Exhibit 10.8
________________________________________________________________________________
SOMNUS MEDICAL TECHNOLOGIES, INC.
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
TABLE OF CONTENTS
Page
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1. DEFINITIONS AND CONSTRUCTION................................................................... 1
1.1 Definitions.............................................................................. 1
1.2 Accounting Terms......................................................................... 5
2. LOAN AND TERMS OF PAYMENT...................................................................... 6
2.1 Advances................................................................................. 6
2.2 Interest Rates, Payments, and Calculations............................................... 7
2.3 Crediting Payments....................................................................... 7
2.4 Fees..................................................................................... 7
2.5 Additional Costs......................................................................... 7
2.6 Term..................................................................................... 8
3. CONDITIONS OF LOANS............................................................................ 8
3.1 Conditions Precedent to Initial Advance.................................................. 8
3.2 Additional Conditions Precedent to Initial Advance under Equipment Line C................ 9
3.3 Conditions Precedent to all Advances..................................................... 9
4. CREATION OF SECURITY INTEREST.................................................................. 9
4.1 Grant of Security Interest............................................................... 9
4.2 Delivery of Additional Documentation Required............................................ 9
4.3 Right to Inspect......................................................................... 9
5. REPRESENTATIONS AND WARRANTIES................................................................. 9
5.1 Due Organization and Qualification....................................................... 9
5.2 Due Authorization; No Conflict........................................................... 9
5.3 No Prior Encumbrances.................................................................... 10
5.4 Merchantable Inventory................................................................... 10
5.5 Name; Location of Chief Executive Office................................................. 10
5.6 Litigation............................................................................... 10
5.7 No Material Adverse Change in Financial Statements....................................... 10
5.8 Solvency................................................................................. 10
5.9 Regulatory Compliance.................................................................... 10
5.10 Environmental Condition.................................................................. 10
5.11 Taxes.................................................................................... 11
5.12 Subsidiaries............................................................................. 11
5.13 Government Consents...................................................................... 11
5.14 Full Disclosure.......................................................................... 11
6. AFFIRMATIVE COVENANTS.......................................................................... 11
6.1 Good Standing............................................................................ 11
6.2 Government Compliance.................................................................... 11
6.3 Financial Statements, Reports, Certificates.............................................. 11
6.4 Inventory; Returns....................................................................... 12
6.5 Taxes.................................................................................... 12
6.6 Insurance................................................................................ 12
6.7 Principal Depository..................................................................... 12
6.8 Minimum Liquidity or Debt Service Coverage............................................... 12
6.9 Debt-Net Worth Ratio..................................................................... 12
6.10 Tangible Net Worth....................................................................... 13
6.11 Profitability............................................................................ 13
6.12 Registration of Intellectual Property Rights............................................. 13
6.13 Further Assurances....................................................................... 13
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7. NEGATIVE COVENANTS............................................................................. 13
7.1 Dispositions............................................................................. 13
7.2 Change in Business....................................................................... 13
7.3 Mergers or Acquisitions.................................................................. 13
7.4 Indebtedness............................................................................. 13
7.5 Encumbrances............................................................................. 14
7.6 Distributions............................................................................ 14
7.7 Advances to Employees or Shareholders.................................................... 14
7.8 investments.............................................................................. 14
7.9 Transactions with Affiliates............................................................. 14
7.10 Subordinated Debt........................................................................ 14
7.11 Inventory................................................................................ 14
7.12 Compliance............................................................................... 14
8. EVENTS OF DEFAULT.............................................................................. 14
8.1 Payment Default.......................................................................... 14
8.2 Covenant Default......................................................................... 14
8.3 Material Adverse Change.................................................................. 15
8.4 Attachment............................................................................... 15
8.5 Insolvency............................................................................... 15
8.6 Other Agreements......................................................................... 15
8.7 Subordinated Debt........................................................................ 15
8.8 Judgments................................................................................ 15
8.9 Misrepresentations....................................................................... 15
9. BANK'S RIGHTS AND REMEDIES..................................................................... 16
9.1 Rights and Remedies...................................................................... 16
9.2 Power of Attorney........................................................................ 16
9.3 Accounts Collection...................................................................... 17
9.4 Bank Expenses............................................................................ 17
9.5 Bank's Liability for Collateral.......................................................... 17
9.6 Remedies Cumulative...................................................................... 17
9.7 Demand; Protest.......................................................................... 17
10. NOTICES........................................................................................ 17
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..................................................... 18
12. GENERAL PROVISIONS............................................................................. 18
12.1 Successors and Assigns................................................................... 18
12.2 Indemnification.......................................................................... 18
12.3 Time of Essence.......................................................................... 18
12.4 Severability of Provisions............................................................... 19
12.5 Amendments in Writing, Integration....................................................... 19
12.6 Counterparts............................................................................. 19
12.7 Survival................................................................................. 19
12.8 Confidentiality.......................................................................... 19
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This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement") is
entered into as of April 2, 1997, by and between Venture Lending, a division of
Cupertino National Bank & Trust ("Bank") and Somnus Medical Technologies, Inc.
