<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22885
TRIPATH IMAGING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
Delaware 56-1995728
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
780 Plantation Drive, Burlington, North Carolina 27215
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(Address of principal executive offices) (Zip Code)
(336) 222-9707
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(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 ___
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at May 10, 2000
----- ---------------------------
Common Stock, $.01 par value 28,233,474
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TRIPATH IMAGING, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)....................................2
Condensed consolidated balance sheets
March 31, 2000 and December 31, 1999....................................................2
Condensed consolidated statements of operations
Three months ended March 31, 2000 and 1999..............................................3
Condensed consolidated statements of cash flows
Three months ended March 31, 2000 and 1999..............................................4
Notes to condensed consolidated financial statements
March 31, 2000..........................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....8
Item 3. Quantitative and Qualitative Disclosures About Market Risk...............................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................12
Item 6. Exhibits and Reports on Form 8-K.........................................................14
Signatures........................................................................................15
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,470,806 $ 13,962,337
Accounts receivable 9,149,550 5,388,972
Inventory 6,734,296 7,802,907
Other current assets 783,946 916,126
-------------------- --------------------
Total current assets 35,138,598 28,070,342
Customer-use assets 15,598,314 16,111,380
Property and equipment 2,340,736 2,754,812
Deposits and other assets 104,397 294,331
Intangible assets 11,452,308 11,643,113
==================== ====================
Total assets $ 64,634,353 $ 58,873,978
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,048,708 $ 2,536,180
Accrued expenses 6,050,503 4,602,252
Deferred revenue 1,517,515 1,676,180
Line of credit 1,500,000 -
Current portion of long-term debt 1,961,039 1,917,345
-------------------- --------------------
Total current liabilities 13,077,765 10,731,957
Long-term debt, less current portion 4,903,011 1,020,030
Other long-term liabilities 83,073 96,643
Stockholders' equity:
Common stock, $0.01 par value; 49,000,000 shares authorized;
28,222,400 and 28,107,362 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 282,224 281,074
Additional paid-in capital 217,034,445 214,892,392
Deferred compensation (612,578) (779,645)
Accumulated deficit (170,133,587) (167,368,473)
-------------------- --------------------
Total stockholders' equity 46,570,504 47,025,348
-------------------- --------------------
Total liabilities and stockholders' equity $ 64,634,353 $ 58,873,978
==================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 7,446,816 $ 3,188,661
Cost of revenues 3,712,727 1,985,452
------------ ------------
Gross profit 3,734,089 1,203,209
Operating expenses:
Research and development 2,256,235 3,586,558
Selling, general and administrative 4,116,922 5,308,736
------------ ------------
6,373,157 8,895,294
------------ ------------
Operating loss (2,639,068) (7,692,085)
Interest income 199,523 365,453
Interest expense (325,569) (116,628)
------------ ------------
Net loss $ (2,765,114) $ (7,443,260)
============ ============
Net loss per common share (basic and diluted) $ (0.10) $ (0.29)
============ ============
Weighted-average common shares outstanding 28,163,374 25,566,473
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,765,114) $ (7,443,260)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,038,972 1,964,612
Non-cash interest expense 111,984 --
Accrued interest on securities available-for-sale -- 73,565
Change in operating assets and liabilities:
Accounts receivable (3,760,578) (529,156)
Inventory 380,372 (2,724,992)
Accounts payable and other current liabilities 809,539 (1,039,830)
Other 322,114 (268,861)
------------ ------------
Net cash used in operating activities (2,862,711) (9,967,922)
INVESTING ACTIVITIES
Purchases of property and equipment (50,323) (306,417)
Purchases of securities available-for-sale -- (7,199,372)
Maturities of securities available-for-sale -- 2,798,672
Additions to intangible assets (13,381) (13,862)
Other -- (1,038)
------------ ------------
Net cash used in investing activities (63,704) (4,722,017)
FINANCING ACTIVITIES
Issuance of common stock under employee stock purchase
plan -- 38,932
Exercise of options and warrants 418,162 13,873
Proceeds from private issuance of stock -- 14,461,462
Proceeds from long-term debt 7,000,000 388,505
Proceeds from line of credit 1,500,000 --
Payments on long-term debt (1,460,268) (681,249)
Other (23,010) (28,557)
------------ ------------
Net cash provided by financing activities 7,434,884 14,192,966
Net increase (decrease) in cash and cash equivalents 4,508,469 (496,973)
Cash and cash equivalents at beginning of period 13,962,337 25,565,974
------------ ------------
Cash and cash equivalents at end of period $ 18,470,806 $ 25,069,001
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by TriPath Imaging, Inc. ("TriPath" or the "Company") in accordance
with generally accepted accounting principles for interim financial information
and applicable Securities and Exchange Commission regulations for interim
financial information. These financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The balance sheet at December 31, 1999 has
been derived from the audited financial statements at that date, but does not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accompanying
unaudited condensed consolidated financial statements reflect all adjustments
(consisting of normal, recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the results for the interim periods
presented. The results of operations for such periods are not necessarily
indicative of the results expected for the full year or for any future period.
The accompanying financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1999, included in the Company's Annual Report on Form 10-K (File No.
0-22885).
2. MERGER WITH NEOPATH, INC.
On September 30, 1999, AutoCyte, Inc. ("AutoCyte") completed its merger with
NeoPath, Inc. ("NeoPath") in exchange for approximately 13.8 million shares of
AutoCyte common stock. The transaction was structured as a merger (the "Merger")
of a wholly-owned subsidiary of AutoCyte with and into NeoPath. The Merger was a
tax-free reorganization and was accounted for as a pooling of interests in
accordance with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations", and accordingly the Company has restated all historical financial
data to include historical financial data of NeoPath. In conjunction with the
Merger, AutoCyte changed its name to TriPath Imaging, Inc. On December 31, 1999,
NeoPath was merged with and into TriPath. Reconciliation of results of
operations previously reported by the separate entities prior to the Merger and
as restated for the combined Company follows:
THREE MONTHS ENDED
MARCH 31, 1999
------------------
Revenues:
AutoCyte $ 1,162,803
NeoPath 2,025,858
-----------
$ 3,188,661
===========
Net Loss:
AutoCyte $(2,375,244)
NeoPath (5,068,016)
-----------
$(7,443,260)
===========
Net Loss per common share (basic and diluted):
AutoCyte $ (0.09)
NeoPath (0.20)
-----------
$ (0.29)
===========
5
<PAGE> 7
TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. INVENTORY
Inventory consists of the following:
MARCH 31, DECEMBER 31,
2000 1999
-------------------- --------------------
Raw materials $ 2,926,491 $ 2,371,531
Work in process 1,273,047 1,913,914
Finished goods 2,534,758 3,517,462
-------------------- --------------------
$ 6,734,296 $ 7,802,907
==================== ====================
4. NET LOSS PER SHARE OF COMMON STOCK
As the Company incurred losses during all periods presented, the effect of
options, warrants and convertible preferred stock is anti-dilutive and
accordingly, there is no difference between basic and diluted loss per share.
5. TRANSACTION, INTEGRATION AND RESTRUCTURING COSTS
In connection with the Merger, certain expenses of the transaction, costs to
integrate the two organizations, and expenses associated with the restructuring
of the Company's business have been accrued and recorded as an expense. The
following table presents the components of the expense recorded and the amounts
paid through March 31, 2000:
TOTAL EXPENSE PAID TO DATE
------------------- --------------------
Cash Expenses:
Transaction and professional fees $ 2,554,314 $ 1,305,538
Personnel separation costs 1,098,540 646,886
Other costs 553,000 471,772
------------------- --------------------
4,205,854 $ 2,424,196
====================
Non-cash Expenses:
Write-off of assets 4,239,489
-------------------
Total Expenses $ 8,445,343
===================
Transaction costs are comprised of amounts owed to investment bankers and
advisors for services rendered in conjunction with the Merger. Personnel
separation costs reflect severance payments to be made to employees terminated
as a result of the Merger. The non-cash write-off of assets primarily relates to
property and equipment and the core technology acquired from Neuromedical
Systems, Inc. ("NSI") in May 1999 deemed to have become redundant or obsolete as
a result of the Merger. Other costs include integration costs directly related
to the Merger and other costs resulting from actions taken to merge the
operations.
6
<PAGE> 8
TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. LONG TERM DEBT
In February 2000, the Company obtained a subordinated term loan from a syndicate
of lenders of up to $7,000,000 to finance operations. As of March 31, 2000, the
entire $7,000,000 loan was outstanding, including a current portion of
$1,369,982 and a long-term portion of $5,630,018. The loan, which is
collateralized by substantially all of the assets of the Company, accrues
interest at a rate equal to the U.S. Treasury Note plus 8%. Accrued interest is
due monthly for the first six months of each draw, at which time the outstanding
principal balance becomes payable over a thirty month term. In connection with
this term loan, the Company issued to the lenders warrants to purchase 223,253
shares of the Company's Common Stock. Using a Black-Scholes pricing model, these
warrants were valued at $1,725,041, which represents non-cash debt issuance
costs. These warrants, which expire in 2010, were recorded as additional paid-in
capital and the resulting debt issuance costs are being amortized to interest
expense over the three-year term of the loan. These warrants have a weighted
average exercise price of $4.70 and were exercisable upon issuance.
7. LINE OF CREDIT
In February 2000, the Company obtained a $5,000,000 working capital line of
credit. The outstanding balance is limited to an amount equal to 80% of eligible
accounts receivable. The line of credit commitment expires in January 2001. At
March 31, 2000, the outstanding balance on the line of credit was $1,500,000.
This line bears interest at the bank's prime rate plus 1% and is collateralized
by substantially all of the assets of the Company. The line of credit carries
customary covenants, including the maintenance of a minimum modified current
ratio and other requirements.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
TriPath develops, manufactures and markets products to improve cervical cancer
screening. Improved slide preparation technology is delivered through the
AutoCyte PREP System(TM) ("PREP"), a proprietary automated thin-layer cytology
sample preparation system that produces representative slides with a
homogeneous, thin-layer of cervical cells, and is one of only two sample
preparation systems approved by the U.S. Food and Drug Administration ("FDA") as
a replacement for the conventional Pap smear. TriPath also delivers visual
intelligence technology to increase accuracy and productivity in medical testing
through the AutoPap(R) Primary Screening System ("AutoPap"), which utilizes
proprietary technology to distinguish between normal Pap smears and those that
have the highest likelihood of abnormality. In May 1998, AutoPap was approved by
the FDA as the first and only fully automated device for primary screening of
conventional Pap smear slides. On October 6, 1999, TriPath announced submission
of a supplement to the FDA for the screening of PREP slides by the AutoPap.
The supplement is currently under review by the FDA.
TriPath generates PREP revenue from the sale or rental of PREP systems and the
sale of the related test kits, comprised of proprietary reagents and other
disposables. For system sales, customers purchase the PREP instrument and make
separate purchases of test kits. For system rentals, customers pay a fixed
monthly fee for the equipment and make separate purchases of test kits. The
Company also has an Integrated Purchase Option ("IPO") program where the PREP
instrument is placed at the customer's site free of charge, and the customer
pays a higher per-test price for the reagents and disposables. Each PREP system
placed typically provides a recurring revenue stream as the customers process
the test kits sold by the Company.
TriPath generates AutoPap revenue from the sale of AutoPap systems or on a
fee-per-use basis. Fee-per-use revenue commences in the month a system is
initially placed in commercial use at a customer site and consists of per-slide
monthly billings, fixed rental billings, and minimum payments due on certain
fee-per-use contracts.
The Company's strategy is to maximize the number of instruments placed with
customers and thereby increase its ongoing, higher margin reagent and
fee-per-use revenue streams. As an important element of this strategy, the
Company has entered into an agreement with a finance company to support the
placement of PREP rental and IPO systems and AutoPap fee-per-use systems.
TriPath's future revenues and the results of operations may change significantly
from quarter to quarter and will depend on many factors, including:
o the extent to which the Company's products gain market acceptance;
o the timing and volume of system placements;
o regulatory and reimbursement matters;
o introduction of alternative technologies by competitors;
o pricing of competitive products; and
o the cost and effect of promotional discounts and marketing programs we
adopt.
Having received FDA approval to market PREP for gynecological uses, TriPath
expects marketing and sales expenditures to increase significantly. TriPath also
anticipates that manufacturing expenses will increase as product
commercialization increases.
8
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues - Revenues for the first quarter of 2000 were $7.4 million, a 134%
increase over revenues of $3.2 million in the first quarter of 1999. The
increase was primarily due to a $1.6 million increase in PREP revenue and a $1.3
million increase in AutoPap fee-per-use and related revenue. The increase in
PREP revenue was primarily attributable to domestic sales of PREP in the first
quarter of 2000, consisting of both instrument sales and the sale of test kits,
following FDA approval of PREP in late June 1999. The increase in AutoPap
fee-per-use and related revenue is due to an increase in utilization of the
installed base of active fee-per-use AutoPap instruments and the addition of
AutoPap usage contracts with guaranteed minimum payments. The remaining increase
is attributable to international sales of AutoPap instruments. These increases
in revenues from the Company's primary products were partially offset by a
$159,000 decrease in revenues from the Company's other product lines, primarily
Pathology Workstation products.
Gross Margin - Gross margin for the first quarter of 2000 was 50%, an increase
from 38% in the corresponding period of 1999. This increase was primarily
attributable to a greater portion of revenues consisting of higher margin PREP
sales and international AutoPap instrument sales than the corresponding quarter
in 1999.
Research and Development - Research and development expenses include salaries
and benefits of scientific, engineering and regulatory personnel, costs related
to clinical studies and submissions to the FDA, testing equipment, relevant
consulting services and components for prototypes. Research and development
expenses for the first quarter of 2000 were $2.3 million, a 37% reduction from
$3.6 million in the first quarter of 1999. This decrease was primarily
attributable to decreased net development costs on additional AutoPap
applications, and an overall reduction in redundant research and development
efforts that were eliminated as part of the Merger.
Selling, General and Administrative - Selling, general and administrative
expenses include salaries and benefits of sales, marketing, and administrative
personnel, non patent legal expenses and certain facility costs. Selling,
general and administrative expenses for the first quarter of 2000 were $4.1
million, a 22% reduction from $5.3 million in the first quarter of 1999. This
decrease is primarily due to a 37% reduction of personnel and elimination of
other redundant functions and expenses resulting from the Merger.
