<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934
Commission file number 1-14430
MAXIM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0279983
---------------------------------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
3099 Science Park Road, Suite 150, San Diego, CA 92121
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(619) 453-4040
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of May 5, 1997, the registrant had 6,671,246 shares of Common Stock, $.001
par value, outstanding.
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A Development Stage Company)
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets -
March 31, 1997 (unaudited) and September 30, 1996..... 1
Statements of Operations (unaudited) -
Three Months and Six Months Ended March 31, 1997
and 1996, and from Inception (October 23, 1989)
through March 31, 1997................................ 2
Statements of Cash Flows (unaudited) -
Six Months Ended March 31, 1997 and 1996
and from Inception (October 23, 1989) through
March 31, 1997........................................ 3
Notes to Financial Statements......................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 7
Item 4. Submission of Matters to a Vote of Security Holders... 7
Item 6. Exhibits and Reports on Form 8-K...................... 7
SIGNATURE ......................................................... 8
<PAGE>
BALANCE SHEETS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
MARCH 31, 1997 September 30, 1996
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,355,457 $ 4,070,089
Short-term investments in marketable securities 11,535,617 12,563,622
Accrued interest and other current assets 662,339 709,285
-------------- -------------------
Total current assets 13,553,413 17,342,996
Investments in marketable securities 3,609,500 2,510,366
Patents and licenses, net 1,811,098 1,367,235
Property and equipment, net 609,376 31,037
Deposits 203,397 3,397
-------------- -------------------
Total assets $ 19,786,784 $ 21,255,031
-------------- -------------------
-------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 754,770 $ 405,760
Accrued expenses 580,368 478,623
Current portion of long-term debt 264,008 247,000
-------------- -------------------
Total current liabilities 1,599,146 1,131,383
Long-term debt, less current portion 391,187 -
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5.000,000 shares
authorized - -
Common stock, $.001 par value, 20,000,000 shares
authorized; 6,671,246 and 6,671,237 shares issued
and outstanding at March 31, 1997 and September 30,
1996, respectively. 6,672 6,672
Additional paid-in capital 34,172,686 34,172,618
Deficit accumulated during the development stage (16,298,081) (13,936,903)
Deferred compensation (84,826) (118,739)
-------------- -------------------
Total stockholders' equity 17,796,451 20,123,648
-------------- -------------------
Total liabilities and stockholders'
equity $ 19,786,784 $ 21,255,031
-------------- -------------------
-------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended October 23, 1989
March 31 March 31 (inception) to
1997 1996 1997 1996 March 31, 1997
------------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Product development $ 1,215,456 $ 593,896 $ 1,755,048 $ 813,284 $ 11,756,306
Business development 99,425 24,597 163,179 55,985 225,179
General and administrative 493,119 208,790 901,385 387,089 8,427,192
------------- ----------- ------------- ----------- ----------------
Total operating expenses 1,808,000 827,283 2,819,612 1,256,358 20,408,677
Other income (expense):
Investment income 239,918 3,369 505,160 6,908 792,890
Interest expense (14,972) (21,411) (32,305) (152,625) (1,936,114)
Other expense (13,564) (76,684) (14,421) (90,813) (116,209)
Research grant revenue - - - - 2,946,001
Gain on sale of subsidiary - - - - 2,288,474
------------- ----------- ------------- ----------- ----------------
Total other income (expense) 211,382 (94,726) 458,434 (236,530) 3,975,042
------------- ----------- ------------- ----------- ----------------
Discontinued operations:
Loss from operation of discontinued
diagnostic division - - - - (347,608)
Gain on sale of diagnostic division - - - - 483,162
------------- ----------- ------------- ----------- ----------------
Net loss $ (1,596,618) $ (922,009) $ (2,361,178) $(1,492,888) $(16,298,081)
------------- ----------- ------------- ----------- ----------------
------------- ----------- ------------- ----------- ----------------
Net loss per share of common stock $ (0.24) $ (0.16) $ (0.35) $ (0.28)
------------- ----------- ------------- -----------
Weighted average shares outstanding 6,671,238 5,874,383 6,671,238 5,407,379
------------- ----------- ------------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Six Months Ended
March 31 October 23, 1989
------------------------------ (inception) to
1997 1996 March 31, 1997
----------- ------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,361,178) $ (1,492,888) $ (16,298,081)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 103,347 7,131 884,491
Amortization of premium on investments 84,308 - 84,308
Stock options issued as compensation 33,913 - 310,173
Gain on sale of subsidiary - - (2,288,474)
Loss on write-off of patents - - 189,068
Loss on disposal of property & equipment - 128,248 128,248
Loss on write-off of receivable from related party - 100,000 147,803
Other - - 27,032
Write-off of obsolete inventory - - 24,669
Gain on sale of diagnostic division - - (483,162)
Loss on write-off of purchased research
and development - - 2,646,166
Cumulative effect of reorganization - - 1,152,667
Changes in operating assets and liabilities:
Accrued interest and other current assets 46,946 (10,070) (662,339)
Other assets (200,000) (15,574) (351,200)
Accounts payable 349,010 (30,067) 754,770
Accrued expenses 101,745 104,508 601,578
---------- ---------- -----------
Net cash used in operating activities (1,841,909) (1,208,712) (13,132,283)
