installments of principal plus accrued but unpaid interest, commencing on December 27, 2006 and
continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which
time all amounts owing under this Section 2.1(c) shall be immediately due and payable. The Term
Loan, once repaid, may not be reborrowed. Borrower may prepay the Term Loan without penalty or
premium.
2.2 Intentionally Omitted.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear
interest, on the outstanding daily balance thereof, at a variable rate equal to two percent (2.00%)
above the Prime Rate.
(ii) Term Loan. Except as set forth in Section 2.3(b), the Term Loan shall bear
interest, on the outstanding daily balance thereof, at a rate equal to two percent (2.00%) above
the Prime Rate.
(b) Late Fee; Default Rate. If any payment is not made within ten (10) days after the
date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five
percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged
under applicable law. All Obligations shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a rate equal to five (5) percentage points above
the interest rate applicable immediately prior to the occurrence of the Event of Default.
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(c) Payments. Interest hereunder shall be due and payable on the twenty seventh
(27th) calendar day of each month during the term hereof. Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts
or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the
rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a
part of the Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to time hereafter,
the applicable rate of interest hereunder shall be increased or decreased, effective as of the day
the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall
credit a wire transfer of funds, check or other item of payment to such deposit account or
Obligation as Borrower specifies except that to the extent Borrower uses the Advances to purchase
Collateral, Borrower’s repayment of the Advances shall apply on a “first-in-first-out” basis so
that the portion of the Advances used to purchase a particular item of Collateral shall be paid in
the chronological order the Borrower purchased the Collateral. After the occurrence of an Event of
Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer
of funds, check, or other item of payment to conditionally reduce Obligations, but such
applications of funds shall not be considered a payment on account unless such payment is of
immediately available federal funds or unless and until such check or other item of payment is
honored when presented for payment. Notwithstanding anything to the contrary contained herein, any
wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have
been received by Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a fee equal to $50,000, which shall be
nonrefundable; and
(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date (provided that Bank Expenses for legal fees shall not exceed $15,000 on the Closing
Date if there have been two turns or less of the Loan Documents), and, after the Closing Date, all
Bank Expenses as and when they become due (provided however that Bank shall pay the legal fees of
Bank and Borrower for the First Amendment to the Loan Documents if there are two turns or less of
the Loan Documents).
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to
Section 13.7, shall continue in full force and effect for so long as any Obligations remain
outstanding or Bank has any obligation to make Credit Extensions under this Agreement.
Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit
Extensions under this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make
the initial Credit Extension is subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) an officer’s certificate of Borrower with respect to incumbency and resolutions
authorizing the execution and delivery of this Agreement;
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(c) UCC National Form Financing Statement;
(d) a warrant to purchase stock;
(e) current SOS Reports indicating that except for Permitted Liens, there are no other
security interests or Liens of record in the Collateral;
(f) securities and/or deposit account control agreements with respect to any accounts
permitted hereunder to be maintained outside Bank;
(g) agreement to provide insurance;
(h) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof;
(i) current financial statements, including audited statements for Borrower’s most recently
ended fiscal year, together with an unqualified opinion, company prepared consolidated and
consolidating balance sheets and income statements for the most recently ended month in accordance
with Section 6.2, and such other updated financial information as Bank may reasonably request;
(j) current Compliance Certificate in accordance with Section 6.2; and
(k) such other documents or certificates, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make
each Credit Extension, including the initial Credit Extension, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be true and correct in all
material respects on and as of the date of such Payment/Advance Form and on the effective date of
each Credit Extension as though made at and as of each such date, and no Event of Default shall
have occurred and be continuing, or would exist after giving effect to such Credit Extension
(provided, however, that those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of such date). The making of each
Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of
such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing
security interest in the Collateral to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and duties under the Loan
Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will constitute a valid, first
priority security interest in later-acquired Collateral. Borrower also hereby agrees to not sell,
transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its
intellectual property other than Permitted Transfers. Notwithstanding any termination, Bank’s Lien
on the Collateral shall remain in effect for so long as any Obligations are outstanding.
4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any time
financing statements, continuation statements, and amendments thereto that (i) either specifically
describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged
hereunder, and (ii) contain any other information required by the Code for the sufficiency of
filing office acceptance of any financing statement, continuation statement, or amendment,
including whether Borrower is an organization, the type of organization and any organizational
identification number issued to Borrower, if applicable. Any such financing statements may be
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signed by Bank on behalf of Borrower, as provided in the Code, and may be filed at any time in
any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that
jurisdiction. Borrower shall from time to time endorse and deliver to Bank, at the request of
Bank, all Negotiable Collateral (other than checks received by Borrower for deposit in the ordinary
course of business) and other documents that Bank may reasonably request, in form satisfactory to
Bank, to perfect and continue perfected Bank’s security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall
have possession of the Collateral, except where expressly otherwise provided in this Agreement or
where Bank chooses to perfect its security interest by possession in addition to the filing of a
financing statement. Where Collateral is in possession of a third party bailee, Borrower shall
take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and
substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit
of Bank, (ii) obtain “control” of any Collateral consisting of investment property, deposit
accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control”
are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary
institution or issuing bank to execute a control agreement in form and substance satisfactory to
Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper
acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower
from time to time may deposit with Bank specific cash collateral to secure specific Obligations;
Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any
drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part
of such balances for so long as the specific Obligations are outstanding.