Interest Income and Expense - Interest income for the first quarter of 2000 was
$200,000, a 45% decrease from $365,000 during the first quarter of 1999,
primarily attributable to the lower average cash balance during 2000. Interest
expense increased 179% from $117,000 in the first quarter of 1999 to $326,000 in
the first quarter of 2000. This increase is due to a higher balance of
outstanding debt in the first quarter of 2000 as compared to the first quarter
of 1999. Also, in connection with the $7,000,000 term debt obtained in the first
quarter of 2000, the Company issued warrants to acquire 223,253 shares of Common
Stock at a weighted average exercise price of $4.70 per share as a commitment
fee. The value of the warrants was recorded as additional paid in capital and is
being amortized to interest expense over the term of the debt. The Company
recognized $112,000 of this commitment fee as a non-cash charge to interest
expense in the first quarter of 2000.
9
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, TriPath had $18.5 million in cash and cash equivalents,
compared with $14.0 million at December 31, 1999. Historically, TriPath's
expenses have significantly exceeded its revenues, resulting in an accumulated
deficit of $170.1 million as of March 31, 2000. TriPath has funded its
operations primarily through the private placement and public sale of equity
securities, and through debt facilities and product revenues.
Cash used in operations was $2.9 million during the three months ended March 31,
2000 and $10.0 million during the corresponding period of 1999. Negative
operating cash flow during both periods was caused primarily by operating
losses. Capital expenditures were $50,000 during the three months ended March
31, 2000 and $306,000 during the corresponding period of 1999. TriPath has no
material commitments for capital expenditures.
TriPath believes that its existing cash and existing debt and lease financing
for internal use assets, rental and IPO placements of PREP and fee-per-use
placements of AutoPap will be sufficient to enable it to meet its future cash
obligations at least through 2000. TriPath's future liquidity and capital
requirements will depend upon numerous factors, including
o the level of placements of PREP systems and AutoPap systems;
o the resources required to further develop TriPath's marketing and sales
capabilities domestically and internationally; and
o the resources required to expand manufacturing capacity and the extent
to which the Company's products generate market acceptance and demand.
In particular, TriPath anticipates that marketing and sales expenditures for the
PREP market launch for gynecological uses in the United States and expenditures
related to manufacturing and other administrative costs will increase
significantly. TriPath cannot guarantee that it will not require additional
financing or will not in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when TriPath needs it or on terms TriPath finds
acceptable. TriPath's failure to obtain funding would have a material adverse
effect on its business, financial condition and results of operations.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
This report contains forward looking statements which are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company's operating results and financial condition have varied and may in the
future vary significantly depending on a number of factors. The statements
contained in this report which are not strictly historical information,
including, without limitation, statements regarding the receipt of regulatory
approvals, implementation of the Company's full-scale marketing and sales
activities, management's plans and objectives for future operations, product
plans and performance, management's assessment of market factors, as well as
statements regarding the strategy and plans of the Company, constitute forward
looking statements which involve risks and uncertainties. The following factors,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. These factors include the risk of
loss of the Cytyc infringement lawsuit, the Company's early stage of
development, uncertainties regarding product regulatory clearance, FDA approval
of and reimbursement for the use of AutoPap with PREP, the ability to attain or
maintain required compliance with regulations governing manufacturing of medical
diagnostic devices, uncertainty of market acceptance of the Company's principal
products, competition
10
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and technological change, history of operating losses, accumulated deficit and
uncertainty of future profitability, dependence on a limited number of products,
the possibility of future capital needs and the uncertainty of availability of
additional financing, dependence on patents, copyrights, licenses and
proprietary rights, risk of third-party claims of infringement, dependence on
third-party reimbursement, international sales and operations risks, limited
marketing and sales resources, risk associated with product liability claims,
limited number of potential customers, limited manufacturing experience,
dependence on single or limited-source suppliers, and ability to retain key
personnel. Such factors, among others, are described in greater detail in
Exhibit 99.1 to the Company's Annual Report on Form 10-K (File No. 0-22885)
under the heading "Important Factors Regarding Forward-Looking Statements."
These factors may have a material adverse effect upon the Company's business,
results of operations and financial conditions. Because of these and other
factors, past financial performance should not be considered an indication of
future performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TriPath's financial results and cash flows are subject to fluctuation due to
changes in interest rates primarily from its investment of available cash
balances in highly rated institutions. TriPath maintains a short-term investment
portfolio consisting of highly liquid investments with maturities of three
months or less, classified as cash equivalents. TriPath's current policies do
not allow it to use interest rate derivative instruments to manage exposure to
interest rate changes. TriPath does not expect its operating results, cash
flows, or securities available-for-sale to be affected to any significant degree
by a sudden change in market interest rates.
11
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 13, 1999, Cytyc Corporation filed suit against TriPath in the
United States District Court for the District of Delaware. The complaint alleges
that the Company's CytoRich(R) proprietary preservative fluid infringes Cytyc's
patent titled "Cell Preservative Solution." The complaint seeks a determination
that TriPath is infringing Cytyc's patent and an injunction preliminarily and
permanently enjoining and restraining TriPath from further infringing Cytyc's
patent. The complaint also seeks treble damages, plus interest, in an amount to
be determined, as well as costs and reasonable attorneys fees. On October 18,
1999, TriPath filed its response denying Cytyc's claims. On December 6, 1999,
the Company demanded Cytyc withdraw its motion for preliminary injunction. On
December 7, 1999, Cytyc complied with this request and withdrew their motion for
preliminary injunction. On March 10, 2000, the Company filed a motion for
summary judgement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. See exhibit index on page 15.
(b) Reports on Form 8-K. None.
12
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TRIPATH IMAGING, INC.
FORM 10-Q
MARCH 31, 2000
SIGNATURE
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.
TRIPATH IMAGING, INC.
DATE: May 15, 2000 BY: /s/ James D. Everhart
--------------------------------
James D. Everhart
Duly Authorized Officer and
Principal Financial Officer
13
<PAGE> 15
EXHIBIT INDEX
Number Description
- ------ -----------
10.1 Loan and Security Agreement dated as of January 19, 2000 by and between
MMC/GATX Partnership No. I, Transamerica Business Credit Corporation
and TriPath Imaging, Inc. Filed herewith.
10.2 Loan and Security Agreement dated as of January 31, 2000 by and between
Silicon Valley Bank and TriPath Imaging, Inc. Filed herewith.
27 Financial Data Schedule (for EDGAR filing purposes only). Filed
herewith.
- --------------------------------------------------------------------------------
14
<PAGE> 1
LOAN AND SECURITY AGREEMENT
Dated as of January 19, 2000
among
MMC/GATX PARTNERSHIP NO. I
and
TRANSAMERICA BUSINESS CREDIT CORPORATION
as Lenders
and
TRIPATH IMAGING, INC.
a Delaware corporation
780 Plantation Drive
Burlington, NC 27215
as Borrower
CREDIT AMOUNT: $7,000,000
<TABLE>
<CAPTION>
<S> <C> <C>
Commitments: MMC/GATX Partnership No. I: $3,500,000
Transamerica Business Credit Corporation: $3,500,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Repayment Period: 36 months
Treasury Note Maturity: 36 months
Loan Margin: 800 basis points
Commitment Termination Date: May 31, 2000
</TABLE>
The defined terms and information set forth on this cover page are a
part of the LOAN AND SECURITY AGREEMENT, dated as of the date first written
above (this "Agreement"), entered into by and among MMC/GATX PARTNERSHIP NO. I
("MMC/GATX") and TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") (MMC/GATX and
TBCC are each individually a "Lender" and collectively, "Lenders") and the
borrower ("Borrower") set forth above. The terms and conditions of this
Agreement agreed to between Lenders and Borrower are as follows:
<PAGE> 2
ARTICLE I
INTERPRETATION
1.01. Certain Definitions. Unless otherwise indicated in this Agreement
or any other Operative Document, the following terms, when used in this
Agreement or any other Operative Document, shall have the following respective
meanings:
"Applicable Premium" shall mean an amount equal to the greater of (i)
zero and (ii) the excess of (x) the sum of the present values, at the date of
prepayment of the amount of each remaining scheduled payment of interest on and
principal on a Loan, or portion of such payment, which will not be required to
be made as a result of such prepayment (each such payment an "Amount Payable")
(each such Amount Payable discounted separately at the Treasury Rate, determined
on the date three (3) Business Days before the date of prepayment, compounded
monthly, from the date such Amount Payable would be due), over (y) the principal
amount of such Note to be prepaid. The "Treasury Rate" shall be the yield (as
quoted in The Wall Street Journal on the date which is three (3) Business Days
prior to the date of prepayment) on U.S. Treasury securities adjusted to a
constant maturity equal to the then remaining number of full months to maturity
of the applicable Note.
"Borrower's Home State" shall mean North Carolina, the state in which
Borrower's principal place of business is located.
"Business Day" shall mean any day other than a Saturday, Sunday or
public holiday under the laws of California, Illinois or Borrower's Home State
or other day on which banking institutions are authorized or obligated to close
in California, Illinois or Borrower's Home State.
"Claim" has the meaning given to that term in Section 10.03.
"Collateral" has the meaning given to that term in Section 5.01.
"Commitment" means, with respect to each Lender, the amount set forth
following such term on the cover page of this Agreement and "Commitments" means
all such amounts collectively.
"Commitment Fee" has the meaning given to that term in Section 2.04.
"Commitment Termination Date" shall mean the date specified on the
cover page of this Agreement.
"Credit Amount" shall mean the maximum aggregate amount of the Loans
under this Agreement (if the conditions specified in Schedule 3 are satisfied),
which amount is set forth following such term on the cover page of this
Agreement.
"Default" shall mean any event which with the passing of time or the
giving of notice or both would become an Event of Default hereunder.
"Default Rate" shall mean the per annum rate of interest equal to the
higher of (i) 18% or (ii) the Prime Rate plus 6%, but such rate shall in no
event be more than the highest rate permitted by applicable law.
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"Disclosure Schedule" has the meaning set forth in the definition of
the term "Permitted Indebtedness."
"Environmental Law" shall mean the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, and any other federal, state or local statute, law, ordinance,
code, rule, regulation, order or decree (in each case having the force of law)
regulating or imposing liability or standards of conduct concerning any
Hazardous Material, as now or at any time hereafter in effect.
"Equity Securities" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
"Event of Default" has the meaning given to that term in Section 9.01.
"Funding Date" shall mean a date on which a Loan is made to or on
account of Borrower under this Agreement.
"GAAP" shall mean generally accepted accounting principles and
practices as in effect in the United States of America from time to time,
consistently applied.
"Hazardous Material" means any hazardous, dangerous or toxic
constituent material, pollutant, waste or other substance, whether solid, liquid
or gaseous, which is regulated by any federal, state or local governmental
authority.
"Indebtedness" shall mean, with respect to Borrower or any Subsidiary,
the aggregate amount of, without duplication, (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (excluding
trade payables aged less than 180 days), (d) all capital lease obligations of
such Person, (e) all obligations or liabilities of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed, (f) all obligations or liabilities of others guaranteed by such Person;
and (g) any other obligations or liabilities which are required by GAAP to be
shown as debt on the balance sheet of such Person. Unless otherwise indicated,
the term "Indebtedness" shall include all Indebtedness of Borrower and the
Subsidiaries.
"Intellectual Property" shall mean all of Borrower's right, title and
interest in and to patents, patent rights (and applications and registrations
therefor), trademarks and service marks (and applications and registrations
therefor), inventions, copyrights, mask works (and applications and
registrations therefor), trade names, trade styles, software and computer
programs, trade secrets, methods, processes, know how, drawings, specifications,
descriptions, and all memoranda, notes, and records with respect to any research
and development, all whether now owned or subsequently acquired or developed by
Borrower and whether in tangible or intangible form or contained on magnetic
media readable by machine together with all such magnetic media.
"Interim Interest" has the meaning given to that term in Section
2.01(c).
"Investment" shall mean the purchase or acquisition of any capital
stock, equity interest, or any obligations or other securities of, or any
interest in, any Person, or the extension of any advance, loan, extension of
credit or capital contribution to, or any other investment in, any Person.
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"Lien" shall mean any pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.
"Loan" means a Loan advanced by a Lender to Borrower under this
Agreement according to the Commitment of such Lender.
"Loan Margin" shall mean the number of basis points set forth following
such term on the cover page of this Agreement.
"Loan Rate" shall mean, with respect to each Loan, the per annum rate
of interest (based on a year of twelve 30-day months) equal to the sum of (a)
the U.S. Treasury note rate of a term equal to the Treasury Note Maturity as
quoted in The Wall Street Journal on the date the Note with respect to each Loan
is prepared, plus (b) the Loan Margin.
"Note" shall mean one of the secured promissory notes of Borrower
substantially in the form of Exhibit A-1 or Exhibit A-2.
"Obligations" has the meaning given to that term in Section 5.01.
"Operative Documents" shall mean this Agreement, the Notes and the
Warrants and all other documents, instruments and agreements executed and
delivered in connection herewith or therewith or in respect of the closing of
the transactions contemplated hereby or thereby.
"Payment Date" has the meaning given to that term in the applicable
Note.
"Permitted Indebtedness" shall mean and include:
(a) Indebtedness of Borrower to Lenders;
(b) Indebtedness of Borrower secured by Liens permitted
under clause (e) of the definition of Permitted
Liens;
(c) Indebtedness arising from the endorsement of
instruments in the ordinary course of business;
(d) Indebtedness existing on the date hereof and set
forth on the disclosure schedule attached hereto as
Schedule 2 ("Disclosure Schedule");
(e) Indebtedness in an aggregate principal amount not
exceeding $5,000,000, consisting of: (1) a revolving
credit facility provided by Silicon Valley Bank in
which the loans are limited to less than 100% of
Borrower's outstanding accounts receivable, and (2)
the Non-Recourse Receivables Purchase Agreement dated
as of January 10, 2000 (the "Bank Factoring
Facility") between Silicon Valley Bank and Borrower
for the purchase of up to $2,000,000 of "Purchased
Receivables" (as defined thereunder); and
(f) Subordinated Indebtedness.
"Permitted Investments" shall mean and include:
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(a) Deposits with commercial banks organized under the
laws of the United States or a state thereof to the
extent such deposits are fully insured by the Federal
Deposit Insurance Corporation;
(b) Investments in marketable obligations issued or fully
guaranteed by the United States and maturing not more
than one (1) year from the date of issuance; and
(c) Investments in open market commercial paper rated at
least "A1" or "P1" or higher by a national credit
rating agency and maturing not more than one (1) year
from the creation thereof.