("Borrower").
RECITALS
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Bank and Borrower are parties to that certain Loan and Security Agreement
dated as of October 1, 1996, as may have been amended. Borrower wishes to
continue to obtain credit from time to time from Bank, and Bank desires to
extend credit to Borrower. This Agreement supersedes Loan and Security Agreement
dated October 1, 1996, and sets forth the terms on which Bank will advance
credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
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1.1 Definitions. As used in this Agreement, the following terms
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shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means an Advance under the Section
2.1(i), (ii), and (iii) hereto.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
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hereto.
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"Committed Equipment Line A" means One Million Five Hundred
Thousand Dollars ($1,500,000).
"Committed Equipment Line B" means Five Hundred Thousand Dollars
($500,000).
"Committed Equipment Line C" means One Million Dollars
($1,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Debt Service Coverage" means, as of the last day of each fiscal
quarter, the ratio of (a) an amount equal to the sum of (i) Borrower's
consolidated net income for such quarter, plus (ii) depreciation, amortization
of intangible assets and other non-cash charges made to Borrower's consolidated
income in such quarter, minus (iii) any reductions to asset valuation reserves
during such quarter, to (b) an amount equal to the current portion of long term
debt.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Line A" means the facility under which Borrower may
request the Advance pursuant to Section 2.1(i).
"Equipment Line B" means the facility under which Borrower may
request the Advance pursuant to Section 2.1 (ii).
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"Equipment Line C" means the facility under which Borrower may
request the Advance pursuant to Section 2.1 (iii).
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Equipment Line A Maturity Date" means October 1, 2000.
"Equipment Line B Maturity Date" means June 12, 2000.
"Equipment Line C Maturity Date" means April 2, 2001.
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"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of tide, 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) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness to leasing companies incurred for the
acquisition by lease of new capital equipment provided that such Indebtedness is
secured solely by such new equipment.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
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security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that any such Lien described in (i) or (ii) above is
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confined solely to the property so
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acquired (and improvements thereon, and the proceeds of such equipment) and that
no such Lien shall be permitted in any Equipment financed with Advances under
this Agreement;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (c) above, provided that any extension, renewal or replacement
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Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
"Person" means any individual, sole proprietorship, partnership
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently published in The Wall Street Journal, as the "prime rate," whether or
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not such published rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (I) the sum of any amounts attributable
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to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
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"Term Loan" means the collective loans described in Section
2.1(i), (ii), and (iii) hereto.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2 Accounting Terms. All accounting terms not specifically defined
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herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
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2. LOANS AND TERMS OF PAYMENT
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2.1 Advances.
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(i) Equipment Line A. Subject to and upon the terms and
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conditions of this Agreement, Bank agrees to make Advances to Borrower at any
time from the date hereof through April 1, 1997 and October 1, 1997 (the
"Equipment Availability Date"), Borrower may from time to time request Advances
from Bank in an aggregate principal amount not to exceed the Committed Equipment
Line A. There shall be not more than two (2) Term Loan conversion dates during
the term of this Agreement. The Advances shall be used only to purchase new
Equipment approved from time to time by Bank and shall not exceed 100% of the
invoice amount of such new Equipment, excluding shipping installation expense,
freight discounts, warranty charges and taxes; provided that the Advances for
software shall not exceed Two Hundred Fifty Thousand Dollars ($250,000). The
Advance or Advances that are outstanding on the Equipment Availability Date
under Committed Equipment Line A will be payable in thirty-six (36) equal
monthly installments of principal, plus accrued interest, beginning on the first
day of the month following the Equipment Availability Date.