4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall
have the right, upon reasonable prior notice, from time to time during Borrower’s usual business
hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to
inspect Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral
in order to verify Borrower’s financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is duly existing
under the laws of the state in which it is organized and qualified and licensed to do business in
any state in which the conduct of its business or its ownership of property requires that it be so
qualified, except where the failure to do so could not reasonably be expected to cause a Material
Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the
Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in Borrower’s Certificate of Incorporation
or Bylaws, nor will they constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to
the extent such default could not reasonably be expected to cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and
its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on
transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral
States. All Inventory is in all material respects of good and merchantable quality, free from all
material defects, except for Inventory for which adequate reserves have been made. Except as set
forth in the Schedule, none of the Collateral is maintained or invested with a Person other than
Bank or Bank’s Affiliates.
5.4 Intellectual Property. Borrower is the sole owner of its patents, trademarks,
copyrights and other intellectual property, except for non-exclusive licenses granted by Borrower
to its customers in the ordinary course of business. To the best of Borrower’s knowledge, each of
Borrower’s patents, trademarks and copyrights is valid and enforceable, and no part of its
intellectual property has been judged invalid or unenforceable, in whole or in part, and no claim
has been made to Borrower that any part of its intellectual property violates the rights of any
third party except to the extent such claim could not reasonably be expected to cause a Material
Adverse Effect.
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5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule,
Borrower has not done business under any name other than that specified on the signature page
hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The
chief executive office of Borrower is located in the Chief Executive Office State at the address
indicated in Section 10 hereof.
5.6 Litigation. Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or administrative
agency in which a likely adverse decision could reasonably be expected to have a Material Adverse
Effect.
5.7 No Material Adverse Change in Financial Statements. All consolidated and
consolidating financial statements related to Borrower and any Subsidiary that are delivered by
Borrower to Bank fairly present in all material respects Borrower’s consolidated and consolidating
financial condition as of the date thereof and Borrower’s consolidated and consolidating results of
operations for the period then ended. There has not been a material adverse change in the
consolidated or in the consolidating financial condition of Borrower since the date of the most
recent of such financial statements submitted to Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade
debts) as they mature; the fair saleable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with
unreasonably small capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the
minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA.
No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably
likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect.
Borrower is not an “investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one
of the important activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied in all material respects with all the provisions of
the Federal Fair Labor Standards Act. Borrower is in compliance with all environmental laws,
regulations and ordinances except where the failure to comply is not reasonably likely to have a
Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, the violation of which could reasonably be expected to have a Material Adverse
Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to
be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected
therein except those being contested in good faith with adequate reserves under GAAP or where the
failure to file such returns or pay such taxes could not reasonably be expected to have a Material
Adverse Effect.
5.10 Subsidiaries. Borrower does not own any stock, partnership interest or other
equity securities of any Person, except for Permitted Investments.
5.11 Government Consents. Borrower and each Subsidiary have obtained all consents,
approvals and authorizations of, made all declarations or filings with, and given all notices to,
all governmental authorities that are necessary for the continued operation of Borrower’s business
as currently conducted, except where the failure to do so could not reasonably be expected to cause
a Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on the Schedule, Borrower is not a party
to, nor is bound by, any license or other agreement that prohibits or otherwise restricts Borrower
from granting a security interest in Borrower’s interest in such license or agreement or any other
property.
5.13 Full Disclosure. No representation, warranty or other statement made by Borrower
in any certificate or written statement furnished to Bank taken together with all such certificates
and written statements furnished to Bank contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained in such certificates
or statements not misleading it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as
facts and that actual results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results.
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6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and
for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do
all of the following:
6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of
its Subsidiaries’ corporate existence and good standing in the Borrower State, shall maintain
qualification and good standing in each other jurisdiction in which the failure to so qualify could
have a Material Adverse Effect, and shall furnish to Bank the organizational identification number
issued to Borrower by the authorities of the state in which Borrower is organized, if applicable.
Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all
material respects with all applicable Environmental Laws, and maintain all material permits,
licenses and approvals required thereunder where the failure to do so could have a Material Adverse
Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject, and shall maintain, and
shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements,
the loss of which or failure to comply with which could reasonably be expected to have a Material
Adverse Effect.
6.2 Financial Statements, Reports, Certificates. Borrower shall deliver the following
to Bank: (i) as soon as available, but in any event within thirty (30) days after the end of each
calendar month, a company prepared consolidated and consolidating balance sheet and income
statement covering Borrower’s operations during such period, in a form reasonably acceptable to
Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower’s fiscal year, audited consolidated and
consolidating financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an opinion which is unqualified or otherwise consented to in writing by Bank
on such financial statements of an independent certified public accounting firm reasonably
acceptable to Bank; (iii) if applicable, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of Subordinated Debt and
all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly
upon receipt of notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of
Two Hundred Fifty Thousand Dollars ($250,000) or more; (v) promptly upon receipt, each management
letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s
management control systems; and (vi) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
(a) Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank
with the monthly financial statements a Compliance Certificate certified as of the last day of the
applicable month and signed by a Responsible Officer in substantially the form of Exhibit C
hereto.
(b) As soon as possible and in any event within three (3) calendar days after becoming aware
of the occurrence or existence of an Event of Default hereunder, a written statement of a
Responsible Officer setting forth details of the Event of Default, and the action which Borrower
has taken or proposes to take with respect thereto.
(c) Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and
appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more
often than every six (6) months unless an Event of Default has occurred and is continuing.
Borrower may deliver to Bank on an electronic basis any certificates, reports or information
required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information
contained in the electronic files, provided that Bank in good faith believes that the files were
delivered by a Responsible Officer. If Borrower delivers this information electronically, it shall
also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) Business Days of submission of the unsigned electronic copy the
certification of monthly financial statements and the Compliance Certificate, each bearing the
physical signature of the Responsible Officer.