(d) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into
in the ordinary course of business;
(e) Investments consisting of deposit accounts of
Borrower in which Lenders have a perfected security
interest;
(f) Other Investments aggregating not in excess of Two
Hundred Fifty Thousand Dollars ($250,000) at any
time;
(g) Investments Borrower now has as listed on the
Disclosure Schedule; and
(h) Investments acquired solely by issuance of Borrower's
Equity Securities and which do not result in the
incurrence or payment of Indebtedness.
"Permitted Liens" shall mean (a) the Lien created by this Agreement,
(b) Liens for fees, taxes, levies, imposts, duties or other governmental charges
of any kind which are not yet delinquent or which are being contested in good
faith by appropriate proceedings which suspend the collection thereof (provided,
however, that such proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any item of equipment and that Borrower has
adequately bonded such Lien or reserves sufficient to discharge such Lien have
been provided on the books of Borrower), (c) Liens identified on the Disclosure
Schedule, (d) Liens to secure payment of worker's compensation, employment
insurance, old age pensions or other social security obligations of Borrower in
the ordinary course of business of Borrower, (e) Liens upon any equipment or
other personal property acquired by Borrower after the date hereof to secure (i)
the purchase price of such equipment or other personal property or (ii) lease
obligations or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment or other personal property; provided that (A) such
Liens are confined solely to the equipment or other personal property so
acquired and the amount secured does not exceed the acquisition price thereof,
and (B) no such Lien shall be created, incurred, assumed or suffered to exist in
favor of Borrower's officers, directors or shareholders holding five percent
(5%) or more of Borrower's Equity Securities, (f) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business which are not delinquent or remain
payable without penalty or which are being contested in good faith and by
appropriate proceedings; (g) non-exclusive licenses of Intellectual Property
entered into in the ordinary course of business and non-exclusive licenses,
Liens or similar arrangements entered into in connection with joint ventures and
corporate collaborations in the ordinary course of business; and (h) Liens
securing Indebtedness permitted under clause (e) of the definition of Permitted
Indebtedness.
"Person" shall mean and include an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited liability
company, an unincorporated association or other entity and any domestic
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or foreign national, state or local government, any political subdivision
thereof, and any department, agency, authority or bureau of any of the
foregoing.
"Prime Rate" shall mean the interest rate per annum specified in the
"Money Rates" column of The Wall Street Journal, but such rate shall in no event
be more than the highest interest rate permitted by applicable law.
"Subordinated Indebtedness" shall mean Indebtedness subordinated to the
Obligations on terms and conditions acceptable to Lenders in their sole
discretion.
"Subsidiary" shall mean any corporation of which a majority of the
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly or
indirectly through Subsidiaries.
"Term" shall mean the period from and after the date hereof until the
payment or satisfaction in full of all Obligations under this Agreement and the
other Operative Documents.
"Treasury Note Maturity" shall mean the period of months set forth
following such term on the cover page of this Agreement.
"Warrants" shall mean separate warrants to be issued at the direction
of the Lenders to purchase securities of Borrower substantially in the form of
Exhibit B.
1.02. Headings. Headings in this Agreement and each of the other
Operative Documents are for convenience of reference only and are not part of
the substance hereof or thereof.
1.03. Plural Terms. All terms defined in this Agreement or any other
Operative Document in the singular form shall have comparable meanings when used
in the plural form and vice versa.
1.04. Construction. This Agreement is the result of negotiations among,
and has been reviewed by, Borrower and Lenders and their respective counsel.
Accordingly, this Agreement shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against Borrower or
Lenders.
1.05. Entire Agreement. This Agreement, together with the terms set
forth in each of the other Operative Documents, taken together, constitute and,
contain the entire agreement of Borrower and Lenders and, with regard to their
respective subject matters, supersede any and all prior agreements, term sheets,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, with respect to their respective subject
matters. Borrower acknowledges that it is not relying on any representation or
agreement made by any Lender or any employee, agent or attorney of any Lenders,
other than the specific agreements set forth in this Agreement and the Operative
Documents.
1.06. Other Interpretive Provisions. References in this Agreement to
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to articles,
sections, exhibits, schedules and annexes herein and hereto unless otherwise
indicated. References in this Agreement and each of the other Operative
Documents to any document, instrument or agreement shall include (a) all
exhibits, schedules, annexes and other attachments thereto, (b) all documents,
instruments or agreements issued or executed in replacement thereof, and (c)
such document, instrument or agreement, or replacement or predecessor thereto,
as amended, modified and supplemented from time to time and in effect at any
given time. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement or any other Operative Document
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shall refer to this Agreement or such other Operative Document, as the case may
be, as a whole and not to any particular provision of this Agreement or such
other Operative Document, as the case may be. The words "include" and
"including" and words of similar import when used in this Agreement or any other
Operative Document shall not be construed to be limiting or exclusive. Unless
otherwise indicated in this Agreement or any other Operative Document, all
accounting terms used in this Agreement or any other Operative Document shall be
construed, and all accounting and financial computations hereunder or thereunder
shall be computed, in accordance with GAAP.
ARTICLE II
THE CREDIT
2.01. Credit Facility.
(a) The Credit Amount. Subject to the terms and conditions of
this Agreement and relying upon the representations and warranties herein set
forth as and when made or deemed to be made, each Lender severally agrees to
lend to Borrower a Loan in the amount of such Lender's Commitment. No Lender
shall be required to make a Loan in an amount in excess of its Commitment. The
Loans may be prepaid only as set forth in Section 2.01(d).
Facility A:
MMC/GATX shall make one Loan in the amount of $3,500,000 on or before
January 31, 2000.
Facility B:
TBCC shall make one Loan in the amount of $1,750,000 on or before
January 31,2000.
Facility C:
TBCC shall make one Loan in the amount of $1,750,000 upon the
satisfaction of the conditions set forth in Section 8.03.
(b) Interest Rates. Borrower shall pay interest on the unpaid
principal amount of each Loan from the date of such Loan until such Loan is paid
in full, at a per annum rate of interest equal to the Loan Rate for such Loan
determined in accordance with the definition of Loan Rate. The Loan Rate
applicable to a Loan shall not be subject to change in the absence of manifest
error. All computations of interest on a Loan shall be based on a year of twelve
30-day months. If Borrower pays interest on a Loan which is determined to be in
excess of the then legal maximum rate, then that portion of each interest
payment representing an amount in excess of the then legal maximum rate shall be
deemed a payment of principal and applied against the principal of such Loan.
(c) Payments of Principal and Interest. Borrower shall make
payments of accrued interest only on the outstanding principal amount of each
Loan on the first six Payment Dates specified in each Lender's Note and thirty
(30) equal payments of principal equal to 3.333% of the Loan Amount, plus
accrued interest on the outstanding principal amount of such Lender's Loan on
each subsequent Payment Date as set forth in such Lender's Note. If the Funding
Date is not the first day of a month, Borrower shall pay the interim interest
accruing between the Funding Date and the next first day of the month ("Interim
Interest") on the Funding Date.
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(d) Optional Prepayment with Premium. Upon ten (10) Business
Days' prior written notice to Lenders, Borrower may, at its option, at any time,
prepay all, and not less than all, of the Loans in full at a prepayment price
equal to the principal amount of each Loan, plus interest accrued on each Loan
through and including the date of such prepayment, plus a premium on each Loan
equal to the Applicable Premium. If an Event of Default occurs and is
continuing, and the Lenders exercise their right under Section 9.02 to
accelerate the Loans or the Loans are automatically accelerated, Borrower
expressly agrees that the amount then due and payable shall include the
Applicable Premium as of the date of such acceleration.
2.02. Use of Proceeds; the Loan and the Notes; Disbursement.
(a) Use of Proceeds. The proceeds of the Loans shall be used
solely for working capital or general corporate purposes of Borrower.
(b) The Loans and the Notes. The obligation of Borrower to
repay the unpaid principal amount of and interest on each Lender's Loan shall be
evidenced by a Note issued to each Lender and each Lender is authorized to
endorse on a grid annexed to its Note appropriate notations regarding payments
made on the Note; provided, however, that the failure to make, or an error in
making, any such notation shall not limit or otherwise affect the obligations of
Borrower hereunder or thereunder.
(c) Disbursement. Each Lender shall disburse its Loan by wire
transfer to Borrower unless otherwise directed in writing by Borrower.
Borrower's wire transfer instructions are: TriPath Imaging, Inc., Account No.
1445003001, Wachovia Bank & Trust, Winston-Salem, North Carolina, USA, ABA #
053100494, SWIFT-WACH US3W. Notwithstanding anything stated herein to the
contrary, no Lender shall have any obligation to advance funds on behalf of the
another Lender.
(d) Termination of Commitment to Lend. Notwithstanding
anything to the contrary in the Operative Documents, Lenders' obligations to
advance the Loans hereunder shall terminate on the earlier of (i) the occurrence
of any Event of Default hereunder and (ii) the Commitment Termination Date.
2.03. Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to
Lenders in lawful money of the United States, in immediately available funds, at
the address for payments and in the manner specified in Section 10.05(b).
(b) Date. Whenever any payment due hereunder shall fall due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
(c) Default Rate. If either (i) any amounts required to be
paid by Borrower under this Agreement or the other Operative Documents
(including principal or interest payable on the Loan, any fees or other amounts)
remain unpaid after such amounts are due, or (ii) an Event of Default has
occurred and is continuing, Borrower shall pay interest on the outstanding
principal balance hereunder from the date due or from the date of the Event of
Default, as applicable, until such past due amounts are paid in full or until
all Events of Defaults are cured, as applicable, at a per annum rate equal to
the Default Rate, such rate to change from time to time as the Prime Rate shall
change. All computations of such interest at the Default Rate shall be based on
a year of 360 days and twelve 30-day months.
2.04. Commitment Fee. Borrower has paid a Commitment Fee in the
aggregate amount of $25,000 (the "Commitment Fee"). Any portion of the
Commitment Fee not utilized to pay Lenders' expenses in connection with due
diligence or the negotiation, documentation and funding of the Loans will be
applied
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pro rata to the first principal amounts due under the Notes for Facility A and
Facility B following the determination of Lenders' expenses. If the Loans under
Facility A and Facility B are not made, any remaining balance of the Commitment
Fee shall be retained by and divided among the Lenders as they shall determine.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01. Representations and Warranties. Except as set forth in the
Disclosure Schedule, Borrower makes the following representations and warranties
to Lenders as of the date hereof and again on the Funding Date:
(a) Organization and Qualification. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation and is duly qualified to do business in Borrower's Home
State. Borrower has no Subsidiaries.
(b) Authority. Borrower has all necessary corporate power,
authority and legal right and has obtained all approvals and consents and has
given all notices necessary to execute and deliver this Agreement and the other
Operative Documents and to perform the terms hereof and thereof. Borrower has
all requisite corporate power and authority to own and operate its properties
and to carry on its businesses as now conducted.
(c) Conflict with Other Instruments, etc. Neither the
execution and delivery of any Operative Document to which Borrower is a party
nor the consummation of the transactions therein contemplated nor compliance
with the terms, conditions and provisions thereof will conflict with or result
in a breach of any of the terms, conditions or provisions of the charter or the
bylaws of Borrower or, to its knowledge, any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or
any of its properties is bound or to which it or any of its properties is
subject, or constitute a default thereunder or result in the creation or
imposition of any Lien, other than Permitted Liens.
(d) Properties. Except as disclosed in the Disclosure
Schedule, Borrower has good and marketable title to the Collateral, free and
clear of all Liens, other than Permitted Liens. Borrower has good title and
ownership of, or is licensed under, all of Borrower's current Intellectual
Property, with no known infringement of the rights of others. Borrower has not
received any communications alleging that Borrower has violated, or by
conducting its business as proposed, would violate any proprietary rights of any
other Person. Borrower has no knowledge of any infringement or violation by it
of the intellectual property rights of any third party and has no knowledge of
any violation or infringement by a third party of any of its Intellectual
Property. The Collateral and the Intellectual Property constitute substantially
all of the assets and property of Borrower.
(e) Authorization, Governmental Approvals, etc. The execution
and delivery by Borrower of each Operative Document, the granting of the
security interest in the Collateral, the issuance of the Warrants, the issuance
of the securities into which the Warrants are exercisable, and the performance
of the obligations herein and therein contemplated have each been duly
authorized by all necessary action on the part of Borrower. No authorization,
consent, approval, license or exemption of, and no registration, qualification,
designation, declaration or filing with, or notice to, any Person is, was or
will be necessary to (i) the valid execution and delivery of any Operative
Document to which Borrower is a party, (ii) the
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performance of Borrower's obligations under any Operative Document, or (iii) the
granting of the security interest in the Collateral, except for filings in
connection with the perfection of the security interest in any of the Collateral
or the issuance of the Warrants. The Operative Documents have been or will be
duly executed and delivered and constitute or will constitute legal, valid and
binding obligations of Borrower, enforceable in accordance with their respective
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws of general application relating to or affecting
the enforcement of creditors' rights or by general principles of equity.
(f) Litigation. Except as disclosed in the Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of Borrower, threatened against or affecting Borrower, or the
business or any property or asset owned by it, before any court or governmental
department, agency or instrumentality which, if adversely determined, could
reasonably be expected to have a material adverse effect on the financial
condition, business or operations of Borrower.
(g) Security Interest. Assuming the proper filing of one or
more financing statement(s) identifying the Collateral with the proper state
and/or local authorities, the security interests in the Collateral granted to
Lenders pursuant to this Agreement (i) constitute and will continue to
constitute security interests ranking second in priority only to the Liens
securing the Indebtedness permitted under clause (e) of the definition of
Permitted Indebtedness (except to the extent any other Permitted Lien may create
any priority to Lenders' Lien under this Agreement) and (ii) are and will
continue to be superior and prior to the rights in the Collateral of all other
creditors of Borrower (except to the extent of such Permitted Liens). Except as
set forth in the Disclosure Schedule, Borrower does not own any right, title or
interest in or to any real property (other than leasehold interests), motor
vehicles, promissory notes or other property (excluding Intellectual Property)
with respect to which a security interest must be perfected by a method other
than the filing of a UCC-1 financing statement. All of Borrower's federally
registered patents, trademarks and/or copyrights have been accurately disclosed
in the documents referred to in item (i) of Part I of Schedule 3 hereto.