INVESTING ACTIVITIES:
Purchases of marketable securities (8,151,437) - (23,225,425)
Maturities of marketable securities 7,996,000 - 7,996,000
Additions to patents (513,201) (115,227) (2,355,988)
Purchases of property and equipment (612,348) (3,481) (1,420,589)
Cash acquired in acquisition of business - - 985,356
Proceeds from sale of diagnostic division - - 496,555
---------- ---------- -----------
Net cash used by investing activities (1,280,986) (118,708) (17,524,091)
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and
long term debt 408,195 81,675 4,984,618
Payments on notes payable and long-term debt - (2,260,000) (2,770,505)
Proceeds from issuance of notes payable to
related parties - - 4,982,169
Payments on notes payable to related parties - - (1,329,885)
Net proceeds from issuance of common stock
and warrants 68 4,301,498 25,657,934
Net proceeds from issuance of preferred stock - - 487,500
---------- ---------- -----------
Net cash provided by financing activities 408,263 2,123,173 32,011,831
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (2,714,632) 795,753 1,355,457
Cash and cash equivalents at beginning of period 4,070,089 512,928 -
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,355,457 $ 1,308,681 $ 1,355,457
------------ ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
1. PRINCIPLES OF INTERIM PERIOD REPORTING
Maxim Pharmaceuticals, Inc. (the "Company") has not earned significant revenues
from planned principal operations. Accordingly, the Company's activities have
been accounted for as those of a "Development Stage Enterprise" as set forth in
Financial Accounting Standards Board Statement No. 7 ("FAS 7").
In the opinion of the Company, the unaudited financial statements contain all of
the adjustments, consisting only of normal recurring adjustments and accruals,
necessary to present fairly the financial position of the Company as of March
31, 1997 and September 30, 1996, and the results of operations for the three
months and six months ended March 31, 1997 and 1996 and from inception (October
23, 1989) to March 31, 1997. The results of operations for the three months and
six months ended March 31, 1997 are not necessarily indicative of the results to
be expected in subsequent periods or for the year as a whole. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended September 30, 1996.
2. LINE OF CREDIT AGREEMENT
In March 1997 the Company entered into a line of credit agreement with a bank.
Under the agreement the Company may borrow up to $900,000 during 1997 to fund
qualified equipment purchases. At January 1, 1998 any outstanding advances
under the line of credit will convert to a term loan payable in equal
installments over 48 months, including interest at prime plus 0.5%. The loan is
secured by all assets of the Company. At March 31, 1997, aggregate advances
under the line of credit totaled $408,195.
3. CONTINGENCY
In April 1996, the Company received a demand letter from an attorney
representing the former President and Chief Operating Officer and Chief
Financial Officer of the Company (the "Former Employees"). In the letter,
the Former Employees made claims for certain purported damages in contract
and in tort arising out of the termination of the Former Employees'
employment with the Company. In addition, the Former Employees asserted
possible punitive damages and damages based on emotional distress. The
Former Employees also claimed the right to vested options of the Company's
common stock, which options have subsequently terminated. In March 1997 the
Former Employees filed a complaint in the Superior Court in the State of
California, County of San Diego (the "Complaint") seeking claims for certain
purported damages in contract and in tort arising from their respective
terminations. The aggregate amount of economic damages, punitive damages and
damages based on emotional distress claimed by the Former Employees in the
Complaint approximated $14 million. The Company has not received any
communication from the Former Employees regarding the Complaint, and the
Company has not been formally served with a summons. Although the Company's
intention is to contest any such claims vigorously when and if the complaint
is served, there can be no assurances as to the eventual outcome of such
claims or their effect on the Company's financial condition and results of
operations. In addition, an adverse determination in any litigation arising
from these claims or the settlement of such claims could have a material
adverse effect on the Company, its financial condition and its results of
operations.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER
"RISK FACTORS" AND ELSEWHERE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED SEPTEMBER 30, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE UNCERTAINTIES ASSOCIATED WITH PRODUCT DEVELOPMENT,
THE RISK THAT PRODUCTS THAT APPEARED PROMISING IN EARLY CLINICAL TRIALS DO
NOT DEMONSTRATE EFFICACY IN LARGER-SCALE CLINICAL TRIALS, THE RISK THAT
CLINICAL TRIALS WILL NOT COMMENCE WHEN PLANNED AND THE RISK THAT THE COMPANY
WILL NOT BE ABLE TO COMPLETE CORPORATE COLLABORATIONS.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31,
1997 AND 1996
PRODUCT DEVELOPMENT EXPENSES - For the quarter ended March 31, 1997, product
development expenses were $1,215,000, an increase of $622,000, or 105%, over the
same period in the prior year. This increase was primarily attributable to
increased activity related to cancer clinical trials of the Company's MAXAMINE-
TM- therapy, including hiring additional clinical and development personnel, and
consulting and other costs associated with preparation for planned Phase III
clinical trials in the United States. The current quarter increase also
resulted from increased efforts relating to preclinical development of the
Company's MAXVAX-TM- mucosal vaccine technology, including the addition of
laboratory personnel and establishment of internal research capabilities.