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6.3 Inventory; Returns. Borrower shall keep all Inventory in good and merchantable
condition, free from all material defects except for Inventory for which adequate reserves have
been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on
the same basis and in accordance with the usual customary practices of Borrower, as they exist on
the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims involving more than Two Hundred Fifty Thousand Dollars ($250,000).
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely
payment or deposit of all material federal, state, and local taxes, assessments, or contributions
required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A.,
F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory
to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any
appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment is contested in good
faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as
ordinarily insured against by other owners in similar businesses conducted in the locations where
Borrower’s business is conducted on the date hereof. Borrower shall also maintain liability and
other insurance in amounts and of a type that are customary to businesses similar to Borrower’s.
(b) All such policies of insurance shall be in such form, with such companies, and in such
amounts as are reasonably satisfactory to Bank. All policies of property insurance shall contain a
lender’s loss payable endorsement, in a form reasonably satisfactory to Bank, showing Bank as an
additional loss payee, and all liability insurance policies shall show the Bank as an additional
insured and shall specify that the insurer must give at least 20 days notice to Bank before
canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified
copies of the policies of insurance and evidence of all premium payments. If no Event of Default
has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower’s
option, be payable to Borrower to replace the property subject to the claim, provided that any such
replacement property shall be deemed Collateral in which Bank has been granted a first priority
security interest. If an Event of Default has occurred and is continuing, all proceeds payable
under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the
Obligations.
6.6 Accounts. Borrower shall maintain depository and operating accounts with Bank,
and investment accounts with Bank or Bank’s Affiliates; provided that at all times Borrower must
maintain Cash at Bank sufficient to meet the minimum requirements of Section 6.7 and the remainder
of Borrower’s Cash shall be maintained at Bank’s Affiliates subject to an account control agreement
in favor of Bank. Notwithstanding the foregoing, at all times prior to the IPO, Borrower may
maintain accounts at ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ subject to account control agreements in favor of Bank and the
balance in such accounts shall not exceed Five Hundred Thousand Dollars ($500,000). After the IPO,
Borrower and Bank shall mutually determine the level of Cash required to be held at Bank. All Cash
held outside of Bank shall be held in accounts that are subject to account control agreements in
favor of Bank.
6.7 Financial Covenants. Borrower shall maintain the following financial ratios and
covenants:
(a) Bank Debt Liquidity Coverage. At all times, measured on a monthly basis, a ratio
of Cash held at Bank to all Indebtedness to Bank of at least 1.25 to 1.00.
6.8 Inbound Licenses. Prior to entering into or becoming bound by any material
inbound license or other similar agreement, Borrower shall provide written notice to Bank of the
material terms of such license or agreement with a description of its likely impact on Borrower’s
business or financial condition.
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6.9 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary
creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Bank of the
creation or acquisition of such new Subsidiary and take all such action as may be reasonably
required by Bank to cause such Subsidiary to guarantee the Obligations of Borrower under the Loan
Documents and grant a continuing pledge and security interest in and to the collateral of such
Subsidiary (substantially as described on Exhibit A hereto), and Borrower shall grant and pledge to
Bank a perfected security interest in the stock, units or other evidence of ownership of such
Subsidiary.
6.10 Further Assurances. At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably be requested by
Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall be available and
until the outstanding Obligations are paid in full or for so long as Bank may have any commitment
to make any Credit Extensions, Borrower will not do any of the following without Bank’s prior
written consent, which shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of
(collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, including its intellectual property, or move cash balances on deposit
with Bank to accounts opened at another financial institution, other than Permitted Transfers.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in
Business; Change in Fiscal Year; Change in Control. Change its name or the Borrower State or
relocate its chief executive office without thirty (30) days prior written notification to Bank;
replace its chief executive officer or chief financial officer without thirty (30) days prior
written notification to Bank; engage in any business, or permit any of its Subsidiaries to engage
in any business, other than or reasonably related or incidental to the businesses currently engaged
in by Borrower; change its fiscal year end; suffer or permit a Change in Control.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries
to merge or consolidate, with or into any other business organization (other than mergers or
consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any
of its Subsidiaries to acquire, all or substantially all of the capital stock or property of
another Person except where (i) such transactions do not in the aggregate exceed Two Hundred Fifty
Thousand Dollars ($250,000) during any fiscal year, (ii) no Event of Default has occurred, is
continuing or would exist after giving effect to such transactions, (iii) such transactions do not
result in a Change in Control, and (iv) Borrower is the surviving entity.
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness,
or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any
Indebtedness, except Indebtedness to Bank.
7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of its
property, or assign or otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. Agree with any
Person other than Bank not to grant a security interest in, or otherwise encumber, any of its, or
covenant to any other Person that Borrower in the future will refrain from creating, incurring,
assuming or allowing any Lien with respect to any of Borrower’s property, or permit any Subsidiary
to do so.
7.6 Distributions. Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock, except that Borrower may
(i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an
Event of Default does not exist prior to such repurchase or would not exist after giving effect to
such repurchase, and (ii) repurchase the stock of former
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employees pursuant to stock repurchase agreements by the cancellation of indebtedness owed by
such former employees to Borrower regardless of whether an Event of Default exists.
7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or
to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or
maintain or invest any of its property with a Person other than Bank or Bank’s Affiliates or permit
any Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form
and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be
bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise
distributing property to Borrower.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance with the terms of
such Subordinated Debt, or amend any provision affecting Bank’s rights contained in any
documentation relating to the Subordinated Debt without Bank’s prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee,
warehouseman, or similar third party unless the third party has been notified of Bank’s security
interest and Bank (a) has received an acknowledgment from the third party that it is holding or
will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse
receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and
such other locations of which Borrower gives Bank prior written notice and as to which Bank files a
financing statement, or takes other action, where needed to perfect its security interest.