(h) Executive Offices. The principal place of business and
chief executive office of Borrower, and the office where Borrower will keep all
records and files regarding the Collateral, is set forth on the cover page of
this Agreement.
(i) Solvency, Etc. Borrower is Solvent (as defined below) and,
after the execution and delivery of the Operative Documents and the consummation
of the transactions contemplated thereby, Borrower will be Solvent. "Solvent"
shall mean, with respect to any Person on any date, that on such date (a) the
fair value of the property of such Person is greater than the fair value of the
liabilities (including, without limitation, contingent liabilities) of such
Person, (b) the present fair saleable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's property would
constitute an unreasonably small capital.
(j) Catastrophic Events; Labor Disputes. None of Borrower or
its properties is or has been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty that could reasonably be expected to have a material
adverse effect on the financial condition, business or operations of Borrower.
There are no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements, employment
contracts or employee welfare or incentive plans to which Borrower is a party,
and there are no strikes, lockouts, work stoppages or slowdowns, or, to the
knowledge of Borrower, jurisdictional
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disputes or organizing activity occurring or threatened which could reasonably
be expected to have a material adverse effect on the financial condition,
business or operations of Borrower.
(k) No Material Adverse Effect. No event has occurred and no
condition exists which could reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower since
September 30, 1999.
(l) Accuracy of Information Furnished. None of the Operative
Documents and none of the other certificates, statements or information
furnished to Lenders by or on behalf of Borrower in connection with the
Operative Documents or the transactions contemplated thereby contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Lenders recognize that
all financial projections furnished to Lenders by or on behalf of Borrower in
connection with the Operative Documents or the transactions contemplated thereby
are not to be viewed as facts and that actual results during the period or
periods covered by such projections may differ from the projected or forecasted
results.
(m) Certain Agreements of Officers, Employees and Consultants.
(i) To the knowledge of Borrower, no officer,
employee or consultant of Borrower is, or is now expected to be, in violation of
any term of any employment contract, proprietary information agreement,
nondisclosure agreement, noncompetition agreement, or any other material
contract or agreement or any restrictive covenant relating to the right of any
such officer, employee or consultant to be employed by Borrower because of the
nature of the business conducted or to be conducted by Borrower or relating to
the use of trade secrets or proprietary information of others, and to Borrower's
knowledge, the continued employment of Borrower's officers, employees and
consultants does not subject Borrower to any material liability for any claim or
claims arising out of or in connection with any such contract, agreement, or
covenant.
(ii) To the knowledge of Borrower, no officers of
Borrower, and no employee or consultant of Borrower whose termination, either
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the financial condition, business or operations of
Borrower, has any present intention of terminating his or her employment or
consulting relationship with Borrower.
ARTICLE IV
REPORTING REQUIREMENTS
4.01. Furnishing Reports. Borrower shall furnish to Lenders:
(a) Financial Statements. (i) At the time of filing of
Borrower's Form 10-K with the Securities and Exchange Commission after the end
of each fiscal year of Borrower, the financial statements of Borrower filed with
such Form 10-K; (ii) at the time of filing of Borrower's Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three
fiscal quarters of Borrower, the financial statements of Borrower filed with
such Form 10-Q; and (iii) and such other financial information as Lenders may
reasonably request from time to time.
(b) Notice of Defaults. As soon as possible, and in any event
within five (5) Business Days after the discovery of a Default or Event of
Default provide Lenders with an officer's certificate of
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Borrower setting forth the facts relating to or giving rise to such Default or
Event of Default and the action which Borrower proposes to take with respect
thereto.
(c) Litigation Reporting. Quarterly written updates or at such
other times as Lenders may reasonably request, information and documentation
with respect to the progress of any patent litigation affecting the Borrower's
Intellectual Property, including the litigation involving Cytyc Corporation
(collectively, "Intellectual Property Litigation"). As soon as possible, and in
any event within two (2) Business Days thereafter, notification of significant
rulings and major developments which could affect the outcome of Intellectual
Property Litigation. Borrower shall continue to provide assistance to Lenders in
connection with inquiries regarding Intellectual Property Litigation.
(d) Miscellaneous. Such other information as Lenders may
reasonably request from time to time.
ARTICLE V
GRANT OF SECURITY INTEREST
GENERAL PROVISIONS CONCERNING SECURITY
5.01. Grant of Security Interest. Borrower, in order to secure the
payment of the principal and interest with respect to the Loans made pursuant to
this Agreement, all other sums due under and in respect hereof and of the other
Operative Documents, including fees, charges, expenses and attorneys' fees and
costs and the performance and observance by Borrower of all other terms,
conditions, covenants and agreements herein and in the other Operative Documents
(all such amounts and obligations being herein sometimes called the
"Obligations"), does hereby grant to Lenders and their successors and assigns, a
security interest in and to the following property (collectively, the
"Collateral"): All right, title, interest, claims and demands of Borrower in and
to:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer equipment,
office equipment, machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles (including
Intellectual Property), now owned or hereafter acquired, including, without
limitation, goodwill, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer disks, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kind;
(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 (subject, in each case, to the
contractual
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rights of third parties to require funds received by Borrower to be
expended in a particular manner), 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;
(e) All documents, cash, deposit accounts, letters of credit,
certificates of deposit, instruments, chattel paper and investment property,
including, without limitation, all securities, whether certificated or
uncertificated, security entitlements, securities accounts, commodity contracts
and commodity accounts, and all financial assets held in any securities account
or otherwise, wherever located, now owned or hereafter acquired and Borrower's
books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the
above and all substitutions for, additions and accessions to and proceeds
thereof, including, without limitation, insurance, condemnation, requisition or
similar payments and proceeds of the sale or licensing of Intellectual Property.
5.02. Duration of Security Interest. Lenders' security interest in the
Collateral shall continue until the payment in full and the satisfaction of all
Obligations, whereupon such security interest shall terminate. Lenders, upon
payment in full and the satisfaction of the Obligations, shall execute such
further documents and take such further actions as may be necessary to effect
the release and/or termination contemplated by this Section 5.02, including duly
executing and delivering termination statements for filing in all relevant
jurisdictions.
5.03. Possession of Collateral. So long as no Event of Default has
occurred and is continuing, Borrower shall remain in full possession, enjoyment
and control of the Collateral (except only as may be otherwise required by
Lenders for perfection of its security interest therein) and to manage, operate
and use the same and each part thereof with the rights and franchises
appertaining thereto; provided, however, that the possession, enjoyment, control
and use of the Collateral shall at all times be subject to the observance and
performance of the terms of this Agreement.
5.04. Location of Collateral. Except as disclosed in the Disclosure
Schedule, the Collateral is and shall remain in the possession of Borrower at
Borrower's address stated on the cover page of this Agreement.
5.05. Lien Subordination. Lenders agree that the Liens granted to them
in Collateral hereunder shall be subordinate to the Liens granted in connection
with Indebtedness permitted by clause (e) of the definition of Permitted
Indebtedness. Lenders agree that the Liens granted to it hereunder in Third
Party Equipment (as defined below) shall be subordinate to the Liens of (i)
existing and future lenders providing equipment financing and equipment lessors;
provided, that such Liens are confined solely to the equipment so financed and
the proceeds thereof ("Third Party Equipment"); and provided, further, that the
Obligations hereunder shall not be subordinate in right of payment to any
obligations to any other lender, equipment lender or equipment lessors and
Lenders' rights and remedies hereunder shall not in any way be subordinate to
the rights and remedies of any such lender or equipment lessors. Lenders agree
to execute and deliver such agreements and documents as may be reasonably
requested by Borrower from time to time which set forth the lien subordination
described in this Section 5.05 and are reasonably acceptable to Lenders. Lenders
shall have no obligation to execute any agreement or document which would impose
obligations, restrictions or lien priority on Lenders which are less favorable
to Lenders than those described in this Section 5.05.
5.06 Intellectual Property. (a) Within 30 days of the date of this
Agreement, Borrower shall register or cause to be registered with the United
States Copyright Office (i) any software (material to the business of Borrower)
developed or
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acquired by Borrower in connection with any product developed or acquired for
sale or licensing. (b) While any Obligations remain outstanding, Borrower shall
register or cause to be registered with the United States Copyright Office (i)
any software (material to the business of Borrower) developed or acquired by
Borrower hereafter from time to time in connection with any product developed or
acquired for sale or licensing and (ii) any major revisions or upgrades to any
software that has previously been registered with the United States Copyright
Office. Borrower shall file for registration within 30 days from the development
or acquisition of such software, major revision or upgrade.
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01. Affirmative Covenants.
(a) Payment of Taxes, etc. Borrower shall pay and discharge
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and all lawful claims which, if unpaid,
might become a Lien upon any of its properties; provided that there shall be no
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize any
Collateral or (ii) for which payment in full is bonded or reserved in Borrower's
financial statements.
(b) Inspection Rights. Borrower shall, at any reasonable time
and from time to time, permit Lenders or any of their agents or representatives
to inspect the Collateral, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, Borrower and to
discuss the affairs, finances and accounts of Borrower with any of its officers
or directors relating in each case to Lenders' capacity as lenders and secured
party hereunder and with respect to the Collateral.
(c) Maintenance of Equipment and Similar Assets. Borrower
shall keep and maintain all items of equipment and other similar types of
personal property that form any significant portion or portions of the
Collateral in good operating condition and repair and shall make all necessary
replacements thereof and renewals thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved. Borrower
shall not permit any such material item of Collateral to become a fixture to
real estate or an accession to other personal property, without the prior
written consent of Lenders. Borrower shall not permit any such material item of
Collateral to be operated or maintained in violation of any applicable law,
statute, rule or regulation. With respect to items of leased equipment (to the
extent Lenders have any security interest in any residual Borrower's interest in
such equipment under the lease), Borrower shall keep, maintain, repair, replace
and operate such leased equipment in accordance with the terms of the applicable
lease.
(d) Insurance. Borrower shall, obtain and maintain, at its own
expense, insurance of a type and with such limits as are carried by similarly
situated companies, including at a minimum:
(i) "All risk" insurance against loss or damage to
the Collateral. The coverage limit shall be determined to Lenders' reasonable
satisfaction. The deductible shall not exceed $25,000. The policy shall name
Lenders as loss payees with respect to the Equipment, shall not be invalidated
by any action of or breach of warranty by Borrower of any provision thereof and
waive subrogation against Lenders.
(ii) Commercial general liability insurance
(including contractual liability, products liability and completed operations
coverages) reasonably satisfactory to Lenders. The limit of liability shall be
at least $5,000,000 per occurrence. The policy shall be without deductible,
except for
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products liability coverage which may have a deductible up to $25,000. The
policy(ies) shall name Lenders as an additional insured in the full amount of
Borrower's liability coverage limits (or the coverage limits of any successor to
Borrower or such successor's parent which is providing coverage), be primary and
without contribution as respects any insurance carried by Lenders, and contain
cross liability and severability of interest clauses.
(iii) Such other insurance against risks of loss and
with terms as shall be reasonably required by Lenders.
All policies of insurance shall be placed with financially sound,
commercial insurers reasonably satisfactory to Lenders. All policies of
insurance shall provide that Lenders shall be given 30 days notice of
cancellation of coverage. This notice provision shall be without qualification.
On or prior to the first Funding Date and prior to each policy renewal, Borrower
shall furnish to Lenders certificates of insurance or other evidence
satisfactory to Lenders that insurance complying with all of the above
requirements is in effect.
ARTICLE VII
NEGATIVE COVENANTS
7.01. Negative Covenants. So long as the Obligations remain
outstanding, Borrower shall not:
(a) Name; Location of Chief Executive Office and Collateral.
Without thirty (30) days prior written notice to Lenders, change its chief
executive office or principal place of business or remove or cause to be removed
from the locations set forth on the cover page or in the Disclosure Schedule
hereof or move any Collateral to a location other than that set forth on the
cover page or in the Disclosure Schedule hereof.
(b) Liens on Collateral. Create, incur, assume or suffer to
exist any Lien of any kind upon any Collateral, whether now owned or hereafter
acquired, except Permitted Liens.
(c) [Reserved.]
(d) Dispositions of Collateral. Convey, sell, offer to sell,
lease, transfer, exchange or otherwise dispose of (collectively, a "Transfer")
all or any part of the Collateral to any Person, other than: (i) Transfers of
inventory in the ordinary course of business; (ii) Transfers which would
constitute Permitted Liens under clause (g) of the definition of Permitted
Liens; (iii) Transfers of worn-out or obsolete equipment, replaced equipment and
excess equipment; or (iv) sales of "Purchased Receivables" (as defined in the
Bank Factoring Facility (as defined in clause (e) of the definition of Permitted
Indebtedness)) up to an aggregate amount of $2,000,000 under the Bank Factoring
Facility. Borrower may, however, encumber the equipment listed in the Disclosure
Schedule through lease financing.
(e) Distributions. (i) Pay any dividends or make any
distributions on its Equity Securities; (ii) purchase, redeem, retire, defease
or otherwise acquire for value any of its Equity Securities (other than
repurchases by cancellation of indebtedness pursuant to the terms of employee
stock purchase plans, employee restricted stock agreements or similar
arrangements in an aggregate amount not to exceed $100,000); (iii) return any
capital to any holder of its Equity Securities as such; (iv) make any
distribution of assets, Equity Securities, obligations or securities to any
holder of its Equity Securities as such; or (v) set apart any sum for any such
purpose; provided, however, that Borrower may pay dividends payable solely in
Common Stock.
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<PAGE> 16
(f) Mergers or Acquisitions. Merge or consolidate with or into
any other Person or acquire all or substantially all of the capital stock or
assets of another Person, except where acquisitions by Borrower are made solely
through the issuance of Borrower's Equity Securities and which do not result in
the incurrence or payment of Indebtedness.
(g) Transactions With Affiliates. Enter into any contractual
obligation with any affiliate or engage in any other transaction with any
affiliate only upon terms at least as favorable to Borrower as an arms-length
transaction with unaffiliated Persons, except for compensation, stock options
and stock grants made or paid to individuals for services rendered.
(h) Maintenance of Accounts. Maintain any deposit accounts or
accounts holding securities owned by Borrower except (i) accounts located at
Silicon Valley Bank and (ii) other accounts with respect to which Lenders take
such action as they deem necessary to obtain a perfected security interest in
such account.