(ii) Equipment Line B. Subject to and upon the terms and
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conditions of this Agreement, Bank agrees to convert in an aggregate principal
amount not to exceed the Committed Equipment Line B to a Term Loan on April 12,
1997 (the "Equipment Availability Date"). The Advances shall have been used only
to purchase new Equipment approved from time to time by Bank. The Advance or
Advances that are outstanding on the Equipment Availability Date under Committed
Equipment Line B will be payable in thirty-six (36) equal monthly installments
of principal, plus accrued interest, beginning on the twelfth day of the month
following the Equipment Availability Date.
(iii) Equipment Line C. Subject to and upon the terms and
----------------
conditions of this Agreement, Bank agrees to make Advances to Borrower at any
time from the date hereof through October 2, 1997 (the "Equipment Availability
Date"), Borrower may from time to time request Advances from Bank in an
aggregate principal amount not to exceed the Committed Equipment Line C. There
shall be not more than one (1) Term Loan conversion date during the term of this
Agreement. The Advances shall be used only to purchase new Equipment approved
from time to time by Bank and shall not exceed 100% of the invoice amount of
such new Equipment, excluding shipping installation expense, freight discounts,
warranty charges and taxes; provided that the Advances for software shall not
exceed Two Hundred Thousand Dollars ($200,000). The Advance or Advances that are
outstanding on the Equipment Availability Date under Committed Equipment Line C
will be payable in forty-two (42) equal monthly installments of principal, plus
accrued interest, beginning on the second day of the month following the
Equipment Availability Date.
(a) Interest shall accrue from the date of each
Advance at the rate specified in Section 2.2(a), and shall be payable monthly
for each month through the month in which the Equipment Availability Date falls.
(b) When Borrower desires to obtain an Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission received no later than 3:00 p.m. California time one (1) Business
Day before the day on which the Advance is to be made. Such notice shall be in
substantially the form of Exhibit B. The notice shall be signed by a Responsible
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Officer and include a copy of the invoice for the Equipment to be financed.
Borrower's obligations to repay the Advances shall be evidenced, in addition to
this Agreement, by promissory notes made to the order of the Bank, in
substantially the form of Exhibits C-1, C-2 and C-3, respectively.
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2.2 Interest Rates Payments. and Calculations.
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(a) Interest Rate. Except as set forth in Section 2.2(b), any
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Advances on Equipment Line A shall bear interest, on the average Daily Balance,
at a rate equal to one and a half (1.5) percentage points above the Prime Rate.
Except as set forth in Section 2.2(b), any Advances on Equipment Line B shall
bear interest, on the average Daily Balance, at a rate equal to two (2)
percentage points above the Prime Rate. Except as set forth in Section 2.2(b),
any Advances on Equipment Line C shall bear interest, on the average Daily
Balance, at a rate equal to one (1) percentage points above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
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after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
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first 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 Committed 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
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time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.3 Crediting Payments. Prior to the occurrence of an Event of
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Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.4 Fees. Borrower shall pay to Bank the following:
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(a) Facility Fee. A Facility Fee equal to Ten Thousand Dollars
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($10,000), which fee shall be due on the Closing Date and shall be fully earned
and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
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fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
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incurred through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.5 Additional Costs. In case any change in any law, regulation,
----------------
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged
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governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.6 Term. This Agreement shall become effective on the Closing Date
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and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
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3.1 Conditions Precedent to Initial Advance. The obligation of Bank
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to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a collateral assignment and patent mortgage;
(d) warrant agreements to purchase stock;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof; and
(h) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
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3.2 Additional Condition Precedent to Initial Advance under
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Committed Equipment Line C. The obligation of Bank to make the initial Advance,
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is further subject to the following condition:
(a) closing of the Medtronic, Inc. investment in Borrower.
3.3 Conditions Precedent to all Advances. The obligation of Bank to
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make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(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 Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.3(b).
4. CREATION OF SECURITY INTEREST
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4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
----------------------------------
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization: No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which
9
Borrower is bound.Borrower is not in default under any agreement to which it is
a party or by which it is bound, which default could have a Material Adverse
Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible tide to
---------------------
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
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. The chief executive office of Borrower
is located 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 an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.7 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.8 Solvency. Borrower is solvent and able to pay its debts
--------
(including trade debts) as they mature.