7.11 No Investment Company; Margin Regulation. Become or be controlled by an
“investment company,” within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit
Extension for such purpose.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of Default by Borrower under
this Agreement:
8.1 Payment Default. If Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.2, 6.4, 6.5, 6.6 or 6.7 or
violates any of the covenants contained in Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform or observe any other material term, provision,
condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default under such other term,
provision, condition or covenant that can be cured, has failed to cure such default within ten (10)
days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the ten (10) day period
or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such
default is likely to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within
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such reasonable time period the failure to have cured such default shall not be deemed an
Event of Default but no Credit Extensions will be made;
8.3 Defective Perfection. If Bank shall receive at any time following the Closing
Date an SOS Report indicating that except for Permitted Liens, Bank’s security interest in the
Collateral is not prior to all other security interests or Liens of record reflected in such SOS
Report;
8.4 Material Adverse Effect. If there occurs any circumstance or circumstances that
could have a Material Adverse Effect;
8.5 Attachment. If any material portion of Borrower’s assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or
distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower
receives notice thereof, provided that none of the foregoing shall constitute an Event of Default
where such action or event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no Credit Extensions will be made during such cure period);
8.6 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is
commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not
dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior
to the dismissal of such Insolvency Proceeding);
8.7 Other Agreements. If there is a default or other failure to perform in any
agreement to which Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in
an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) or that could have a Material
Adverse Effect;
8.8 Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt,
except to the extent such payment is allowed under any subordination agreement entered into with
Bank;
8.9 Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) shall
be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10)
days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.10 Misrepresentations. If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or in any certificate
delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter
into this Agreement or any other Loan Document.
9. BANK’S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event
of Default, Bank may, at its election, without notice of its election and without demand, do any
one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event
of Default described in Section 8.6, all Obligations shall become immediately due and payable
without any action by Bank);
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(b) Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any
Letters of Credit remaining undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled
to be paid or payable over the remaining term of the Letters of Credit, and Borrower shall promptly
deposit and pay such amounts;
(c) Cease advancing money or extending credit to or for the benefit of Borrower under this
Agreement or under any other agreement between Borrower and Bank;
(d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms
and in whatever order that Bank reasonably considers advisable;
(e) Make such payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank’s determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With respect to any of
Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or
remedies provided herein, at law, in equity, or otherwise;
(f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower
held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a
license or other right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s
rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
(h) Sell the Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral
without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties
of title or the like. This procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit,
Borrower will be credited only with payments actually made by the purchaser, received by Bank, and
applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral,
Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;
(i) Bank may credit bid and purchase at any public sale;
(j) Apply for the appointment of a receiver, trustee, liquidator or conservator of the
Collateral, without notice and without regard to the adequacy of the security for the Obligations
and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of
the Obligations; and
(k) Any deficiency that exists after disposition of the Collateral as provided above will be
paid immediately by Borrower.
Bank may comply with any applicable state or federal law requirements in connection with a
disposition of the Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.
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9.2 Power of Attorney. Effective only upon the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated
officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for
verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b)
endorse Borrower’s name on any checks or other forms of payment or security that may come into
Bank’s possession; (c) sign Borrower’s name on any invoice or ▇▇▇▇ of lading relating to any
Account, drafts against account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and
adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; and (g) to file, in its sole discretion, one
or more financing or continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law; provided Bank may exercise
such power of attorney to sign the name of Borrower on any of the documents described in clause (g)
above, regardless of whether an Event of Default has occurred. The appointment of Bank as
Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank’s security
interest in such funds and verify the amount of such Account. Borrower shall collect all amounts
owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately
deliver such payments to Bank in their original form as received from the account debtor, with
proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof
of payment due to third persons or entities, as required under the terms of this Agreement, then
Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of
the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall
constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by
Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver
by Bank of any Event of Default under this Agreement.
9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or otherwise
prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.
9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the
Obligations by collecting them from any other Person liable for them and Bank may release, modify
or waive any collateral provided by any other Person to secure any of the Obligations, all without
affecting Bank’s rights against Borrower. Borrower waives any right it may have to require Bank to
pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise
by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute
a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a
written document signed on behalf of Bank and then shall be effective only in the specific instance
and for the specific purpose for which it was given. Borrower expressly agrees that this Section
may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives
demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment
and any other notices relating to the Obligations.
- 18 -
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party relating to
this Agreement or any other agreement entered into in connection herewith shall be in writing and
(except for financial statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower
or to Bank, as the case may be, at its addresses set forth below:
| If to Borrower: | ARTES MEDICAL, INC. | |||
| ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | ||||
| ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | ||||
| Attn: Chief Financial Officer | ||||
| FAX: (▇▇▇) ▇▇▇-▇▇▇▇ | ||||
| If to Bank: | Comerica Bank | |||
| 75 East ▇▇▇▇▇▇▇ Road, M/C 4770 | ||||
| ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | ||||
| Attn: Manager | ||||
| FAX: (▇▇▇) ▇▇▇-▇▇▇▇ | ||||
| with a copy to: | Comerica Bank | |||
| ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ | ||||
| ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | ||||
| Attn: ▇▇▇▇▇▇ ▇▇▇ — Corporate Banking Officer | ||||
| FAX: (▇▇▇) ▇▇▇-▇▇▇▇ |
The parties hereto may change the address at which they are to receive notices hereunder, by
notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance with, the internal laws of
the State of California, without regard to principles of conflicts of law. Each of Borrower and
Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the
State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED
BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES,
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
12. REFERENCE PROVISION.
In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to
proceed under this Judicial Reference Provision.