For the six months ended March 31, 1997, product development costs were
$1,755,000, an increase of $942,000, or 116%, over the same period of the prior
year. The increase resulted from the Phase III clinical trial efforts and the
expansion of other product development activities described above.
BUSINESS DEVELOPMENT AND GENERAL AND ADMINISTRATIVE EXPENSES - For the quarter
ended March 31, 1997, business development expenses totaled $99,000, an increase
of $75,000 over the $25,000 in expense recorded in the same quarter in the prior
year. This increase was due to additional personnel and other resources devoted
to corporate partnering efforts and market evaluations. General and
administrative expenses for the quarter ended March 31, 1997 increased $284,000,
or 136%, over the prior year quarter and totaled $493,000. This increase is in
a large part due to the increased personnel, insurance, reporting and compliance
costs associated with operation as a public company.
Business development costs for the six month period ended March 31, 1997 totaled
$163,000, an increase of $107,000, or 191%, over the same period of the prior
year. General and administrative expenses for the six month period ended March
31, 1997 increased $514,000, or 133%, over the same period of the prior year to
$901,000. Both of these increases resulted from the expanded activities
described above.
OTHER INCOME (EXPENSE) - Investment income was $240,000 for the quarter ended
March 31, 1997, compared to $3,000 for the same period in the prior year, due to
income on the proceeds of the Company's initial public offering completed in
July 1996. Interest expense for the current quarter was $15,000, consistent
with the $21,000 expense for the same quarter in the prior year.
Investment income was $505,000 for the six month period ended March 31, 1997,
compared to $7,000 for the same period in the prior year, due to the income on
the offering proceeds described above. Interest expense was $32,000 compared to
$153,000 for the six month period in the prior year. The current year decrease
is due to the repayment of approximately $2.85 million of notes payable and
long-term debt subsequent to December, 1995.
5
<PAGE>
NET LOSS - Net loss for the quarter ended March 31, 1997 totaled $1,567,000,
a 70% increase over the prior year's second quarter loss of $922,000. This
increase is a result of the expanded product development, business
development and general corporate efforts discussed above. Net loss per
share of common stock for the quarter ended March 31, 1997 was $.23, a 44%
increase from the prior years second quarter loss of $.16 per share.
Net loss for the six months ended March 31, 1997 totaled $2,331,000, an increase
of $838,000, or 56% over the same period of the prior year. Net loss per share
of common stock for the six month period was $.35, a 25% increase over the loss
of $.28 per share for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of its equity
securities, including an initial public offering of common stock and redeemable
common stock purchase warrants in July 1996 which provided approximately $18.2
million, net of financing costs, to the Company.
As of March 31, 1997, the Company had cash, cash equivalents and investments
totaling approximately $16.5 million. For the six months ended March 31, 1997,
net cash used in the Company's operating activities was approximately
$1,842,000. The Company expects its cash requirements to increase significantly
in future periods as it conducts additional product development activities
including internal product research, development and testing, preclinical
studies and clinical testing of its potential products and marketing of any
products that are developed. Among the specific planned activities which are
expected to result in an increase in cash requirements are the commencement of
Phase III clinical trials in the U.S. for the MAXAMINE therapy, and an expansion
of internal capabilities and increased research efforts relating to preclinical
development of the MAXVAX technology.
The Company's cash requirements may vary materially from those now planned
because of the results of research, development and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements and the development of the Company's
product commercialization activities. As a result of these factors, it is
difficult to predict accurately the timing and amount of the Company's cash
requirements.
In order to successfully commercialize any of its products, the Company expects
that it will ultimately be required to seek additional funds through public or
private financings or collaborative arrangements with corporate partners. The
issuance of additional equity securities could result in substantial dilution to
the Company's stockholders. There can be no assurance that additional funding
will be available on terms acceptable to the Company, if at all. The failure to
fund its capital requirements would have a material adverse effect on the
Company's business.
The Company has never paid a cash dividend and does not contemplate the payment
of cash dividends in the foreseeable future.
6
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1996, the Company received a demand letter from an attorney
representing the former President and Chief Operating Officer and Chief
Financial Officer of the Company (the "Former Employees"). In the letter,
the Former Employees made claims for certain purported damages in contract
and in tort arising out of the termination of the Former Employees'
employment with the Company. In addition, the Former Employees asserted
possible punitive damages and damages based on emotional distress. The
Former Employees also claimed the right to vested options of the Company's
common stock, which options have subsequently terminated. In March 1997 the
Former Employees filed a complaint in the Superior Court in the State of
California, County of San Diego (the "Complaint") seeking claims for certain
purported damages in contract and in tort arising from their respective
terminations. The aggregate amount of economic damages punitive damages and
damages based on emotional distress claimed by the Former Employees in the
Complaint approximated $14 million. The Company has not received any
communication from the Former Employees regarding the Complaint, and the
Company has not been formally served with a summons. Although the Company's
intention is to contest any such claims vigorously when and if the complaint
is served, there can be no assurances as to the eventual outcome of such
claims or their effect on the Company's financial condition and results of
operations. In addition, an adverse determination in any litigation arising
from these claims or the settlement of such claims could have a material
adverse effect on the Company, its financial condition and its results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on February 10, 1997, the following
matters were voted on and approved:
1. Two Directors were elected to the Board of Directors to hold office for a
three-year term or until their successors are elected and qualified. The
following persons were elected: G. Steven Burrill and F. Duwaine Townsen.