5.9 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.10 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
10
5.11 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.12 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.13 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.14 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements. Reports. Certificates. Borrower shall
-------------------------------------------
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, certified by a Responsible Officer; (b) as soon as available, but in any
event within one hundred and twenty (120) days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five (5) days upon becoming available,
copies of all statements, reports and notices sent or made available generally
by Borrower to its security holders or to any holders of Subordinated Debt and
all reports on Form 10-K and 10-Q filed with the Securities and Exchange
Commission; (d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand
Dollars ($100,000) or more; and (e) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
---------
11
6.4 Inventory: Returns. Borrower shall keep all Inventory in good
------------------
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Minimum Liquidity: Debt Service Coverage. Borrower shall
----------------------------------------
maintain, as of the last day of each calendar month, a minimum Liquidity of one
and one-half (1.5) times the amount of outstanding Advances. "Liquidity" means
the sum of (i) cash and cash-equivalents plus (ii) fifty (50) percent of
accounts receivable plus (iii) availability under the Medtronic Line of Credit
granted to Borrower divided (iv) the aggregate outstanding Advances as of the
measurement date. Notwithstanding the foregoing, after Borrower achieves a Debt
Service Coverage of at least 1.50 to 1.00 for two consecutive quarters measured
on a three months rolling basis, Borrower shall not be subject to the Liquidity
requirement, and shall be required only to maintain a minimum Debt Service
Coverage ratio of a least 1.50 to 1.00, measured as of the last day of each
fiscal quarter. "Debt Service Coverage" means the ratio of (a) earnings after
tax plus interest and depreciation, to (b) the current portion of long term
debt.
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the last
--------------------
day of each calendar month, a ratio of Total Liabilities less Subordinated Debt
to Tangible Net Worth plus Subordinated Debt of not more than 1.50 to 1.0.
12
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each calendar month, a Tangible Net Worth of not less than Three Million
Dollars ($3,000,000).
6.11 Profitability. Borrower shall not incur losses in each fiscal
-------------
quarter that exceed the losses as set forth in the chart below:
Quarter Ending Date Maximum Quarterly Loss
------------------ ----------------------
March 31, 1997 $2,000,000
June 30, 1997 $2,300,000
September 30, 1997 $2,300,000
December 31, 1997 $2,000,000
6.12 Registration of Intellectual Property Rights. Borrower shall
--------------------------------------------
register or cause to be registered (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Collateral Assignment, Patent Mortgage and Security Agreement
delivered to Bank by Borrower in connection with this Agreement within thirty
(30) days of the date of this Agreement. Borrower shall register or cause to be
registered with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, those additional intellectual property
rights developed or acquired by Borrower from time to time in connection with
any product prior to the sale or licensing of such product to any third party,
including without limitation revisions or additions to the intellectual property
rights listed on such Exhibits A, B and C. Borrower shall execute and deliver
such additional instruments and documents from time to time as Bank shall
reasonably request to perfect Bank's security interest in such additional
intellectual property rights.
6.13 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of its
------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
13
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Advances to Employees or Shareholders. Advance by way of
-------------------------------------
payment, credit or other manner, any unearned funds to employees or shareholders
of Borrower.
7.8 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.9 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.10 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" controlled by an
----------
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or
---------------
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Sections 6.7, 6.8, 6.9, 6.10, 6.11, or 6.12 or violates any of the
covenants contained in Article 7 of this Agreement, or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition,
14
covenant or agreement 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 such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
-----------------------
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within ten (10) days (provided
that no Advances will be made prior to the dismissal of such Insolvency
Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
----------------
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
15
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise any
of Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or
16
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) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
-------------------
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail,
17
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: Somnus Medical Technologies, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: Venture Lending
Three ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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 County of Santa
▇▇▇▇▇, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
18
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing; Integration. This Agreement cannot be
----------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank
---------------
shall exercise the same degree of care that it 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.
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SOMNUS MEDICAL TECHNOLOGIES, INC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Title: President & CEO
----------------------------------
By: ____________________________________
Title: _________________________________
VENTURE LENDING, a division of
CUPERTINO NATIONAL BANK & TRUST
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
Title: AVP
----------------------------------
20
DEBTOR: Somnus Medical Technologies, Inc.
SECURED PARTY: Cupertino National Bank & Trust
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Debtor in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located, but excluding equipment
currently subject to lease agreements prohibiting further encumbrance while such
equipment is under lease;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Debtor's custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and Debtor's
books relating to any of the foregoing;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
disks, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Debtor
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Debtor, 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 Debtor and Debtor's books relating
to any of the foregoing;
All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Debtor's books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
T0: VENTURE LENDING DATE: ____________________________
FAX#: (▇▇▇) ▇▇▇-▇▇▇▇ TIME: ____________________________
________________________________________________________________________________
FROM: SOMNUS MEDICAL TECHNOLOGIES, INC.