12.1 Mechanics.
(a) With the exception of the items specified in clause (c), below, any controversy, dispute
or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any
other document, instrument or agreement between the undersigned parties (collectively in this
Section, the “Comerica Documents”), will be resolved by a reference proceeding in California in
accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure
(“CCP”), or their successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference
- 19 -
proceeding. Except as otherwise provided in the Comerica Documents, venue for the reference
proceeding will be in the state or federal court in the county or district where the real property
involved in the action, if any, is located or in the state or federal court in the county or
district where venue is otherwise appropriate under applicable law (the “Court”).
(b) The matters that shall not be subject to a reference are the following: (i) nonjudicial
foreclosure of any security interests in real or personal property, (ii) exercise of self-help
remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv)
temporary, provisional or ancillary remedies (including, without limitation, writs of attachment,
writs of possession, temporary restraining orders or preliminary injunctions). This reference
provision does not limit the right of any party to exercise or oppose any of the rights and
remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent
jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition
to, any of those items does not waive the right of any party to a reference pursuant to this
reference provision as provided herein.
(c) The referee shall be a retired judge or justice selected by mutual written agreement of
the parties. If the parties do not agree within ten (10) days of a written request to do so by any
party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the
Court (or his or her representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would result if ex parte
relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to
the referee selected by the Presiding Judge of the Court (or his or her representative).
(d) The parties agree that time is of the essence in conducting the reference proceedings.
Accordingly, the referee shall be requested, subject to change in the time periods specified herein
for good cause shown, to (i) set the matter for a status and trial-setting conference within
fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues
of law or fact within one hundred twenty (120) days after the date of the conference and (iii)
report a statement of decision within twenty (20) days after the matter has been submitted for
decision.
(e) The referee will have power to expand or limit the amount and duration of discovery. The
referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s
failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based
upon good cause shown, no party shall be entitled to “priority” in conducting discovery,
depositions may be taken by either party upon seven (7) days written notice, and all other
discovery shall be responded to within fifteen (15) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the referee whose decision
shall be final and binding.
12.2 Procedures. Except as expressly set forth herein, the referee shall determine
the manner in which the reference proceeding is conducted including the time and place of hearings,
the order of presentation of evidence, and all other questions that arise with respect to the
course of the reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter, except that when any party so
requests, a court reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making such a request shall
have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to
award costs to the prevailing party, the parties will equally share the cost of the referee and the
court reporter at trial.
12.3 Application of Law. The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of California. The rules of
evidence applicable to proceedings at law in the State of California will be applicable to the
reference proceeding. The referee shall be empowered to enter equitable as well as legal relief,
enter equitable orders that will be binding on the parties and rule on any motion which would be
authorized in a court proceeding, including without limitation motions for summary judgment or
summary adjudication. The referee shall issue a decision at the close of the reference proceeding
which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP
§ 644, such decision shall be entered by the Court as a judgment or an order in the same manner as
if the action had been tried by the Court and any such decision will be final, binding and
conclusive. The parties reserve the right to appeal from the final judgment or order or from any
appealable decision or order entered by the referee. The parties
- 20 -
reserve the right to findings of fact, conclusions of laws, a written statement of decision,
and the right to move for a new trial or a different judgment, which new trial, if granted, is also
to be a reference proceeding under this provision.
12.4 Repeal. If the enabling legislation which provides for appointment of a referee
is repealed (and no successor statute is enacted), any dispute between the parties that would
otherwise be determined by reference procedure will be resolved and determined by arbitration.
The arbitration will be conducted by a retired judge or justice, in accordance with the California
Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with
respect to discovery set forth above shall apply to any such arbitration proceeding.
12.5 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED
UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY
KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE
PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR
IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.
13. GENERAL PROVISIONS.
13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties and shall bind all Persons
who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor
any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which
consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without
the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or
any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.
13.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other party in connection with the transactions contemplated by this
Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its
officers, employees and agents as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise
(including without limitation reasonable attorneys’ fees and expenses), except for losses caused by
Bank’s gross negligence or willful misconduct.
13.3 Time of Essence. Time is of the essence for the performance of all obligations
set forth in this Agreement.
13.4 Severability of Provisions. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
13.5 Amendments in Writing, Integration. All amendments to or terminations of this
Agreement or the other Loan Documents must be in writing. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement and the other Loan Documents, if any, are merged into this
Agreement and the Loan Documents.
13.6 Counterparts. This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall constitute but one and the
same Agreement.
13.7 Survival. All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any Obligations remain outstanding or Bank has
any obligation to make
- 21 -
any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive
until all applicable statute of limitations periods with respect to actions that may be brought
against Bank have run.
13.8 Confidentiality. In handling any confidential information, Bank and all
employees and agents of Bank shall exercise the same degree of care that Bank exercises with
respect to its own proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement except that
disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank in
connection with their present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have entered into a
comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower,
(iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order,
(iv) as may be required in connection with the examination, audit or similar investigation of Bank
and (v) as Bank may determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either: (a) is in the public
domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a
third party, provided Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
[Balance of Page Intentionally Left Blank]
- 22 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first above written.