(i) Indebtedness Payments. (i) Prepay, redeem, purchase,
defease or otherwise satisfy in any manner prior to the scheduled repayment
thereof any Indebtedness for borrowed money (other than amounts due or permitted
to be prepaid under this Loan Agreement or the Notes or under any revolving
credit agreement constituting Permitted Indebtedness under clause (e) of the
definition of Permitted Indebtedness) or lease obligations, (ii) amend, modify
or otherwise change the terms of any Indebtedness for borrowed money or lease
obligations so as to accelerate the scheduled repayment thereof or (iii) repay
any notes to officers, directors or shareholders.
(j) Indebtedness. Create, incur, assume or permit to exist any
Indebtedness except Permitted Indebtedness.
(k) Investments. Make any Investment except for Permitted
Investments.
ARTICLE VIII
CONDITIONS PRECEDENT
8.01. Closing. At the time of execution and delivery of this Agreement,
Borrower shall have duly executed and/or delivered to Lenders the items set
forth in Part I of Schedule 3.
8.02. Other Conditions. The obligation of the Lenders to make the Loans
under Facility A and Facility B shall be subject to the execution and/or
delivery to such Lenders of each of the items set forth in Part I of Schedule 3
and the satisfaction by Borrower of each condition set forth in Part II of
Schedule 3.
8.03. Other Conditions. The obligation of the TBCC to make the Loan
under Facility C shall be subject to the execution and/or delivery to TBCC of
each of the items set forth in Part I of Schedule 3, the satisfaction by
Borrower of each condition set forth in Part II of Schedule 3, and the
satisfaction by Borrower of each condition set forth in Part III of Schedule 3.
8.04. Covenant to Deliver. Borrower agrees (not as a condition but as a
covenant) to deliver to Lenders each item required to be delivered to Lenders as
a condition to a Loan, if the Loan is advanced. Borrower expressly agrees that
the extension of any Loan prior to the receipt by Lenders of any such item shall
not constitute a waiver by Lenders of Borrower's obligation to deliver such
item.
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ARTICLE IX
DEFAULT AND REMEDIES
9.01. Events of Default. An "Event of Default" shall mean the
occurrence of one or more of the following described events:
(a) Borrower shall (i) default in the payment of principal of
or interest on any Loan when the same is due, or (ii) default in the payment of
any expense or other amount payable hereunder or thereunder for five (5) days
after receipt of written notice from a Lender that the same is due; or
(b) Borrower shall breach any provision of Section 6.01(d) or
Section 7.01; or
(c) Borrower shall default in the performance of any covenant,
agreement or obligation (other than a covenant, agreement or obligation referred
to in, Section 9.01(a) or Section 9.01(b)) contained in any Operative Document
(other than the Warrants) and Borrower shall fail to cure within thirty (30)
days after receipt of written notice from Lenders any default in the performance
of any such covenant, agreement or obligation contained therein; or
(d) Borrower shall have breached the terms of any of the
Warrants and Borrower shall fail to cure such breach within thirty (30) days of
the earlier of: (i) Borrower's receipt of written notice from Lenders of such
breach, or (ii) Borrower becoming aware of such breach; or
(e) Any representation or warranty made herein or on the
Funding Date by Borrower in any Operative Document, or any certificate or
financial statement furnished pursuant to the provisions of any Operative
Document, shall prove to have been false or misleading in any material respect
as of the time made or furnished; or
(f) Any Operative Document shall in any material respect cease
to be, or Borrower shall assert that any Operative Document is not, a legal,
valid and binding obligation of Borrower enforceable in accordance with its
terms; or
(g) Defaults shall exist under any agreements of Borrower
which consist of the failure to pay any Indebtedness at maturity or which result
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of Indebtedness of Borrower in an aggregate amount in
excess of Five Hundred Thousand Dollars ($500,000) or a default shall exist
under any financing agreement with a Lender or any of such Lender's affiliates;
or
(h) A proceeding shall have been instituted in a court of
competent jurisdiction seeking a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee (or similar official) of
Borrower or for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain undismissed or
unstayed and in effect for a period of sixty (60) consecutive days or such court
shall enter a decree or order granting the relief sought in such proceeding; or
(i) Borrower shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian (or other similar
official) of Borrower or for any substantial
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part of its property, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or shall
take any corporate action in furtherance of any of the foregoing; or
(j) A final judgment or order for the payment of money in
excess of Five Hundred Thousand Dollars ($500,000) (exclusive of amounts covered
by insurance issued by an insurer not an affiliate of Borrower) shall be
rendered against Borrower and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the property of
Borrower and such judgment, writ, or similar process shall not be released,
stayed, vacated or otherwise dismissed within thirty (30) days after issue or
levy; or
(k) If there occurs a material adverse change in Borrower's
business, or if there is a material impairment of the prospect of repayment of
any portion of the Obligations owing to Lenders or a material impairment of the
value or priority of Lenders' security interests in the Collateral; or
(l) If any material portion of Borrower's assets is attached,
seized, subjected to writ or distress warrant, or is levied upon, or comes into
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 and Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contesting by Borrower; or
(m) If there occurs a development or ruling in Borrower's
Intellectual Property Litigation, which Lenders in their good faith business
judgment believe indicates a likelihood of a material adverse effect on: (i)
Borrower's business, (ii) the prospect of repayment of any portion of the
Obligations owing to Lenders or (iii) the value or priority of Lenders' security
interests in the Collateral.
9.02. Consequences of Event of Default.
(a) If an Event of Default specified under any of clauses (a)
through (g) or (j) through (m) of Section 9.01 shall occur and be continuing,
any Lender may (i) declare all of the Loans, together with interest thereon,
plus the Applicable Premium and all other liabilities of Borrower hereunder and
under the other Operative Documents to be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived, and (ii) terminate any commitment to make the Loans and
terminate any commitment to advance money or extend credit to or for the benefit
of Borrower pursuant to any other agreement or commitment extended by a Lender
to Borrower.
(b) If an Event of Default specified under clause (h) or (i)
of Section 9.01 shall occur, then immediately and without notice (i) the Loans,
together with interest thereon, plus the Applicable Premium and all other
liabilities of Borrower hereunder and under the other Operative Documents shall
automatically become due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and (ii) Lenders'
commitments hereunder to make the Loans and any
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other commitment of Lenders to Borrower to advance money or extend credit
pursuant to any other agreement or commitment shall be terminated.
(c) Borrower expressly agrees that the amount due and payable
upon any such acceleration or prepayment of the Loans contrary to the terms
hereof shall include a Applicable Premium as of the date of such acceleration or
prepayment.
9.03. Rights Regarding Collateral. Borrower agrees that when any Event
of Default has occurred and is continuing, Lenders shall have the rights,
options, duties and remedies of a secured party as permitted by law and, in
addition to and without limiting the foregoing, Lenders may exercise any one or
more or all, and in any order, of the remedies herein set forth, including the
following:
(a) Lenders, personally or by agents or attorneys, shall have
the right (subject to compliance with any applicable mandatory legal
requirements) to require Borrower to assemble the Collateral and make it
available to Lenders at a place to be designated by Lenders or to take immediate
possession of the Collateral, or any portion thereof, and for that purpose may
pursue the same wherever it may be found, and may enter any of premises of
Borrower, with or without notice, demand, process of law or legal procedure, to
the extent permitted by applicable law, and search for, take possession of,
remove, keep and store the same, or use and operate or lease the same until
sold. In furtherance of Lenders' rights hereunder, Borrower hereby grants to
Lenders an irrevocable, non-exclusive license (exercisable without royalty or
other payment by Lenders) to use, license or sublicense any patent, trademark,
trade name, copyright or other intellectual property in which Borrower now or
hereafter has any right, title or interest together with the right of access to
all media in which any of the foregoing may be recorded or stored; provided,
however, that such license shall only be exercisable in connection with the
disposition of Collateral upon Lenders' exercise of their remedies hereunder.
(b) Lenders may, if at the time such action may be lawful and
always subject to compliance with any mandatory legal requirements, either with
or without taking possession and either before or after taking possession,
without instituting any legal proceedings whatsoever, having first given notice
of such sale by registered or certified mail to Borrower once at least ten (10)
days prior to the date of such sale, and having first given any other notice
which may be required by law, sell and dispose of the Collateral, or any part
thereof, at a private sale or at public auction, to the highest bidder, in one
lot as an entirety or in separate lots, and either for cash or on credit and on
such terms as Lenders may determine, and at any place (whether or not it be the
location of the Collateral or any part thereof) designated in the notice
referred to above. To the extent permitted by applicable law, any such sale or
sales may be adjourned from time to time by announcement at the time and place
appointed for such sale or sales, or for any such adjourned sale or sales,
without further published notice, and Borrower, Lenders or the holder or holders
of the Notes, or of any interest therein, may bid and become the purchaser at
any such sale.
(c) Lenders may proceed to protect and enforce this Agreement
and the other Operative Documents by suit or suits or proceedings in equity, at
law or in bankruptcy, and whether for the specific performance of any covenant
or agreement herein contained or in execution or aid of any power herein
granted; or for foreclosure hereunder, or for the appointment of a receiver or
receivers for any real property security or any part thereof, or for the
recovery of judgment for the Obligations or for the enforcement of any other
proper, legal or equitable remedy available under applicable law.
9.04. Waiver by Borrower. Upon the occurrence of an Event of Default,
to the extent permitted by law, Borrower covenants that it will not at any time
insist upon or plead, or in any manner whatsoever claim or take any benefit or
advantage of, any stay or extension law now or at any time hereafter in force,
nor
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claim, take nor insist upon any benefit or advantage of or from any law now or
hereafter in force providing for the valuation or appraisement of the Collateral
or any part thereof prior to any sale or sales thereof to be made pursuant to
any provision herein contained, or to the decree, judgment or order of any court
of competent jurisdiction; nor, after such sale or sales, claim or exercise any
right under any statute now or hereafter made or enacted by any state or
otherwise to redeem the property so sold or any part thereof, and, to the full
extent legally permitted, except as to rights expressly provided herein, hereby
expressly waives for itself and on behalf of each and every Person, except
decree or judgment creditors of Borrower, acquiring any interest in or title to
the Collateral or any part thereof subsequent to the date of this Agreement, all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to Lenders, but will suffer
and permit the execution of every such power as though no such power, law or
laws had been made or enacted.
9.05. Effect of Sale. Any sale, whether under any power of sale
available to Lenders or by virtue of judicial proceedings, shall operate to
divest all right, title, interest, claim and demand whatsoever, either at law or
in equity, of Borrower in and to the property sold, and shall be a perpetual
bar, both at law and in equity, against Borrower, its successors and assigns,
and against any and all persons claiming the property sold or any part thereof
under, by or through Borrower, its successors or assigns.
9.06. Application of Collateral Proceeds. The proceeds and/or avails of
the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lenders at
the time of, or received by Lenders after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows:
(a) First, to the payment of reasonable costs and expenses,
including all amounts expended to preserve the value of the Collateral, of
foreclosure or suit, if any, and of such sale and the exercise of any other
rights or remedies, and of all proper fees, expenses, liability and advances,
including reasonable legal expenses and attorneys' fees, incurred or made
hereunder by Lenders;
(b) Second, to the payment to Lenders of the amount then owing
or unpaid on the Notes, and in case such proceeds shall be insufficient to pay
in full the whole amount so due, owing or unpaid upon the Notes, then first, to
the unpaid interest thereon, second, to unpaid principal thereof and third to
the remaining balance of the Obligations under the Notes; such application to be
made upon presentation of the Notes, and the notation thereon of the payment, if
partially paid, or the surrender and cancellation thereof, if fully paid;
(c) Third, to the payment of other amounts then payable to
Lenders under any of the Operative Documents; and
(d) Fourth, to the payment of the surplus, if any, to
Borrower, its successors and assigns, or to whomsoever may be lawfully entitled
to receive the same.
9.07. Reinstatement of Rights. If Lenders shall have proceeded to
enforce any right under this Agreement or any other Operative Document by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of
competent jurisdiction), Lenders shall be restored to their former position and
rights hereunder with respect to the property subject to the security interest
created under this Agreement.
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<PAGE> 21
ARTICLE X
MISCELLANEOUS
10.01. Modifications, Amendments or Waivers. The provisions of any
Operative Document may be modified, amended or waived only by a written
instrument signed by the parties thereto.
10.02. No Implied Waivers; Cumulative Remedies; Writing Required. No
delay or failure of Lenders in exercising any right, power or remedy hereunder
shall affect or operate as a waiver thereof; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or remedy preclude any further exercise thereof or of any other
right, power or remedy. The rights and remedies hereunder of Lenders are
cumulative and not exclusive of any rights or remedies which it would otherwise
have. Any waiver, permit, consent or approval of any kind or character on the
part of Lenders of any breach or default under this Agreement or any such waiver
of any provision or condition of this Agreement must be in writing and shall be
effective only in the specified instance and to the extent specifically set
forth in such writing.
10.03. Expenses; Indemnification. Borrower agrees upon demand to pay or
reimburse Lenders for all liabilities, obligations and out-of-pocket expenses,
including reasonable fees and expenses of counsel for Lenders, from time to time
arising in connection with the enforcement or collection of sums due under the
Operative Documents, and in connection with any amendment or modification of the
Operative Documents or any "work-out" in connection with the Operative
Documents. Borrower shall indemnify, reimburse and hold Lenders, each of
Lenders' partners, and each of their respective successors, assigns, agents,
officers, directors, shareholders, servants, agents and employees harmless from
and against all liabilities, losses, damages, actions, suits, demands, claims of
any kind and nature (including claims relating to environmental discharge,
cleanup or compliance), all costs and expenses whatsoever to the extent they may
be incurred or suffered by such indemnified party in connection therewith
(including reasonable attorneys' fees and expenses), fines, penalties (and other
charges of applicable governmental authorities), licensing fees relating to any
item of Collateral, damage to or loss of use of property (including
consequential or special damages to third parties or damages to Borrower's
property), or bodily injury to or death of any person (including any agent or
employee of Borrower) (each, a "Claim"), directly or indirectly relating to or
arising out of the use of the proceeds of the Loans or otherwise, the falsity of
any representation or warranty of Borrower or Borrower's failure to comply with
the terms of this Agreement or any other Operative Document during the Term. The
foregoing indemnity shall cover, without limitation, (i) any Claim in connection
with a design or other defect (latent or patent) in any item of equipment
included in the Collateral, (ii) any Claim for infringement of any patent,
copyright, trademark or other intellectual property right, (iii) any Claim
resulting from the presence on or under or the escape, seepage, leakage,
spillage, discharge, emission or release of any Hazardous Materials on the
premises of Borrower, including any Claims asserted or arising under any
Environmental Law, or (iv) any Claim for negligence or strict or absolute
liability in tort; provided, however, that Borrower shall not indemnify Lenders
for any liability incurred by Lenders as a direct and sole result of Lenders'
gross negligence or willful misconduct. Such indemnities shall continue in full
force and effect, notwithstanding the expiration or termination of this
Agreement. Upon Lenders' written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lenders, each of
its partners, and each of their respective, agents, employees, directors,
officers, shareholders, successors and assigns against any indemnified Claim
described in this Section 10.03. Borrower shall not settle or compromise any
Claim against or involving Lenders without first obtaining Lenders' written
consent thereto, which consent shall not be unreasonably withheld.