5,511,047 shares of Common Stock, or 99.0% of the shares voting, voted in
favor of all the nominees for Director listed in the Proxy Statement.
There were no votes against any Director and 55,000, or 1.0% of the shares
voting, abstained. The remaining three Directors, Per-Olof Martensson,
Larry G. Stanbaugh, and Colin B. Bier, Ph.D continue in office until
future Annual Meetings.
2. Approval of the 1993 Long-Term Incentive Plan, as amended to, among other
things, increase the aggregate number of shares authorized for issuance
under the Incentive Plan from a total of 800,000 shares to 1,000,000
shares. 4,268,608 shares of Common Stock, or 93% of the shares voting,
voted in favor of the proposal. 317,133 shares, or 6.9% of the voting
shares, voted against the proposal, 4,700 shares, or 0.1% of the voting
shares, abstained, and 975,606 shares were broker non-votes.
3. The Boards selection of KPMG Peat Marwick LLP as the Company's independent
public accountants for the fiscal year ended September 30, 1997 was
ratified. 5,512,447 shares of Common Stock, or 99% of the shares voting,
voted in favor of the proposal. 53,600 shares, or 1.0% of the voting
shares, voted against the proposal, and no shares abstained.
7
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.22 Loan and Security Agreement between the
Registrant and Silicon Valley Bank
B.) REPORTS ON FORM 8-K
Date of Report Item Reported Financial Statements Filed
- -------------- ------------- --------------------------
None None No
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Maxim Pharmaceuticals, Inc.
Date: May 5, 1997 /s/ Dale A. Sander
------------------------
Dale A. Sander
Chief Financial Officer
(Principal Accounting Officer and Officer
duly authorized to sign this report on
behalf of the registrant)
8
<PAGE>
EXHIBIT 10.22
This LOAN AND SECURITY AGREEMENT is entered into as of March 15, 1997,
by and between SILICON VALLEY BANK ("Bank") and MAXIM PHARMACEUTICALS, INC.
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing.
"Advance" or "Advances" means a Term Loan advance or advances,
respectively.
"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, partners and, for any
Person that is a limited liability company, such Persons, managers and
members.
"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, (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding)
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: 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.
1
<PAGE>
"Collateral" means the property described on EXHIBIT A
attached hereto.
"Committed Term Line" means a credit extension of up to
Nine-Hundred Thousand Dollars ($900,000) made pursuant to Section 2.1.2
hereof, and as further limited pursuant to the terms and conditions of
Section 2.1.2 hereof.
"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.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Term Loan, or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"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 Credit Extensions 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.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
2
<PAGE>
"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.
"Intellectual Property Collateral" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right,
but not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"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.
"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.
3
<PAGE>
"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, any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, and any other guaranty, pledge agreement or other document entered
into by a guarantor or any other third party in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available
for the protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to
repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means December 31, 2001.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any 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.
"Patents means all patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of
the same.
"Payment Date" means each of the dates for payment as set
forth in Section 2.1.2(d) hereof.
"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
4
<PAGE>
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within two (2) years from the date of acquisition thereof,
(ii) commercial paper maturing no more than two (2) years from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than two (2) years from the date
of investment therein issued by Bank; and
(c) if no Event of Default has occurred and is continuing or
would exist after giving effect to such loans, and no event with which notice or
passage of time would constitute an Event of Default has occurred and is
continuing or would exist after giving effect to such loans, Borrower may make
employee loans in an aggregate amount outstanding of $500,000 at any one time
for the purpose of, and only for the purpose of, employee relocation.
"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 and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, PROVIDED the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price or lease of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, provided that the aggregate amount of such
indebtedness outstanding shall not exceed $500,000 at any time outstanding, or
(ii) existing on such equipment at the time of its acquisition, PROVIDED that
the Lien is confined solely to the property so acquired and improvements
thereon, and the proceeds of such equipment;
(d) Licenses only with respect to the Borrower's Intellectual
Property Collateral in the ordinary course of Borrower's business relating to
research development, manufacturing and distribution; and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (d) above, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Permitted Venture Transactions" means that if no Event of
Default has occurred and is continuing or would exist after giving effect to
such actions, and no event with
5
<PAGE>
which notice or passage of time would constitute an Event of Default has
occurred and is continuing or would exist after giving effect to such actions,
Borrower may enter into joint venture transactions with other Persons with
respect to the development of products, PROVIDED that such transactions do not
materially adversely affect the Borrower, PROVIDED, FURTHER, the Borrower does
not merge, consolidate or otherwise effect a combination with such Person unless
the shareholders of Borrower as currently constituted retain a controlling
interest of at least 51% of the resulting entity thereafter, and PROVIDED,
FURTHER, the Borrower shall provide Bank with such information and documentation
relating to any of the proposed foregoing transactions as Bank may reasonably
request from time to time.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm,
joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities
of fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the President, 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 with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or
one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS, without
duplication, (i) the sum of any amounts attributable 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.
"Term Loan" and "Term Loans" shall have the meanings set forth in
Section 2.1.2 hereof.
"Term Loan Evidence" has the meaning set forth in Section 2.1.2.