| ARTES MEDICAL, INC. |
||||
| By: | /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Title: | Chief Financial Officer | |||
| COMERICA BANK |
||||
| By: | /s/ ▇▇▇▇▇▇ ▇▇▇ | |||
| Title: | Corporate Banking Officer | |||
[Signature Page to Loan and Security Agreement]
DEBTOR
|
ARTES MEDICAL, INC. | |
SECURED PARTY:
|
COMERICA BANK |
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether
presently existing or hereafter created or acquired, and wherever located, including, but not
limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general intangibles
(including payment intangibles and software), goods (including fixtures), instruments (including
promissory notes), inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books
and records with respect to any of the foregoing, and the computers and equipment containing said
books and records;
(b) all common law and statutory copyrights and copyright registrations, applications for
registration, now existing or hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the foregoing, or any
parts thereof or any underlying or component elements of any of the foregoing, together with the
right to copyright and all rights to renew or extend such copyrights and the right (but not the
obligation) of Secured Party to ▇▇▇ in its own name and/or in the name of the Debtor for past,
present and future infringements of copyright;
(c) all trademarks, service marks, trade names and service names and the goodwill associated
therewith, together with the right to trademark and all rights to renew or extend such trademarks
and the right (but not the obligation) of Secured Party to ▇▇▇ in its own name and/or in the name
of the Debtor for past, present and future infringements of trademark;
(d) all (i) patents and patent applications filed in the United States Patent and Trademark
Office or any similar office of any foreign jurisdiction, and interests under patent license
agreements, including, without limitation, the inventions and improvements described and claimed
therein, (ii) licenses pertaining to any patent whether Debtor is licensor or licensee, (iii)
income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or
payable under and with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the obligation) to ▇▇▇ in the
name of Debtor and/or in the name of Secured Party for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such
patents have been issued or applied for, and (vi) reissues, divisions, continuations, renewals,
extensions and continuations-in-part with respect to any of the foregoing; and
(e) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including,
without limitation, insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the California
Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9
of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section
35, operative July 1, 2001.
Notwithstanding the foregoing, the Collateral shall not include any copyrights, patents,
trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or any claims
for damages by way of any past, present and future infringement of any of the foregoing
(collectively, the “Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and proceeds from the sale,
licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court)
holds that a security interest in the underlying Intellectual Property is necessary to have a
security interest in the Rights to Payment, then the Collateral shall automatically, and effective
as of the Closing Date, include the Intellectual Property to the extent necessary to permit
perfection of Bank’s security interest in the Rights to Payment.
EXHIBIT B
TECHNOLOGY & LIFE SCIENCES DIVISION
LOAN ANALYSIS
LOAN ADVANCE/PAYDOWN REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS [3:00* P.M., Pacific Time/ 3:30 P.M. Eastern Time]
DEADLINE FOR WIRE TRANSFERS IS [1:30 P.M., Pacific Time/ 3:30 P.M. Eastern Time]
[*At month end and the day before a holiday, the cut off time is 1:30 P.M., Pacific Time]
LOAN ANALYSIS
LOAN ADVANCE/PAYDOWN REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS [3:00* P.M., Pacific Time/ 3:30 P.M. Eastern Time]
DEADLINE FOR WIRE TRANSFERS IS [1:30 P.M., Pacific Time/ 3:30 P.M. Eastern Time]
[*At month end and the day before a holiday, the cut off time is 1:30 P.M., Pacific Time]
To:
|
Loan Analysis | DATE: | TIME: | |||||||
FAX #:
|
(▇▇▇) ▇▇▇-▇▇▇▇ |
FROM:
|
ARTES MEDICAL, INC. | |||
| Borrower’s Name | ||||
FROM:
|
Authorized Signer’s Name | |||
FROM:
|
Authorized Signer’s Name | |||
PHONE #: |
||||
FROM ACCOUNT#: |
||||
| (please include Note number, if applicable) | ||||
TO ACCOUNT #: |
||||
| (please include Note number, if applicable) | ||||
TELEPHONE REQUEST (For Bank Use Only):
The following person is authorized to request the loan payment
transfer/loan advance
on the designated account and is known to me.
Authorized Request & Phone #
Received by (Bank) & Phone #
Authorized Signature (Bank)
| REQUESTED TRANSACTION TYPE | REQUESTED DOLLAR AMOUNT | |||||
PRINCIPAL INCREASE* (ADVANCE)
|
$ | |||||
PRINCIPAL PAYMENT (ONLY)
|
$ | |||||
OTHER INSTRUCTIONS: |
||||||
For Bank
Use Only
Date Rec’d:
Date Rec’d:
Time:
Comp. Status: YES NO
Status Date:
Time:
Approval:
Comp. Status: YES NO
Status Date:
Time:
Approval:
All representations and warranties of Borrower stated in the Loan Agreement are true, correct and
complete in all material respects as of the date of the telephone request for and advance confirmed
by this Borrowing Certificate, provided, however, that those representations and warranties the
date expressly referring to another date shall be true, correct and complete in all material
respects as of such date.
*IS THERE A WIRE REQUEST TIED TO THIS LOAN ADVANCE? (PLEASE CIRCLE ONE YES NO
If YES, the Outgoing Wire Transfer Instructions must be completed below.
| OUTGOING WIRE TRANSFER INSTRUCTIONS | Fed Reference Number | Bank Transfer Number |
The items marked with an asterisk (*) are required to be completed.