10.04. Waivers. (a) Borrower shall give Lenders written notice within
one hundred eighty (180) days of obtaining knowledge of the occurrence of any
claim or cause of action it believes it has, or may seek
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<PAGE> 22
to assert to allege against Lenders whether such claim is based in law or
equity, arising under or related to this Agreement or any of the other Operative
Documents or to the transactions contemplated hereby or thereby, or any act or
omission to act by Lenders with respect hereto or thereto, and that if it shall
fail to give such notice to Lenders with regard to any such claim or cause of
action, Borrower shall be deemed to have waived, and shall be forever barred
from bringing or asserting such claim or cause of action in any suit, action or
proceeding in any court or before any governmental agency or authority or any
arbitrator. (b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS
UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.05. Notices; Payments.
(a) All notices and other communications given to or made upon
any party hereto in connection with this Agreement shall be in writing
(including telexed, telecopied or telegraphic communication) and mailed (by
certified or registered mail), telexed, telegraphed, telecopied or delivered to
the respective parties, as follows:
Borrower: At the address set forth on the cover page of this
Agreement.
Lenders: MMC/GATX PARTNERSHIP NO.
c/o MEIER MITCHELL & COMPANY
4 Orinda Way, Suite 200B
Orinda, California 94563
Attention: Contract Administration
FAX: (925) 254-9528
PH: (925) 254-9520
and
TRANSAMERICA BUSINESS CREDIT CORPORATION
76 Batterson Park Road
Farmington, Connecticut 060032-2571
Attention: Robert D. Pomeroy, Jr.
FAX: (860) 677-6766
PH: (860) 409-4555
or in accordance with any subsequent written direction from either party to the
other. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective when received; or in the case of
delivery by messenger or overnight delivery service, when left at the
appropriate address.
(b) Unless Lenders specify otherwise in writing, all payments
shall be made by wire transfer to:
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<PAGE> 23
GATX Capital Corporation
Bank Name: Bank of America
Bank Address: Dallas, Texas 75202
Account No.: 3750878673
ABA Routing No.: 111-000012
Reference: TriPath Imaging Invoice #_________
and
Transamerica Business Credit Corporation
Bank Name: The First National Bank of Chicago
Bank Address: One First National Plaza
Chicago, IL 60670
Account No.: 55-75427
ABA Routing No.: 071-000-013
Reference: TriPath Imaging
Customer No. ____________
Account Name: Transamerica Technology Finance
10.06. Termination. This Agreement shall terminate at the end of the
Term; provided, however, that the termination of this Agreement shall not affect
any of the rights and remedies of Lenders hereunder, it being understood and
agreed that all such rights and remedies shall continue in full force and effect
until payment of all amounts owed to Lenders under or in connection with the
Operative Documents, whether on account of principal, interest, fees or
otherwise.
10.07. Severability. If any provision of any Operative Document is held
invalid or unenforceable to any extent or in any application, the remainder of
such Operative Document and all other Operative Documents, or the application of
such provision to different Persons or circumstances or in different
jurisdictions, shall not be affected thereby.
10.08. Survival. All representations, warranties, covenants and
agreements of Borrower contained herein or made in writing in connection
herewith shall survive the execution and delivery of the Operative Documents,
the making of the Loans hereunder, the granting of security and the issuance of
the Notes.
10.09. Relationship of Parties. Subject to a separate Intercreditor
Agreement between the Lenders, Borrower and each Lender acknowledge, understand
and agree that:
(a) The relationship between the Borrower, on the one hand,
and Lenders, on the other, is, and at all time shall remain solely that of a
borrower and lenders. Lenders shall not under any circumstances be construed to
be partners or joint venturers of Borrower or any of its Affiliates; nor shall
Lenders under any circumstances be deemed to be in a relationship of confidence
or trust or a fiduciary relationship with Borrower or any of its Affiliates, or
to owe any fiduciary duty to Borrower or any of its Affiliates. Lenders do not
undertake or assume any responsibility or duty to Borrower or any of its
Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform the Borrower or any of its Affiliates of any matter in
connection with its or their Property, any Collateral held by any Lender or the
operations of Borrower or any of its Affiliates. Borrower and each of its
Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or
-23-
<PAGE> 24
supply of information undertaken or assumed by any Lender in connection with
such matters is solely for the protection of Lenders and neither Borrower nor
any Affiliate is entitled to rely thereon.
(b) The relationship between the Lenders is, and at all time
shall remain solely that of co-lenders. Lenders shall not under any
circumstances be construed to be partners or joint venturers of each other; nor
shall the Lenders under any circumstances be deemed to be in a relationship of
confidence or trust or a fiduciary relationship with each other, or to owe any
fiduciary duty to each other. Lenders do not undertake or assume any
responsibility or duty to each other to select, review, inspect, supervise, pass
judgment upon or otherwise inform each other of any matter in connection with
Borrower or Borrower's Property, any Collateral held by any Lender or the
operations of Borrower. Each Lender shall rely entirely on its own judgment with
respect to such matters, and any review, inspection, supervision, exercise of
judgment or supply of information undertaken or assumed by any Lender in
connection with such matters is solely for the protection of such Lender.
10.10. Governing Law. This Agreement, the other Operative Documents and
the rights and obligations of the parties hereto and thereto shall be governed
by and construed and enforced in accordance with the laws of the State of
California. Any action to enforce this Agreement against Borrower may be brought
in California or, with regard to Collateral, may also be brought wherever such
Collateral is located.
10.11. Successors and Assigns. This Agreement and the other Operative
Documents shall be binding upon and inure to the benefit of Lenders, all future
holders of the Notes, Borrower and their respective successors and permitted
assigns, except that Borrower may not assign or transfer its rights hereunder or
any interest herein without the prior written consent of Lenders. Each Lender
may sell to any other financial entity (a "Participant") participation interests
in Lender's rights under this Agreement and the other Operative Documents;
provided that notwithstanding the sale of participations, such Lender shall
remain solely responsible for the performance of its obligations under this
Agreement, such Lenders shall remain the holder of its Note for all purposes
under this Agreement and Borrower shall continue to deal solely and directly
with such Lender in connection with this Agreement and the other Operative
Documents. Lenders may disclose the Operative Documents and any other financial
or other information relating to Borrower or any Subsidiary to any potential
Participant, provided that such Participant agrees to protect the
confidentiality of such documents and information using the same measures that
it uses to protect its own confidential information.
10.12. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.13. Further Assurances. Borrower will, at its own expense, from time
to time do, execute, acknowledge and deliver all further acts, deeds,
conveyances, transfers and assurances, and all financing and continuation
statements and similar notices, reasonably necessary or proper for the
perfection of the security interest being herein provided for in the Collateral,
whether now owned or hereafter acquired.
10.14. Power of Attorney in Respect of the Collateral. Borrower does
hereby irrevocably appoint each Lender, the true and lawful attorney-in-fact of
Borrower with full power of substitution, for it and in its name to execute any
UCC financing statements or UCC financing statement amendments as to Collateral
in any applicable jurisdiction, and generally to use its name in the exercise of
all powers hereby conferred on each Lender with full power of substitution. The
power and authority hereby given and granted to each Lender shall be deemed
coupled with an interest and not revocable by any party. Borrower does hereby
irrevocably appoint Lenders (which appointment is coupled with an interest), the
true and lawful attorney-in-
-24-
<PAGE> 25
fact of Borrower with full power of substitution, for it and in its name (a) to
perform (but Lenders shall not be obligated to and shall incur no liability to
Borrower or any third party for failure to perform) any act which Borrower is
obligated by this Agreement to perform, (b) to ask, demand, collect, receive,
receipt for, sue for, compound and give acquittance for any and all rents,
issues, profits, avails, distributions, income, payment draws and other sums in
which a security interest is granted under Section 5.01 with full power to
settle, adjust or compromise any claim thereunder as fully as if Lenders were
Borrower itself, (c) to receive payment of and to endorse the name of Borrower
to any items of Collateral (including checks, drafts and other orders for the
payment of money) that come into Lenders' possession or under Lenders' control,
(d) to make all demands, consents and waivers, or take any other action with
respect to, the Collateral, (e) in Lenders' discretion, to file any claim or
take any other action or institute proceedings, either in its own name or in the
name of Borrower or otherwise, which Lenders may reasonably deem necessary or
appropriate to protect and preserve the right, title and interest of Lenders in
and to the Collateral, and (f) to otherwise act with respect thereto as though
Lenders were the outright owner of the Collateral; provided, however, that the
power of attorney herein granted shall be exercisable only upon the occurrence
and during the continuation of an Event of Default unless in Lenders' reasonable
opinion immediate action is necessary to preserve or protect the Collateral.
Borrower agrees to reimburse Lenders upon demand for all reasonable costs and
expenses, including attorneys' fees and expenses, which Lenders may incur while
acting as Borrower's attorney in fact hereunder, all of which costs and expenses
are included within the Obligations.
10.15. Confidentiality. All information (other than periodic reports
filed by Borrower with the Securities and Exchange Commission) disclosed by
Borrower to Lenders in writing or through inspection pursuant to this Agreement
shall be considered confidential. Lenders agree to use the same degree of care
to safeguard and prevent disclosure of such confidential information as Lenders
uses with its own confidential information, but in any event no less than a
reasonable degree of care. Lenders shall not disclose such information to any
third party (other than Lenders' or Lenders' partner's attorneys and auditors
subject to the same confidentiality obligation set forth herein) and shall use
such information only for purposes of evaluation of its investment in Borrower
and the exercise of Lenders' rights and the enforcement of their remedies under
this Agreement and the other Operative Agreements. The obligations of
confidentiality shall not apply to any information that (a) was known to the
public prior to disclosure by Borrower under this Agreement, (b) becomes known
to the public through no fault of Lenders, (c) is disclosed to Lenders by a
third party' having a legal right to make such disclosure, or (d) is
independently developed by Lenders.
10.16 Logos. Borrower agrees to provide to each Lender camera ready
artwork of typestyles and logos of Borrower for use in promotional material by
either Lender and Borrower, upon the request of such Lender. Borrower agrees to
issue a press release relating to the proposed financing, upon the request of
Lenders.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
TRIPATH IMAGING, INC
By: /s/ Eric Linsley
----------------------------------------
Name: Eric Linsley
----------------------------------------
Title: Chief Financial Officer
----------------------------------------
MMC/GATX PARTNERSHIP NO. I
By: GATX Capital Corporation, as general
partner
By: /s/ Patricia W. Leicher
----------------------------------------
Name: Patricia W. Leicher
----------------------------------------
Title: VP
----------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Gary P. Moro
----------------------------------------
Name: Gary P. Moro
----------------------------------------
Title: Senior Vice President
----------------------------------------
<PAGE> 27
SCHEDULES
1 Funding Certificate
2 Disclosure Schedule
3 Conditions Precedent
EXHIBITS
A-1 Form of MMC/GATX Secured Promissory Note
A-1 Form of TBCC Secured Promissory Note
B Form of Warrant
C Form of Opinion of Counsel
<PAGE> 28
SCHEDULE 1
FUNDING CERTIFICATE
The undersigned, , being the duly elected and acting
- ------------------- of TRIPATH IMAGING, INC., a Delaware corporation
("Borrower"), does hereby certify to the Lenders (as defined in the Loan
Agreement defined below) in connection with that certain Loan and Security
Agreement dated as of January 19, 2000, among Borrower and certain Lenders named
therein (the "Loan Agreement"; with other capitalized terms used below having
the meanings ascribed thereto in the Loan Agreement) that:
1. The representations and warranties made by Borrower in Article
III of the Loan Agreement and in the other Operative Documents
are true and correct as of the date hereof.
2. No event or condition has occurred and is continuing that
would constitute a Default or an Event of Default under the
Loan Agreement or any other Operative Document.
3. Borrower is in compliance with the covenants and requirements
contained in Articles IV, V, VI and VII of the Loan Agreement.
4. All conditions referred to in Article VIII of the Loan
Agreement to the making of the Loan to be made on or about the
date hereof have been satisfied.
5. No material adverse change in the general affairs, management,
results of operations, condition (financial or otherwise) or
prospects of Borrower, whether or not arising from
transactions in the ordinary course of business, has occurred.
Dated:
----------,------- TRIPATH IMAGING, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
<PAGE> 29
SCHEDULE 2
DISCLOSURE SCHEDULE
PERMITTED INDEBTEDNESS
CLAUSE (g):
PERMITTED LIENS
CLAUSE (c):
REPRESENTATIONS AND WARRANTIES
SECTION 3.01(d) PROPERTIES:
SECTION 3.01(f) LITIGATION:
AFFIRMATIVE COVENANTS
SECTION 5.04 LOCATION OF COLLATERAL:
<PAGE> 30
SCHEDULE 3
CONDITIONS PRECEDENT
PART I:
At the time of execution and delivery of this Agreement, there shall
also have been duly executed and delivered to Lenders:
(a) The Warrants executed in favor of Lenders (or Persons
specified by Lenders) which are exercisable for shares of
Borrower's common stock, in form acceptable to Lenders;
(b) A subordination agreement with Silicon Valley Bank in form
acceptable to Lenders;
(c) An intercreditor agreement between the Lenders;
(d) A favorable opinion of counsel for Borrower, dated as of the
closing date, in the form attached hereto as Exhibit C or such
other form or forms as Lenders may accept;
(e) Copies, certified by the Secretary, Assistant Secretary or
Chief Financial Officer of Borrower as of the closing date, of
Borrower's charter documents and bylaws and of all documents
evidencing corporate action taken by Borrower authorizing the
execution, delivery and performance of the Operative Documents
to which Borrower is a party, in form and substance
satisfactory to Lenders and its counsel;
(f) Good standing certificate from Borrower's state of
incorporation and the state in which Borrower's principal
place of business is located, together with certificates of
the applicable governmental authorities that Borrower is in
compliance with the franchise tax laws of each such state,
each dated as of a recent date;
(g) Evidence of the insurance coverage required by Section 6.01(d)
of this Agreement;
(h) Form UCC-1 Financing Statements, duly executed by Borrower, or
other documents, and Borrower shall have taken such actions,
if any, as Lenders shall reasonably determine are necessary or
desirable to perfect and protect its security interest in the
Collateral;
(i) Notices of Security Interest to Depository Banks in the forms
provided by Lenders;
(j) Grants of Security Interest in patents and trademarks, in the
forms provided by Lenders;
(k) All other documents as Lenders shall have reasonably
requested.