--------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY: __________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------------
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT # ___________________ TO ACCOUNT # _______________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_______________________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________________
INTEREST PAYMENT (ONLY) $_______________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________________
OTHER INSTRUCTIONS: ____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
________________________________________________________________________________
________________________________________________________________________________
BANK USE ONLY
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
____________________________________ ____________________________________
Authorized Requester Phone #
____________________________________ ____________________________________
Received By (Bank) Phone #
______________________________________
Authorized Signature (Bank)
________________________________________________________________________________
EXHIBIT C-1
Term Note
---------
$1,500,000 Palo Alto, California
October 1, 1996
FOR VALUE RECEIVED, the undersigned, Somnus Medical Technologies, Inc. (the
"Borrower"), promises to pay to the order of Venture Lending, a division of
Cupertino National Bank & Trust ("Bank"), at such place as the holder hereof may
designate, in lawful money of the United States of America, the aggregate unpaid
principal amount of all advances ("Advances") made by Bank to Borrower under the
Loan Agreement (as defined below), not to exceed the Committed Equipment Line A.
Interest shall accrue from the date of each Advance at a rate equal to the Prime
Rate plus one and a half (1.5) percentage points, and shall be payable monthly
for each month through the earlier of (i) the date on which Borrower elects
convert the Advances into a Term Loan or (ii) the next to occur of April 1, 1997
or October 1, 1997 (the "Term Conversion Date"). The Advance or Advances that
are outstanding on each Term Conversion Date that have not already been
converted into Term Loans will be payable in thirty-six (36) equal monthly
installments of principal, plus accrued interest, beginning on the first day of
the month following the applicable Term Conversion Date. There shall be not more
than two (2) Term Conversion Dates during the term of this Agreement. In the
absence of a specific determination by Bank with respect thereto, all payments
shall be applied in the following order: (a) then due and payable fees and
expenses; (b) then due and payable interest payments and mandatory prepayments;
and (c) then due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any errors in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection or in
any suit or action to collect this Note or in any appeal thereof. Borrower
waives presentment, demand, protest, notice of protest, notice of dishonor,
notice of nonpayment, and any and all other notices and demands in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
No delay by Bank in exercising any power or right hereunder shall operate as a
waiver of any power or right. Time is of the essence as to all obligations
hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
BORROWER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
This Note shall be deemed to be made under, and shall be construed in accordance
with and governed by, the laws of the State of California, excluding conflicts
of laws principles.
SOMNUS MEDICAL TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
Title: President & CEO
------------------------------------
EXHIBIT C-2
Term Note
---------
$500,000 Palo Alto, California
April 2, 1997
FOR VALUE RECEIVED, the undersigned, Somnus Medical Technologies, Inc. (the
"Borrower"), promises to pay to the order of Venture Lending, a division of
Cupertino National Bank & Trust ("Bank"), at such place as the holder hereof may
designate, in lawful money of the United States of America, the aggregate unpaid
principal amount of all advances ("Advances") made by Bank to Borrower under the
Loan Agreement (as defined below), not to exceed the Committed Equipment Line B.
Interest shall accrue from the date of each Advance at a rate equal to the Prime
Rate plus two (2) percentage points, and shall be payable monthly for each month
through the earlier of (i) the date on which Borrower elects to convert the
Advances into a Term Loan or (ii) April 12, 1996 (the "Term Conversion Date").
The Advance or Advances that are outstanding on each Term Conversion Date that
have not already been converted into Term Loans will be payable in thirty-six
(36) equal monthly installments of principal, plus accrued interest, beginning
on the twelfth day of the month following the applicable Term Conversion Date.
In the absence of a specific determination by Bank with respect thereto, all
payments shall be applied in the following order: (a) then due and payable fees
and expenses; (b) then due and payable interest payments and mandatory
prepayments; and (c) then due and payable principal payments and optional
prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any errors in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection or in
any suit or action to collect this Note or in any appeal thereof. Borrower
waives presentment, demand, protest, notice of protest, notice of dishonor,
notice of nonpayment, and any and all other notices and demands in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
No delay by Bank in exercising any power or right hereunder shall operate as a
waiver of any power or right. Time is of the essence as to all obligations
hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
BORROWER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
This Note shall be deemed to be made under, and shall be construed in accordance
with and governed by, the laws of the State of California, excluding conflicts
of laws principles.