"Term Loan Payment" has the meaning set forth in Section 2.1.5.
"Total Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be
6
<PAGE>
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of the assignor
connected with and symbolized by such trademarks.
"Treasury Bill Rate" means the interest rate per annum equal to
the most recent weekly average yield on actively traded U.S. Treasury
obligations having a final maturity approximate to the Maturity Date as
determined by reference to the week ending figures published in the most recent
Federal Reserve Statistical Release which shall become available at least two
Business Days prior to the date as of which such yield is to be determined, or
if a Statistical Release is not then published, the arithmetic average (rounded
to the nearest .01%) of the per annum yields to maturity for each business day
during the week ending at least two business days prior to the date such
determination is made, of all issues of actively traded marketable United States
Treasury fixed interest rate securities with a constant maturity equal to, or
not more than 30 days longer or 30 days shorter than the Maturity Date
(excluding all such securities which can be surrendered at the option of the
holder at the face value of payment of any Federal estate tax, or which provide
for tax benefits to the holder).
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/ "includes" shall always be read
as meaning "including (or includes) without limitation", when used herein or in
any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 [Reserved]
2.1.2 TERM LOANS; ETC.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through December 31, 1997 (the "Term
Availability End Date"), Bank agrees to make advances (each a "Term Loan" and
collectively the "Term Loans") to Borrower in an aggregate, initial outstanding
amount thereof not to exceed the Committed Term Line, PROVIDED in no event shall
the amount of each Term Loan exceed 100% of the net purchase price of new
equipment being purchased by Borrower or equipment purchased by the Borrower on
and after October 1, 1996, comprised of general purpose, scientific, laboratory,
manufacturing and test equipment, associated software, computer equipment,
office equipment, furnishing and leasehold improvements and which is otherwise
acceptable to Silicon in its sole discretion (the "Equipment Borrowing Base"),
PROVIDED that the aggregate, original principal amount of Term Loans relating to
leasehold improvements shall not exceed $100,000. The "net purchase price" of
equipment means the purchase price thereof, as shown on the applicable invoice,
net of all charges for taxes, freight, delivery, insurance, set-up, training,
manuals, fees, service charges and other similar items, provided that only up to
15% of
7
<PAGE>
the total purchase price of equipment included in the Equipment Borrowing Base
may consist of software. To evidence each Term Loan, Borrower shall deliver to
Bank, at the time of each Term Loan request, evidence, in form and substance
satisfactory to Bank (the "Term Loan Evidence"), of the equipment purchases that
are the subject of the Equipment Borrowing Base.
(b) Interest shall accrue from the date of each Term Loan
at the per annum rate equal to one-half of one percent (0.50%) above the Prime
Rate (the "Prime Option Rate") and shall be payable monthly for each month
through the Term Availability End Date. On and after the Term Availability End
Date, interest shall accrue at either the Prime Option Rate or the Fixed Option
Rate (as defined below), at the Borrower's election made by the Borrower on the
Term Availability End Date by notifying Bank in writing of the Borrower's
election; if Borrower fails to notify the Bank on or before the Term
Availability End Date of such interest rate election, then the interest rate
shall be deemed to be the Prime Option Rate. Such interest shall be payable
monthly for each month while the Term Loans are outstanding. As used herein the
term "Fixed Option Rate" shall mean the Treasury Bill Rate in effect as of the
Term Availability End Date on a per annum basis plus Four percent (4.00%).
(c) In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under
the Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
(d) Any Term Loans that are outstanding on the Term
Availability End Date will be payable in forty-eight (48) equal monthly
installments of principal, plus all accrued interest, with the first of such
payments due on February 1, 1998, and continuing on the first day of each month
thereafter for the following forty-six (46) consecutive months, with all Term
Loans and all Obligations relating thereto to be fully due and payable in a
final payment no later than December 31, 2001. Term Loans, once repaid, may not
be reborrowed.
(e) When Borrower desires to obtain a Term Loan, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile transmission
to be received no later than 3:00 p.m. Pacific time one (1) Business Day before
the day on which the Term Loan is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee and include the Investor Evidence.
(f) In the event any principal of the Term Loan is prepaid
prior to the dates due under the schedule of principal payments set forth above
and Borrower has elected the Fixed Option Rate only, Borrower shall also pay
Bank a prepayment fee in an amount equal to the following percentage of the
amount prepaid or required to be prepaid, based on the date
8
<PAGE>
the prepayment occurs or the date prepayment is due as a result of an Event of
Default or termination of this Agreement:
Prior to or during the 1998 calendar year: 3%
During the 1999 calendar year: 2%
During the 2000 calendar year: 1%
2.2 [RESERVED]
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS; ETC.
(a) INTEREST RATE. The Term Loans shall have the interest rate
as set forth in Section 2.1(b) above.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number 3300037597 for payments
of principal and interest due on the Obligations and any other amounts owing
by Borrower to Bank. Bank will notify Borrower of all debits which Bank has
made against Borrower's accounts. Any such debits against Borrower's accounts
in no way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 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.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After
the occurrence of an Event of Default, the receipt by Bank of any wire transfer
of funds, check, or other item of payment, whether directed to Borrower's
deposit account with Bank or to the Obligations or otherwise, shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment in respect of the Obligations unless such payment is of
immediately available federal funds or unless and until such check or other
item of payment is honored when presented for payment. Notwithstanding anything
to the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon Pacific time shall be deemed to have been received by Bank as
of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of
such extension.