*Beneficiary Name |
||
*Beneficiary Account Number |
||
*Beneficiary Address |
||
Currency Type
|
US DOLLARS ONLY | |
*ABA Routing Number (9 Digits) |
||
*Receiving Institution Name |
||
*Receiving Institution Address |
||
*Wire Account
|
$ |
EXHIBIT C
COMPLIANCE CERTIFICATE
TO:
|
COMERICA BANK | |
FROM:
|
ARTES MEDICAL, INC. |
The undersigned authorized officer of ARTES MEDICAL, INC. hereby certifies that in accordance
with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (i) Borrower is in complete compliance for the period ending ___with all
required covenants except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct as of the date hereof. Attached herewith are the
required documents supporting the above certification. The Officer further certifies that these
are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an accompanying letter or
footnotes.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | ||||||
Monthly financial statements
|
Monthly within 30 days | Yes | No | |||||
Annual (CPA Audited)
|
FYE within 120 days | Yes | No | |||||
10K and 10Q
|
(as applicable) | Yes | No | |||||
Compliance Cert.
|
Monthly within 30 days | Yes | No | |||||
Total amount of Borrower’s cash and investments
|
Amount: $ | Yes | No | |||||
Total amount of Borrower’s cash and |
||||||||
investments maintained with Bank
|
Amount: $ | Yes | No | |||||
| Financial Covenant | Required | Actual | Complies |
|||||
Minimum Liquidity Ratio
|
1.25:1.00 | :1.00 | Yes | No | ||||
Comments Regarding Exceptions: See Attached.
Sincerely,
|
||||
| SIGNATURE | ||||
| TITLE | ||||
| DATE |
BANK USE ONLY
Received by: |
||||
| AUTHORIZED SIGNER | ||||
Date: |
||||
Verified: |
||||
| AUTHORIZED SIGNER | ||||
Date: |
||||
Compliance Status
|
Yes | No |
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Section 1.1)
Permitted Investments (Section 1.1)
Permitted Liens (Section 1.1)
Prior Names (Section 5.5)
Artes Medical USA, Inc.
Arsis Medical USA, Inc
Litigation (Section 5.6)
Inbound Licenses (Section 5.12)
Corporation Resolutions and Incumbency Certification
Authority to Procure Loans
Authority to Procure Loans
I certify that I am the duly elected and qualified Secretary of ARTES MEDICAL, INC.; that the
following is a true and correct copy of resolutions duly adopted by the Board of Directors of the
Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
| 1. | Any one (1) of the following (insert titles only) of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to: |
| (a) | Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Michigan banking corporation, including, without limitation, that certain Loan and Security Agreement dated as of November 27, 2006, as may subsequently be amended from time to time. | ||
| (b) | Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount; | ||
| (c) | Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation; | ||
| (d) | Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation; | ||
| (e) | Issue a warrant or warrants to purchase the Corporation’s capital stock; and | ||
| (f) | Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, any or all of which may relate to all or to substantially all of the Corporation’s property and assets. |
| 2. | Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not; |
| 3. | Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation. |
| 4. | These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions). |
-1-
| 5. | Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation. |
| 6. | The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank. |
I further certify that the above Resolutions are in full force and effect as of the date of this
Certificate; that these Resolutions and any borrowings or financial accommodations under these
Resolutions have been properly noted in the corporate books and records, and have not been
rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to
be taken pursuant to them are or will be in contravention of any provision of the articles of
incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to
which the Corporation is a party or by which it is bound; and that neither the articles of
incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to
which the Corporation is a party or by which it is bound require the vote or consent of
shareholders of the Corporation to authorize any act, matter or thing described in the foregoing
Resolutions.
I further certify that the following named persons have been duly elected to the offices set
opposite their respective names, that they continue to hold these offices at the present time, and
that the signatures which appear below are the genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
| NAME (Type or Print) | TITLE | SIGNATURE | ||
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where
available) of said Corporation to be affixed on November 27, 2006.
| Secretary | ||||
The Above Statements are Correct. |
||||
| SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE. A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE. | ||||
Failure to complete the above when the Secretary is authorized to sign alone shall constitute a
certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of
the Corporation.
ATTN: ARTES MEDICAL, INC.
USA PATRIOT ACT
NOTICE
OF
CUSTOMER IDENTIFICATION
NOTICE
OF
CUSTOMER IDENTIFICATION
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the funding of terrorism and money laundering activities, Federal
law requires all financial institutions to obtain, verify, and record information that identifies
each person who opens an account.
WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name, address, date of
birth, and other information that will allow us to identify you. We may also ask to see your
driver’s license or other identifying documents.
COMERICA BANK
Member FDIC
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(Revolver)
DISBURSEMENT INSTRUCTIONS
(Revolver)
| Name(s): ARTES MEDICAL, INC. | Date: November 27, 2006 |
$
|
credited to deposit account No. when Advances are requested by Borrower | |
| Amounts paid to others on your behalf: | ||
$
|
to Comerica Bank for Loan Fee | |
$
|
to Comerica Bank for Document Fee | |
$
|
to Comerica Bank for accounts receivable audit (estimate) | |
$
|
to Bank counsel fees and expenses | |
$
|
to | |
$
|
to | |
$
|
TOTAL (AMOUNT FINANCED) | |
Upon consummation of this transaction, this document will also serve as the authorization for
Comerica Bank to disburse the loan proceeds as stated above.
Signature
|
Signature |
COMERICA BANK
Member FDIC
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(Term Loan)
DISBURSEMENT INSTRUCTIONS
(Term Loan)
| Name(s): ARTES MEDICAL, INC. | Date: November 27, 2006 |
$
|
credited to deposit account No. when the Term Loan requested by Borrower | |
| Amounts paid to others on your behalf: | ||
$
|
to Comerica Bank for Loan Fee | |
$
|
to Comerica Bank for Document Fee | |
$
|
to Comerica Bank for accounts receivable audit (estimate) | |
$
|
to Bank counsel fees and expenses | |
$
|
to | |
$
|
to | |
$
|
TOTAL (AMOUNT FINANCED) | |
Upon consummation of this transaction, this document will also serve as the authorization for
Comerica Bank to disburse the loan proceeds as stated above.