SOMNUS MEDICAL TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
Title: President & CEO
------------------------------------
EXHIBIT C-3
Term Note
---------
$1,000,000 Palo Alto, California
April 2, 1997
FOR VALUE RECEIVED, the undersigned, Somnus Medical Technologies, Inc. (the
"Borrower"), promises to pay to order of Venture Lending, a division of
Cupertino National Bank & Trust ("Bank"), at such place as the holder hereof may
designate, in lawful money of the United States of America, the aggregate unpaid
principal amount of all advances ("Advances") made by Bank to Borrower under the
Loan Agreement (as defined below), not to exceed the Committed Equipment Line C.
Interest shall accrue from the date of each Advance at a rate equal to the Prime
Rate plus one (1) percentage points, and shall be payable monthly for each month
through the earlier of (i) the date on which Borrower elects to convert the
Advances into a Term Loan or (ii) October 2, 1997 (the "Term Conversion Date").
The Advance or Advances that are outstanding on each Term Loan Conversion Date
that have not already been converted into Term Loans will be payable in forty-
two (42) equal monthly installments of principal, plus accrued interest,
beginning on the twelfth day of the month following the applicable Term
Conversion Date. In the absence of a specific determination by Bank with respect
thereto, all payments shall be applied in the following order: (a) then due and
payable fees and expenses; (b) then due and payable interest payments and
mandatory prepayments; and (c) then due and payable principal payments and
optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any errors in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection or in
any suit or action to collect this Note or in any appeal thereof. Borrower
waives presentment, demand, protest, notice of protest, notice of dishonor,
notice of nonpayment, and any and all other notices and demands in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
No delay by Bank in exercising any power or right hereunder shall operate as a
waiver of any power or right. Time is of the essence as to all obligations
hereunder.
This Note is issued pursuant to the Loan Agreement dated April 2, 1997,
which shall govern the rights and obligations of Borrower with respect to all
obligations hereunder.
BORROWER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
This Note shall be deemed to be made under, and shall be construed in accordance
with and governed by, the laws of the State of California, excluding conflicts
of laws principles.
SOMNUS MEDICAL TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
Title: President & CEO
------------------------------------
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: VENTURE LENDING
FROM: SOMNUS MEDICAL TECHNOLOGIES, INC.
The undersigned authorized officer of Somnus Medical Technologies, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending _________________ with all
required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) and are consistently applied from one period to the next except as
explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual CPA Audited FYE within 120 days Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Tangible Net Worth $3,000,000 $_________ Yes No
---------
Maximum Debt/Tangible Net Worth 1.50:1.00 _____:1.00 Yes No
----
Minimum Cash Coverage * $_________ Yes No
Maintain on a Quarterly Basis:
Debt Service Coverage * $_________ Yes No
Profitability * $_________ Yes No
* See attached Schedule
__________________________________
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Received by: ___________________
Sincerely, AUTHORIZED SIGNER
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Date: __________________________
---------------------------------------
SIGNATURE
Verified: ______________________
_______________________________________ AUTHORIZED SIGNER
TITLE
Date: __________________________
_______________________________________
DATE Compliance Status: Yes No
__________________________________
SCHEDULE D
COMPLIANCE CERTIFICATE
MINIMUM LIQUIDITY: DEBT SERVICE COVERAGE:
----------------------------------------
Borrower shall maintain, as of the last day of each calendar month, a
minimum Liquidity of one and one-half (1.5) times the amount of outstanding
Equipment Advances. "Liquidity" means the sum of (i) cash and cash-
equivalents plus (ii) fifty (50) percent of accounts receivable plus (iii)
availability under the Medtronic Line of Credit granted to Borrower divided
(iv) the aggregate outstanding Equipment Advances as of the measurement
date. Notwithstanding the foregoing, after Borrower achieves a Debt Service
Coverage of at least 1.50 to 1.00 for two consecutive quarters measured on
a three months rolling basis, Borrower shall not be subject to the
Liquidity requirement, and shall be required only to maintain a minimum
Debt Service Coverage ratio of a least 1.50 to 1.00, measured as of the
last day of each fiscal quarter. "Debt Service Coverage" means the ratio of
(a) earnings after tax plus interest and depreciation, to (b) the current
portion of long term debt.
PROFITABILITY:
--------------
QUARTER ENDING DATE MAXIMUM QUARTERLY LOSS
------------------- ----------------------
March 31, 1997 $2,000,000
June 30, 1997 $2,300,000
September 30, 1997 $2,300,000
December 31, 1997 $2,000,000