2.5 FEES. Borrower shall pay to Bank the following:
9
<PAGE>
(a) FACILITY FEE. A Facility Fee equal to Four-Thousand
Five-Hundred Dollars ($4,500), which fee shall be due on the Closing Date and
shall be fully earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, 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.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(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.
2.7 TERM. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 12.7,
shall continue in full force and effect for a term ending on the Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate
its obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
10
<PAGE>
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1) executed by Borrower,
in form and substance satisfactory to Borrower ;
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
(f) Certificate of Foreign Qualification (if applicable); and
(g) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation
of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension
as though made at and as of each such date, and no Event of Default shall
have occurred and be continuing, or would result from such Credit Extension.
The making of each Credit Extension shall be deemed to be a representation
and warranty by Borrower on the date of such Credit Extension as to the
accuracy of the facts referred to in this Section 3.2(b); and
(c) with respect to each Term Loan, the Term Loan Evidence.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt payment 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. Borrower acknowledges that Bank may place a "hold" on any Deposit
Account pledged as Collateral to secure the Obligations. Notwithstanding
termination of this Agreement, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
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.
11
<PAGE>
4.3 RIGHT TO INSPECT. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice,
from time to time during Borrower's usual business hours, to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrower's financial condition or the
amount, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in,
and is in good standing in, any state in which the conduct of its business or
its ownership of property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 [RESERVED]
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted
by Borrower to its customers in the ordinary course of business and except
for the Permitted Liens. Each of the Patents is valid and enforceable, and
no part of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part
of the Intellectual Property Collateral violates the rights of any third
party. Except for and upon the filing with the United States Patent and
Trademark Office with respect to the Patents and Trademarks and the Register
of Copyrights with respect to the Copyrights and Mask Works necessary to
perfect the security interests created hereunder, and except as has been
already made or obtained, no authorization, approval or other action by, and
no notice to or filing with, any United States governmental authority or
United States regulatory body is required either (i) for the grant by
Borrower of the security interest granted hereby or for the execution,
delivery or performance of Loan Documents by Borrower in the United States or
(ii) for the perfection in the United States or the exercise by Bank of its
rights and remedies hereunder.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed
in the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do 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.
12
<PAGE>
5.8 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened 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.
5.9 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 on or about the Closing Date.
5.10 SOLVENCY. The fair saleable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement; and Borrower is able to pay
its debts (including trade debts) as they mature.
5.11 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 its 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.
5.12 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 release, or other disposition of hazardous waste
or hazardous substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid,
or has made adequate provision for the payment of, all taxes reflected
therein.
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
13
<PAGE>
5.15 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.
5.16 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 a Credit Extension 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 (in a form and certified by an officer of
Borrower reasonably acceptable to Bank); (b) as soon as available, but in any
event within one-hundred twenty (120) days after the end of the fiscal year
of Borrower, 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 of
filing, 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, 10-Q and 8-K 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.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of EXHIBIT D hereto.
14
<PAGE>
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default
has occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on
the same basis and in accordance with the usual customary practices of
Borrower, as they exist at the time of the execution and delivery of this
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 (I) contested in good faith by appropriate proceedings,
(ii) is reserved against (to the extent required by GAAP) by Borrower and
(iii) no lien other than a Permitted Lien results.
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 are 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. At 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 LITIGATION. The Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against the Borrower involving amounts in
excess of $100,000.
6.9 [Reserved]
15
<PAGE>
6.10 [Reserved]
6.11 [Reserved]
6.12 REMAINING MONTHS LIQUIDITY; CASH PLEDGE; ETC. Borrower shall
maintain, as of the last calendar day of each month, at least Twelve (12)
months Remaining Months Liquidity. "Remaining Months Liquidity" is defined
as cash on hand (and cash equivalents and marketable securities), divided by
Cash Burn. "Cash Burn" is defined as cash (prior period) minus cash (current
period) plus increases in short and long term borrowings plus increases in
equity (or subordinated debt). Alternatively, Borrower may maintain cash on
hand (and cash equivalents and marketable securities) in an amount equal to
two multiplied times the principal amount of the Term Loans outstanding. If
the Borrower fails to maintain either of the above covenants, then Borrower
agrees to deposit cash with the Bank in an amount equal to the amount of the
Term Loans outstanding, as collateral security for the repayment of the
Obligations, and to execute and deliver to the Bank the Bank's standard cash
collateral security agreement in connection therewith. Upon the Borrower's
subsequent satisfaction of either of the financial covenants set forth in
this section, Bank agrees to terminate such cash pledge as long as Borrower
remains in compliance therewith.
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 Extension
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 Transfers:
(i) of inventory in the ordinary course of business, (ii) of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or
its Subsidiaries in the ordinary course of business; (iii) that constitute
payment of normal and usual operating expenses in the ordinary course of
business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS
LOCATIONS. 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 change in Borrower's ownership of greater
than 20% compared to the date hereof or suffer a material change in
Borrower's management compared to the date hereof, other than Permitted
Venture Transactions. Borrower will not, without at least thirty (30) days
prior written notification to Bank, relocate its chief executive office or
add any new offices or business locations.