PART II
On or prior to the Funding Date of the Loans, each of the items set
forth in Part I of this Schedule 3 shall have been delivered to such Lenders and
the following conditions shall have been satisfied or waived by such Lenders:
(a) Borrower shall have provided to Lenders such documents,
instruments and agreements as Lenders shall reasonably request
to evidence the perfection and priority of the security
interests granted to Lenders pursuant to Article V;
<PAGE> 31
(b) No Event of Default or Default shall have occurred and be
continuing;
(c) Borrower shall have duly executed and delivered to each Lender
a Note in the amount of such Lender's Loan and a Funding
Certificate in the form of Schedule 1;
(d) In Lenders' sole discretion, there shall not have occurred any
material adverse change in the general affairs, management,
results of operations, condition (financial or otherwise) or
prospects of Borrower, whether or not arising from
transactions in the ordinary course of business, and there
shall not have occurred since the date first written on the
cover page of this Agreement any material adverse deviation by
Borrower from the business plan of Borrower presented to and
not disapproved by Lenders;
(e) The representations and warranties contained in this Agreement
and the other Operative Documents to which Borrower is a party
shall be true and correct in all material respects as if made
on such Funding Date;
(f) Each of the Operative Documents remains in full force and
effect; and
(g) The Funding Date of the Loans under Facility A and Facility B
shall not be later than January 31, 2000.
PART III
On or prior to the Funding Date of the Loan under Facility C, each of
the items set forth in Part I of this Schedule 3 and Part II of this Schedule 3
shall have been delivered to such Lenders and the following conditions shall
have been satisfied or waived by TBCC:
(a) Borrower shall have provided to TBCC Borrower's first quarter
2000 financial statements including income statements, balance
statements, cash flow statements and any financial reports as
TBCC shall request ("Financial Statements") and TBCC is
satisfied with its review of the Financial Statements; and
(b) The Funding Date of the Loan under Facility C shall not be
later than the Commitment Termination Date.
-2-
<PAGE> 32
EXHIBIT A-1
SECURED PROMISSORY NOTE
$3,500,000 Dated: January __, 2000
FOR VALUE RECEIVED, the undersigned, TRIPATH IMAGING, INC., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of MMC/GATX
PARTNERSHIP NO. I ("Lender") the principal amount of Three Million Five Hundred
Thousand Dollars ($3,500,000) or such lesser amount as shall equal the
outstanding principal balance of the Loan made to Borrower by Lender pursuant to
the Loan and Security Agreement referred to below (the "Loan Agreement"), and to
pay all other amounts due with respect to the Loan on the dates and in the
amounts set forth in the Loan Agreement.
Interest on the principal amount of this Note from the date of this
Note shall accrue at the Loan Rate or, if applicable, the Default Rate. The Loan
Rate for this Note is % per annum based on a year of twelve 30-day months.
Borrower shall make payment of Interim Interest, if any, on the Funding Date.
Borrower shall make payments of accrued interest only on the outstanding
principal amount of the Loan on the first day of each month ("Payment Date"),
commencing February 1, 2000, through and including July 1, 2000. Commencing on
August 1, 2000, and continuing on consecutive Payment Dates thereafter, Borrower
shall make to Lender thirty (30) equal payments of principal in the amount of
$116,666.67, plus accrued interest on the then outstanding principal amount.
Principal, interest and all other amounts due with respect to the Loan,
are payable in lawful money of the United States of America to Lender by wire
transfer according to the wire transfer instructions set forth in the Loan
Agreement. The principal amount of this Note and the interest rate applicable
thereto, and all payments made with respect thereto, shall be recorded by Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
part of this Note.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Loan and Security Agreement, dated as of January 19, 2000, to
which Borrower and Lender are parties. The Loan Agreement, among other things,
(a) provides for the making of a secured Loan to Borrower, and (b) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events. Capitalized terms, unless otherwise defined herein, shall have
the meaning given such terms in the Loan Agreement.
This Note may be not be prepaid except as set forth in Section 2.01(d)
of the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal
amount of the Loan, plus the premium set forth in Section 2.01(d), interest on
the Loan and all other amounts due Lenders under the Loan Agreement is secured
under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other
demands and notices of any kind in connection with the execution, delivery,
performance and enforcement of this Note are hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys' fees (based on the normal hourly rates of such
attorneys or allocated costs of in-house counsel and not on a percentage of the
balance of the Note) and costs, incurred by Lenders in the enforcement or
attempt to enforce any of Borrower's obligations hereunder not performed when
due. This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of California.
-A-1-
<PAGE> 33
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
by one of its officers thereunto duly authorized on the date hereof.
TRIPATH IMAGING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-A-2-
<PAGE> 34
EXHIBIT A-2
SECURED PROMISSORY NOTE
$1,750,000 Dated: ___________, 2000
FOR VALUE RECEIVED, the undersigned, TRIPATH IMAGING, INC., a Delaware
corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of TRANSAMERICA
BUSINESS CREDIT CORPORATION ("Lender") the principal amount of One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) or such lesser amount as shall equal
the outstanding principal balance of the Loan made to Borrower by Lender
pursuant to the Loan and Security Agreement referred to below (the "Loan
Agreement"), and to pay all other amounts due with respect to the Loan on the
dates and in the amounts set forth in the Loan Agreement.
Interest on the principal amount of this Note from the date of this
Note shall accrue at the Loan Rate or, if applicable, the Default Rate. The Loan
Rate for this Note is % per annum based on a year of twelve 30-day months.
Borrower shall make payment of Interim Interest, if any, on the Funding Date.
Borrower shall make payments of accrued interest only on the outstanding
principal amount of the Loan on the first day of each month ("Payment Date"),
commencing _________, 2000, through and including ______, 2000. Commencing on
______, 2000, and continuing on consecutive Payment Dates thereafter, Borrower
shall make to Lender thirty (30) equal payments of principal in the amount of
$58,333.34, plus accrued interest on the then outstanding principal amount.
Principal, interest and all other amounts due with respect to the Loan,
are payable in lawful money of the United States of America to Lender by wire
transfer according to the wire transfer instructions set forth in the Loan
Agreement. The principal amount of this Note and the interest rate applicable
thereto, and all payments made with respect thereto, shall be recorded by Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
part of this Note.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Loan and Security Agreement, dated as of January 19, 2000, to
which Borrower and Lender are parties. The Loan Agreement, among other things,
(a) provides for the making of a secured Loan to Borrower, and (b) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events. Capitalized terms, unless otherwise defined herein, shall have
the meaning given such term in the Loan Agreement.
This Note may be not be prepaid except as set forth in Section 2.01(d)
of the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal
amount of the Loan, plus the premium set forth in Section 2.01(d), interest on
the Loan and all other amounts due Lenders under the Loan Agreement is secured
under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other
demands and notices of any kind in connection with the execution, delivery,
performance and enforcement of this Note are hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys' fees (based on the normal hourly rates of such
attorneys or allocated costs of in-house counsel and not on a percentage of the
balance of the Note) and costs, incurred by Lenders in the enforcement or
attempt to enforce any of Borrower's obligations hereunder not performed when
due. This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of California.
-A-3-
<PAGE> 35
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
by one of its officers thereunto duly authorized on the date hereof.
TRIPATH IMAGING, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-A-4-
<PAGE> 36
EXHIBIT C
FORM OF OPINION OF COUNSEL
[Date]
MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation, Agent
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
and
TRANSAMERICA BUSINESS CREDIT CORPORATION
76 Batterson Park Road
Farmington, Connecticut 060032-2571
Ladies and Gentlemen:
We have acted as counsel for TRIPATH IMAGING, INC. (the "Borrower") in
connection with (i) the execution of the Loan and Security Agreement of even
date herewith (the "Loan Agreement") among Borrower, MMC/GATX PARTNERSHIP NO. I
and TRANSAMERICA BUSINESS CREDIT CORPORATION ("Lenders"), (ii) the issuance of
warrants to purchase Borrower's Common Stock (the "Warrants") and (iii) the
transactions contemplated thereby. This opinion is being rendered to you
pursuant to Section 8.01 of the Loan Agreement. Capitalized terms not otherwise
defined in this opinion have the meaning given them in the Loan Agreement.
In connection with this opinion and our representation, we have
examined originals, or copies certified or otherwise identified to our
satisfaction, of the following:
(i) The Loan Agreement;
(ii) The Warrants;
(iii) The Notes dated as of [Date];
(iv) The Restated Articles of Incorporation and the Bylaws of
Borrower, each as in effect on the date hereof;
(v) The certificate of an officer of Borrower as to certain
factual matters ("Officer Certificate");
(vi) Certificates issued by the Secretary of State of the State of
[state of incorporation] dated December __, 1999, certifying
the good standing of Borrower;
-C-1-
<PAGE> 37
(vii) Such other documents, records, and certificates as we have
deemed necessary or appropriate as a basis for the opinions
hereafter expressed.
The Loan Agreement, the Notes and the Warrants are hereinafter referred
to as the "Transaction Documents."
In such examinations we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to originals of all documents submitted to us as certified,
facsimile, telecopied or photostatic copies thereof. As to certain matters of
fact material to our opinion, we have relied upon the Officer Certificate and
upon your representations in the Transaction Documents.
As used in this opinion, the expression "to the best of our knowledge,"
means the actual present knowledge or belief of those attorneys in our firm who
have or who are currently representing Borrower. We have not undertaken any
independent investigation to determine the existence or nonexistence of other
facts, and no inference as to our knowledge of the existence or nonexistence of
other facts should be drawn from the fact of this firm's representation of
Borrower in connection with the Transaction Documents.
Based upon and subject to the foregoing and subject to the
qualifications contained herein, we are of the opinion that:
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of [state of incorporation].
(b) Borrower has the requisite corporate power and authority to
execute, deliver and perform the Transaction Documents and to issue the
Warrants. All action on the part of Borrower, its directors and its shareholders
necessary for the authorization, execution, delivery and performance of the
Transaction Documents, has been taken. The Transaction Documents have been duly
executed and delivered by an authorized officer of Borrower.
(c) The execution, delivery and performance of the Transaction
Documents do not conflict with or violate any provision of Borrower's Restated
Articles of Incorporation or Bylaws or of applicable law and, to the best of our
knowledge, do not conflict with or constitute a default under any provision of
any judgment, writ, decree, order or material agreement, indenture, or
instrument to which Borrower is a party or by which it is bound.
(d) The Transaction Documents constitute legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms.
To our knowledge, no filing need be made with any governmental authority with
respect to the Transaction Documents in connection with an exemption from state
usury laws or in connection with any other matter.
(e) The shares of Common Stock issuable upon exercise of the Warrants
have been duly authorized and reserved for issuance upon such exercise, and when
issued in accordance with the terms of the Warrants, will be duly authorized,
validly issued, fully paid and non-assessable.
The opinions set forth above are subject to the following additional
qualifications, assumptions, limitations and exceptions:
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<PAGE> 38
(A) The effect of bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other similar laws relating to or affecting the
rights and remedies of creditors generally.
(B) Limitations imposed by general equitable principles upon the
specific enforceability of any of the provisions of the Transaction Documents
and upon the availability of injunctive relief or other equitable remedies.
(C) We express no opinion as to the enforceability of any choice of law
provision in the documents.
(D) We express no opinion as to the compliance or noncompliance with
applicable antifraud statutes under the rules and regulations of state and
federal securities laws concerning the issuance of the Warrant.
(E) We express no opinion herein concerning any law other than the law
of the State of California, [the General Corporation Law of the State of
Delaware] and the federal laws of the United States of America.
This opinion is furnished to you solely for your benefit and may not be
relied upon by any other person (other than assignees of any of your rights)
without our prior written consent, which consent shall not be unreasonably
withheld or delayed.
Very truly yours,
-C-3-
<PAGE> 1
LOAN AND SECURITY AGREEMENT
BETWEEN
SILICON VALLEY BANK
AND
TRIPATH IMAGING, INC.