Signature
|
Signature |
AGREEMENT TO PROVIDE INSURANCE
TO: COMERICA BANK
|
Date: November 27, 2006 | |
Attn: Lead Insurance Reviewer |
||
▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇ |
||
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
|
Borrower: ARTES MEDICAL, INC. |
In consideration of a loan in the amount of $10,000,000, secured by all tangible personal
property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force during the term of the
loan.
I/We also agree to advise the below named agent to add Comerica Bank as lender’s loss payable
on the new or existing insurance policy, and to furnish Bank at above address with a copy of said
policy/endorsements and any subsequent renewal policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
| (a) | The amount of the loan, OR | ||
| (b) | All existing encumbrances, whichever is greater, |
But not in excess of the replacement value of the improvements on the real property.
2. Lender’s “Loss Payable” Endorsement Form 438 BFU in favor of Comerica Bank, or any other
form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent
|
Telephone No.: | |
Agent’s Address: |
| Signature of Obligor: | ||||||
| Signature of Obligor: |
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:
Person Spoken to:
Policy Number:
Effective From: To:
Verified by:
| COMERICA BANK | ||||
| Member FDIC | AUTOMATIC DEBIT AUTHORIZATION | |||
| To: | Comerica Bank | |||||
Re:
|
Loan # | |||||
You are hereby authorized and instructed to charge account No.
in the name of
ARTES MEDICAL, INC.
ARTES MEDICAL, INC.
for principal, interest and other payments due on above referenced loan as set forth below and credit the loan
referenced above.
referenced above.
ý Debit each interest payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
ý Debit each principal payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
ý Debit each payment for Bank Expenses as it becomes due according to the terms of
the Loan and Security Agreement and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in writing.
| Borrower Signature | Date | |||
| November 27, 2006 | ||||
| November 27, 2006 |
| COMERICA BANK | ||||
| Member FDIC | AUTOMATIC DEBIT AUTHORIZATION | |||
| To: | Comerica Bank | |||||
Re:
|
Loan # | |||||
You are hereby authorized and instructed to charge account No.
in the name of
ARTES MEDICAL, INC.
ARTES MEDICAL, INC.
for principal, interest and other payments due on above referenced loan as set forth below and credit the loan
referenced above.
referenced above.
ý Debit each interest payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
ý Debit each principal payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
ý Debit each payment for Bank Expenses as it becomes due according to the terms of
the Loan and Security Agreement and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in writing.
| Borrower Signature | Date | |||
| November 27, 2006 | ||||
| November 27, 2006 |
COMERICA BANK
| COMERICA BANK | ||
| CLIENT AUTHORIZATION |
Fax (▇▇▇)▇▇▇-▇▇▇▇
General Authorization
I hereby authorize Comerica Bank to use my company name, logo, and information relating to our banking relationship in its marketing and advertising campaigns which is intended for Comerica Bank’s customers, prospects and shareholders.
I hereby authorize Comerica Bank to use my company name, logo, and information relating to our banking relationship in its marketing and advertising campaigns which is intended for Comerica Bank’s customers, prospects and shareholders.
Comerica Bank will forward any advertising or article including client for prior review and
approval.
Signature |
||||
Printed Name
|
Title | |||
Company |
||||
Mailing Address |
||||
City, State, Zip Code |
||||
Phone Number |
||||
Fax Number |
||||
E-Mail |
||||
November 27, 2006 |
||||
DEBTOR
|
ARTES MEDICAL, INC. | |
SECURED PARTY:
|
COMERICA BANK |
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO UCC NATIONAL FORM FINANCING STATEMENT
TO UCC NATIONAL FORM FINANCING STATEMENT
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether
presently existing or hereafter created or acquired, and wherever located, including, but not
limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general intangibles
(including payment intangibles and software), goods (including fixtures), instruments (including
promissory notes), inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books
and records with respect to any of the foregoing, and the computers and equipment containing said
books and records;
(b) all common law and statutory copyrights and copyright registrations, applications for
registration, now existing or hereafter arising, in the United States of America or in any foreign
jurisdiction, obtained or to be obtained on or in connection with any of the foregoing, or any
parts thereof or any underlying or component elements of any of the foregoing, together with the
right to copyright and all rights to renew or extend such copyrights and the right (but not the
obligation) of Secured Party to ▇▇▇ in its own name and/or in the name of the Debtor for past,
present and future infringements of copyright;
(c) all trademarks, service marks, trade names and service names and the goodwill associated
therewith, together with the right to trademark and all rights to renew or extend such trademarks
and the right (but not the obligation) of Secured Party to ▇▇▇ in its own name and/or in the name
of the Debtor for past, present and future infringements of trademark;
(d) all (i) patents and patent applications filed in the United States Patent and Trademark
Office or any similar office of any foreign jurisdiction, and interests under patent license
agreements, including, without limitation, the inventions and improvements described and claimed
therein, (ii) licenses pertaining to any patent whether Debtor is licensor or licensee, (iii)
income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or
payable under and with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the obligation) to ▇▇▇ in the
name of Debtor and/or in the name of Secured Party for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such
patents have been issued or applied for, and (vi) reissues, divisions, continuations, renewals,
extensions and continuations-in-part with respect to any of the foregoing; and
(e) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including,
without limitation, insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the California
Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9
of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section
35, operative July 1, 2001.
Notwithstanding the foregoing, the Collateral shall not include any copyrights, patents,
trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or any claims
for damages by way of any past, present and future infringement of any of the foregoing
(collectively, the “Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and proceeds from the sale,
licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds
that a
security interest in the underlying Intellectual Property is necessary to have a security
interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the
Closing Date, include the Intellectual Property to the extent necessary to permit perfection of
Bank’s security interest in the Rights to Payment.