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 if no
Event of Default has occurred and is continuing or would exist after giving
effect to such action, result in a change of more than 25% of Net Worth,
other than in connection with Permitted Venture Transactions.
16
<PAGE>
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other
than Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or
purchase of any capital stock, provided that, after giving effect thereto, no
Event of Default has occurred and is continuing and no event has occurred
which, with notice or passage of time or both, would constitute an Event of
Default, and provided that the following is done in compliance with all
material applicable laws, rules and regulations, Borrower may repurchase
shares of Borrower's stock pursuant to any employee stock purchase or benefit
plan, provided that the total amount paid by Borrower for such stock does not
exceed $500,000 in any fiscal year.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm's length transaction
with a nonaffiliated Person.
7.9 [Reserved]
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 any 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" or a 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 other
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.
17
<PAGE>
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, when due, any of
the Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.12, or 6.13 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower 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, covenant or agreement that can
be cured, has failed to cure such default within ten (10) days after the
occurrence 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 (i) occurs, compared to the
date hereof, a material adverse change in the business, operations, or
condition (financial or otherwise) of the Borrower, or (ii) is a material
impairment of the prospect of repayment of any portion of the Obligations or
(iii) is a material impairment of the value or priority of Bank's security
interests in the Collateral (assuming that as of the date hereof the Bank has
a first perfected security interest in the Collateral, subject only to the
Permitted Liens);
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 Credit Extensions
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 30 days (provided that no Advances will be made prior to the dismissal
of such Insolvency Proceeding);
18
<PAGE>
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 Credit Extensions 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 or writing delivered to
Bank by Borrower or any Person acting on Borrower's behalf pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document.
8.10 GUARANTY. Any guaranty of all or a portion of the Obligations
ceases for any reason to be in full force and effect, or any guarantor of the
Obligations fails to perform any obligation under any guaranty of all or a
portion of the Obligations, or any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set
forth in any guaranty of all or a portion of the Obligations or in any
certificate delivered to Bank in connection with such guaranty, or any of the
circumstances described in Sections 8.4, 8.5 or 8.8 occur with respect to any
guarantor of the Obligations.
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) [Reserved]
(d) [Reserved]
(e) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(f) 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
19
<PAGE>
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 premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(g) 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;
(h) 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 non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this
Section 9.1, to use, without charge, Borrower's labels, patents, copyrights,
mask works, 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;
(i) 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 the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or
at any private sale as permitted by law;
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower; and
(l) Bank shall have a non-exclusive, royalty-free license to
use the Intellectual Property Collateral to the extent reasonably necessary
to permit Bank to exercise its rights and remedies upon the occurrence of an
Event of Default.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification
of Accounts or notify account debtors of Bank's security interest in the
Accounts; (b)_endorse Borrower's name on any checks or other forms of payment
or security that may come into Bank's possession; (c) sign Borrower's name on
any invoice or bill 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; (f) [reserved]; (g) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any
of the Collateral without the signature of Borrower where permitted by law;
and (h) [reserved], 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
20
<PAGE>
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. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and if requested or required
by Bank, 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 Committed Revolving Line as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.6 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 expressly set forth herein
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, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by 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:
21
<PAGE>
If to Borrower Maxim Pharmaceuticals, Inc.
3099 Science Park Road, Suite 150
San Diego, California 92121
Attn: Dale A. Sander, Chief Financial Officer
FAX: 619-453-5005
If to Bank Silicon Valley Bank
5414 Oberlin Drive, Suite 230
San Diego, California 92121
Attn: Manager
FAX: 619-535-1611
With a copy to:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attn: Legal Department
FAX: 408-496-2419
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, VENUE, AND WAIVER OF JURY TRIAL.
The Loan Documents 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 San Diego, 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 , indemnify ,defend, protect
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
22
<PAGE>
contemplated by the Loan Documents; 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 the Loan Documents, 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.
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 except by a writing signed by Borrower and Bank. 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 deem appropriate in connection with the exercise
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
MAXIM PHARMACEUTICALS, INC.
23
<PAGE>
By: /s/ DALE S. SANDER
------------------
Title: CHIEF FINANCIAL OFFICER
-----------------------
By: /s/ LARRY G. STAMBAUGH
----------------------
Title: Chairman and CEO
SILICON VALLEY BANK
By: /s/ LINDA S. LEBEAU
Title: Senior Vice-President
24
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following, now existing or hereafter arising:
(a) All goods, farm products and equipment now owned or hereafter
acquired, including, without limitation, all machinery, fixtures, trade
fixtures, vehicles (including motor vehicles and trailers), furniture,
materials, tools, office equipment, computers and peripheral devices,
appliances, apparatus, parts, dies and jigs, and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, advertising,
packing and shipping materials, work in process and finished products
including such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing
any of the above, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in
Borrower's business, and all warehouse receipts and other documents;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
federal, state and local tax refunds, security deposits, loan commitment
fees, all rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise) and all judgments now
or hereafter arising therefrom, all claims of Borrower against Bank, all
rights to purchase or sell real or personal property, all royalties, payments
of insurance and rights to payment of any kind, all processes, telephone
numbers, proprietary information, purchase orders, all insurance policies and
claims (including, without limitation, credit, liability, property and other
insurance), and all other rights , privileges and franchises of every kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment
property, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrower's Books relating to the
foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter
acquired; all trade secret rights, including all rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; all mask work or
similar rights available for the protection of semiconductor chips, now owned
or hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
1
<PAGE>
(g) all of Borrower's books and records including, without limitation:
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, in each case
relating to the foregoing and any and all claims, rights and interests in any
of the above and all substitutions for, additions and accessions to and
proceeds thereof.
2
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ________________
FAX#: (408) __________ TIME: ________________
FROM:_________________________________________________________________________
BORROWER'S NAME
FROM:_________________________________________________________________________
AUTHORIZED SIGNER'S NAME
______________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:________________________________________________________________________
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 and
Security Agreement are true, correct and complete in all material respects as
of the date of the telephone request for and Advance confirmed by this
Advance Request; 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
__________________________________
Authorized Signature (Bank)
Phone #___________________________
1
<PAGE>
EXHIBIT C
[Reserved]
1
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM:
The undersigned authorized officer of MAXIM PHARMACEUTICALS, 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. The Officer
expressly acknowledges that no borrowings may be requested by the Borrower at
any time or date of determination that Borrower is not in compliance with any
of the terms of the Agreement, and that such compliance is determined not
just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
[10Q and 10K Within 5 days after filing Yes No
with the SEC]
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Remaining Months Liquidity 12 Months _____ Months Yes No
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES/NO
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
_______________________ Date:_______________
SIGNATURE
________________________
TITLE
1
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Maxim Pharmaceuticals, Inc. BANK: Silicon Valley Bank
---------------------------
INSURANCE REQUIREMENTS. MAXIM PHARMACEUTICALS, INC. ("Grantor")
understands that insurance coverage is required in connection with the
extending of a loan or the providing of other financial accommodations to
Grantor by Bank. These requirements are set forth in the Loan Documents.
The following minimum insurance coverages must be provided on the following
described collateral (the "Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished without
a minimum of twenty (20) days' prior written notice to
Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Bank. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of MARCH ___, 1997, or earlier. Grantor acknowledges and
agrees that if Grantor fails to provide any required insurance or fails to
continue such insurance in force, Bank may do so at Grantor's expense as
provided in the Loan and Security Agreement. The cost of such insurance, at
the option of Bank, shall be payable on demand or shall be added to the
indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT
IF BANK SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED
PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF
THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY
DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance
agent or company) all information Bank deems appropriate, whether regarding
the Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
MARCH 15, 1997.
GRANTOR:
x_/s/ DALE A. SANDER_____________________________
Authorized Officer
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
2
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: MAXIM PHARMACEUTICALS, INC. BANK: SILICON VALLEY BANK
___________________________ ____________________________
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF MAXIM
PHARMACEUTICALS, INC. ("BORROWER"), HEREBY CERTIFY that Borrower is a
corporation duly organized and existing under and by virtue of the laws of
the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
Dale A. Sander Chief Financial Officer /s/ DALE A. SANDER
- --------------------- ----------------------- ----------------------
Larry G. Stambaugh President and CEO /s/ LARRY G. STAMBAUGH
- --------------------- ----------------------- ----------------------
- --------------------- ----------------------- ----------------------
- --------------------- ----------------------- ----------------------
- --------------------- ----------------------- ----------------------
acting for and on behalf of Borrower and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment
should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
documents of Borrower, on Bank's forms, at such rates of interest and
on such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of Borrower to Bank, and also to execute
and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
loan documents, or any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of
Borrower's assets, which security interest shall secure all of
Borrower's obligations to Bank
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to Borrower or in which Borrower
may have an interest, and either to receive cash for the same or to
cause such proceeds to be credited to the account of Borrower with
Bank, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount
as, in the judgment of the officer or officers herein authorized.
<PAGE>
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital
stock, for such class, series and number, and on such terms, as an
officer of Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, including agreements waiving the
right to a trial by jury, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these Resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Bank may rely on these Resolutions until written notice
of their revocation shall have been delivered to and received by Bank. Any
such notice shall not affect any of Borrower's agreements or commitments in
effect at the time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of
the Corporation and occupy the positions set opposite their respective names;
that the foregoing Resolutions now stand of record on the books of the
Corporation; and that they are in full force and effect and have not been
modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on March___, 1997 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X ___/s/ DALE A. SANDER________________________
Secretary or Assistant Secretary
X ______________________________________________
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,355,457
<SECURITIES> 11,535,617
<RECEIVABLES> 45,876
<ALLOWANCES> 45,876
<INVENTORY> 0
<CURRENT-ASSETS> 13,553,413
<PP&E> 668,534
<DEPRECIATION> 59,158
<TOTAL-ASSETS> 19,786,784
<CURRENT-LIABILITIES> 1,599,146
<BONDS> 391,187
0
0
<COMMON> 6,672
<OTHER-SE> 17,789,779
<TOTAL-LIABILITY-AND-EQUITY> 19,786,784
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,755,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,305
<INCOME-PRETAX> (2,361,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,361,187)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,361,178)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