DATED AS OF JANUARY 31, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS AND CONSTRUCTION......................................... 1
1.1. DEFINITIONS...................................................... 1
1.2. ACCOUNTING AND OTHER TERMS....................................... 9
2. LOAN AND TERMS OF PAYMENT............................................ 9
2.1. ADVANCES......................................................... 9
2.2. OVERADVANCES..................................................... 10
2.3. INTEREST RATES, PAYMENTS, AND CALCULATIONS....................... 10
2.4. CREDITING PAYMENTS............................................... 10
2.5. FEES............................................................. 11
2.6. ADDITIONAL COSTS................................................. 11
2.7. TERM............................................................. 12
3. CONDITIONS OF LOANS.................................................. 12
3.1. CONDITIONS PRECEDENT TO INITIAL ADVANCE.......................... 12
3.2. CONDITIONS PRECEDENT TO ALL ADVANCES............................. 13
4. CREATION OF SECURITY INTEREST........................................ 13
4.1. GRANT OF SECURITY INTEREST....................................... 13
4.2. DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.................... 13
4.3. RIGHT TO INSPECT................................................. 13
5. REPRESENTATIONS AND WARRANTIES....................................... 14
5.1. DUE ORGANIZATION AND QUALIFICATION............................... 14
5.2. DUE AUTHORIZATION; NO CONFLICT................................... 14
5.3. NO PRIOR ENCUMBRANCES............................................ 14
5.4. BONA FIDE ELIGIBLE ACCOUNTS...................................... 14
5.5. MERCHANTABLE INVENTORY........................................... 14
5.6. INTELLECTUAL PROPERTY............................................ 14
5.7. NAME; LOCATION OF CHIEF EXECUTIVE OFFICE......................... 15
5.8. LITIGATION....................................................... 15
5.9. NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS............... 15
5.10. SOLVENCY......................................................... 15
5.11. REGULATORY COMPLIANCE............................................ 15
5.12. ENVIRONMENTAL CONDITION.......................................... 15
5.13. TAXES............................................................ 16
5.14. SUBSIDIARIES..................................................... 16
5.15. GOVERNMENT CONSENTS.............................................. 16
5.16. FULL DISCLOSURE.................................................. 16
6. AFFIRMATIVE COVENANTS................................................ 16
6.1. GOOD STANDING.................................................... 16
6.2. GOVERNMENT COMPLIANCE............................................ 16
6.3. FINANCIAL STATEMENTS, REPORTS, CERTIFICATES...................... 17
6.4. INVENTORY; RETURNS............................................... 17
6.5. TAXES............................................................ 17
6.6. INSURANCE........................................................ 18
6.7. PRINCIPAL DEPOSITORY............................................. 18
6.8. QUICK RATIO...................................................... 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
6.9. QUARTERLY NET LOSSES............................................. 18
6.10. FURTHER ASSURANCES............................................... 19
7. NEGATIVE COVENANTS................................................... 19
7.1. DISPOSITIONS..................................................... 19
7.2. CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS LOCATIONS 19
7.3. MERGERS OR ACQUISITIONS.......................................... 19
7.4. INDEBTEDNESS..................................................... 19
7.5. ENCUMBRANCES..................................................... 19
7.6. DISTRIBUTIONS.................................................... 19
7.7. INVESTMENTS...................................................... 19
7.8. TRANSACTIONS WITH AFFILIATES..................................... 20
7.9. INTELLECTUAL PROPERTY AGREEMENTS................................. 20
7.9. SUBORDINATED DEBT................................................ 20
7.10. INVENTORY........................................................ 20
7.11. COMPLIANCE....................................................... 20
8. EVENTS OF DEFAULT.................................................... 20
8.1. PAYMENT DEFAULT.................................................. 20
8.2. COVENANT DEFAULT................................................. 20
8.3. MATERIAL ADVERSE CHANGE.......................................... 21
8.4. ATTACHMENT....................................................... 21
8.5. INSOLVENCY....................................................... 21
8.6. OTHER AGREEMENTS................................................. 21
8.7. SUBORDINATED DEBT................................................ 22
8.8. JUDGMENTS........................................................ 22
8.9. MISREPRESENTATIONS............................................... 22
8.10. GUARANTY......................................................... 22
9. BANK'S RIGHTS AND REMEDIES........................................... 22
9.1. RIGHTS AND REMEDIES.............................................. 22
9.2. POWER OF ATTORNEY................................................ 23
9.3. ACCOUNTS COLLECTION.............................................. 24
9.4. BANK EXPENSES.................................................... 24
9.5. BANK'S LIABILITY FOR COLLATERAL.................................. 24
9.6. REMEDIES CUMULATIVE.............................................. 24
9.7. DEMAND; PROTEST.................................................. 24
10. NOTICES............................................................ 24
11. CHOICE OF LAW AND VENUE............................................ 25
12. GENERAL PROVISIONS................................................. 26
12.1. SUCCESSORS AND ASSIGNS........................................... 26
12.2. INDEMNIFICATION.................................................. 26
12.3. TIME OF ESSENCE.................................................. 26
12.4. SEVERABILITY OF PROVISIONS....................................... 26
12.5. AMENDMENTS IN WRITING, INTEGRATION............................... 26
12.6. COUNTERPARTS..................................................... 26
12.7. SURVIVAL......................................................... 27
</TABLE>
<PAGE> 4
This LOAN AND SECURITY AGREEMENT is entered into as of January 31, 2000,
by and between SILICON VALLEY BANK ("Bank"); and TRIPATH IMAGING, INC., a
Delaware corporation having its principal place of business at 780 Plantation
Drive, Burlington, North Carolina 27215 ("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 loan advance under the Committed
Revolving Line.
"AFFILIATE" means, with respect to any Person, any Person that owns
or controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"ASSET PURCHASE PLAN" shall mean the factoring arrangement pursuant
to the Non-Recourse Receivables Purchase Agreement between Borrower and Bank.
"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
<PAGE> 5
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.
"BORROWING BASE" means an amount equal to eighty percent (80%) of
Eligible Accounts as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
"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 Delaware, North Carolina, Washington or other
applicable states' Uniform Commercial Code.
"COLLATERAL" means all Intellectual Property Collateral and the
property described on Exhibit A attached hereto.
"COMMITTED REVOLVING LINE" means a credit extension of up to Five
Million and No/100ths Dollars ($5,000,000).
"CONTINGENT OBLIGATION" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
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<PAGE> 6
"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 of 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.
"ELIGIBLE ACCOUNTS" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank in writing, Eligible
Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%)
of all Accounts, except for Quest Diagnostics, f/k/a SmithKline Beecham and
Laboratory Corporation, for which the percentage may be thirty-five percent
(35%);
(c) Accounts collected by deposit to a lockbox at any financial
institution other than Bank, unless Bank has entered into an intercreditor
agreement with such other financial institution in form acceptable to Bank
allowing Bank access to such Accounts;
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States, unless Borrower has
obtained foreign credit insurance or letters of credit acceptable to Bank;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof;
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<PAGE> 7
(f) Accounts with respect to which Borrower is liable to the account
debtor, for goods sold or services rendered by the account debtor to Borrower,
but only to the extent of any amounts owing to the account debtor (sometimes
referred to as "contra" accounts, e.g. accounts payable, customer deposits,
credit accounts, contract billings, advance billings, etc.) against amounts owed
to Borrower, provided, however this exclusion shall not include Accounts which
have customer deposits, which Account shall only be eligible to the extent of
all amounts in excess of the deposit;
(g) Accounts generated by demonstration or promotional equipment, or
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower, other than HoffmanLaRoche,
provided its ownership percentage of Borrower does not exceed 15% of the issued
and outstanding capital stock of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines to
be doubtful by reason of the account debtor's financial condition; and
(k) Accounts sold or transferred by Borrower pursuant to the Asset
Purchase Plan.
"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.
"GUARANTOR" means any present or future guarantor of the
Obligations, including, without limitation, AutoCyte North Carolina LLC and Cell
Analysis Systems, Inc.
"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
-4-
<PAGE> 8
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.
-5-
<PAGE> 9
"INVESTMENT" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank 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 January 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.
"NET INCOME (LOSS)" shall mean, for any fiscal period of Borrower,
the net income (or loss) of Borrower and its Subsidiaries on a consolidated
basis for such period (taken as a single accounting period) determined in
conformity with GAAP, after the payment or accrual of all Federal, state or
local taxes, but excluding therefrom (to the extent otherwise included therein
and without duplication): (i) any gains or losses, together with any related
provisions for taxes, realized by Borrower upon any sale of its assets other
than in the ordinary course of business, (ii) any other non-recurring gains or
losses, and (iii) any income or loss of any other Person acquired prior to the
date such other Person becomes a Subsidiary of Borrower or is merged into or
consolidated with Borrower or all or substantially all of such other Person's
assets are acquired by Borrower.
"OBLIGATIONS" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any
-6-
<PAGE> 10
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 the first calendar day of each month commencing
on the first such date after the Closing Date and ending on the Maturity Date.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings 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;
-7-
<PAGE> 11
(c) Liens (i) upon or in any Equipment acquired or held by Borrower
or any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of either Borrower's business not interfering in
any material respect with the business of Borrower and its Subsidiaries taken as
a whole, and any interest or title of a lessor, licensor or under any lease or
license provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder;
(e) Sales and leasebacks relating to equipment and other assets
listed on the Schedules;
(f) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; and
(g) Any liens securing Subordinated Debt.
"PERSON" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"PRIME RATE" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"RESPONSIBLE OFFICER" means each of the Chief Executive Officer,
the 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, limited liability company, 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, including, but not
limited to the Subsidiary.
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<PAGE> 12
"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 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 Assignor connected
with and symbolized by such trademarks.
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. Advances. 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 Advances made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Advances at rates in accordance
with the terms hereof.
2.1.1. Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less, less any unpaid accounts receivables purchased or transferred
pursuant to the Asset Purchase Plan between Borrower and Bank. Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time during the term of this
Agreement.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Eastern time, on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to such Borrower's deposit account.
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<PAGE> 13
The Committed Revolving Line shall terminate on the Maturity Date, at
which time all Advances under this Section 2.1 and other amounts due under this
Agreement (except as otherwise expressly specified herein) shall be immediately
due and payable.
2.2. Overadvances. If, at any time or for any reason, the amount of
Obligations, less any unpaid accounts receivable purchased or transferred
pursuant to the Asset Purchase Plan between Borrower and Bank, owed by Borrower
to Bank pursuant to Section 2.1.1 of this Agreement is greater than the lesser
of (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3. Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to one (1.00) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5.00)
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 ________ 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 2:00 p.m. Eastern
time shall be deemed to have been received by Bank as of the opening of
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<PAGE> 14
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5. Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Twenty-Five Thousand and
No/100ths ($25,000), $15,000 of which has been paid prior to closing leaving a
balance of $10,000 due at closing, which Facility Fee shall be fully earned and
non-refundable when paid.
(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, up to $10,000 per year; and
(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 (which shall not
exceed $10,000) 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, any state, territory
thereof 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.
Upon such notification from Bank, 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.
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<PAGE> 15
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 Advance. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of officer or manager, as applicable, of Borrower
with respect to articles of incorporation, bylaws, articles of organization,
operating agreement, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) completion by Bank of an audit of Borrower's financial
condition, acceptable to Bank;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(g) Certificate of Good Standing and/or Foreign Qualification for
Borrower from the States of Delaware, North Carolina and Washington, and any
other state in which Borrower does business;
(h) Certified Certificate of Incorporation of Borrower; and
(i) a negative pledge security agreement;
(j) an intellectual property security agreement;
(k) guaranties and security agreements by the Guarantor(s);
(l) Subordination Agreement with respect to approximately
$7,000,000 in notes payable to Meier Mitchell/TransAmerica; and
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<PAGE> 16
(m) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to all Advances. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided
in Section 2.1; and
(b) the representations and warranties contained in Section 5 shall
be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
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.
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.
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<PAGE> 17
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower is a corporation, duly
existing and in good standing under the laws of its state of organization 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 Certificate of Incorporation, bylaws, or other
governing documents, 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. Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5. Merchantable Inventory. All Inventory (less reserves) is in all
material respects of good and marketable quality, free from all material
defects.
5.6. Intellectual Property. Except as set forth in Schedule 5.6, Borrower
is the sole owner of, or has the right to use, the Intellectual Property
Collateral, except for non-exclusive licenses granted by Borrower to its
customers in the ordinary course of business. 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.
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<PAGE> 18
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.
5.8. Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to each 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 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 a Borrower 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 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
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<PAGE> 19
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and 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 or interests of any Person, except for
Permitted Investments.
5.15. Government Consents. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
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
an Advance hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain its and each of its
Subsidiaries' existence as a corporation or limited liability company, as the
case may be, and good standing in its jurisdiction of organization 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.
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<PAGE> 20
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 or manager of a Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within ninety
(90) days after the end of the Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days of filing, copies of all statements, reports and notices
sent or made available generally by each 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 a
Borrower or any Subsidiary that could result in damages or costs to a 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 twenty (20) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable (aged by invoice date) and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements
a Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit the
business of the Borrower at Borrower's expense, with the first audit to be
performed prior to the initial Advance; provided that such audits will be
conducted no more often than annually, 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 Five
Hundred Thousand Dollars ($500,000).
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
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<PAGE> 21
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.
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.
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 thirty (30) 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 each maintain its principal
depository and operating accounts with Bank.
6.8. Quick Ratio. Borrower on a monthly basis shall maintain, as of the
last day of each calendar month, a ratio of cash, cash equivalents and Eligible
Accounts to Current Liabilities of at least 1.40 to 1.00.
6.9. Quarterly Net Losses. Borrower's Net Losses, each quarter, shall not
exceed the amounts following for each time period:
<TABLE>
<CAPTION>
Time Period Net Loss
-------------------------------------------
<S> <C>
01/01/00 - 03/31/00 ($4,500,000)
-------------------------------------------
04/01/00 - 06/30/00 ($3,500,000)
-------------------------------------------
07/01/00 - 09/30/00 ($2,500,000)
-------------------------------------------
10/01/00 - 12/31/00 ($1,500,000)
-------------------------------------------
</TABLE>
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<PAGE> 22
6.10. Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Advance 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 shall not do
any of the following without the Bank's prior written consent:
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; (iv) of replaced,
worn-out or obsolete Equipment; or (v) pursuant to the Asset Purchase Plan.
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). 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.
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, however, Borrower shall be permitted to make Distributions for
Taxes.
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.
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<PAGE> 23
7.8. Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.9. Intellectual Property Agreements. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property acquired under such contracts.
7.9. Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10. 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 or
as listed in Schedule 7.10, 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.
7.11. 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.
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, 6.8 and 6.9 or violates any of the
covenants contained in Article 7 of this Agreement, or
-20-
<PAGE> 24
(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 a material adverse
change in the business, operations, or condition (financial or otherwise) of
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;
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 any Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within ten (10) days after Borrower receives notice thereof, provided that none
of the foregoing shall constitute an Event of Default where such action or event
is stayed or an adequate bond has been posted pending a good faith contest by
Borrower (provided that no Advances will be required to be made during such cure
period);
8.5. Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 45 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Five Hundred Thousand Dollars
($500,000) or that could have a Material Adverse Effect;
-21-
<PAGE> 25
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 One Hundred Thousand
Dollars ($100,000) shall be rendered against any Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment);
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 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.
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 any
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which
-22-
<PAGE> 26
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;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of any Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of any
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, any of 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, any of Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2. Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as each 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; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an
-23-
<PAGE> 27
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 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
any 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
-24-
<PAGE> 28
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:
If to Borrower: TriPath Imaging, Inc.
780 Plantation Drive
Burlington, North Carolina 27215
Attn.: Mr. Eric Linsley
FAX: (336) 222-8819
If to Bank Silicon Valley Bank
3343 Peachtree Road
Suite 312
Atlanta, Georgia 30326
Attn.: Mr. Andrew Rico
FAX: (404) 261-2202
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance with,
the internal laws of the State of Georgia, without regard to principles of
conflicts of law. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, 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. THE BORROWER AND THE BANK ALSO AGREE THAT ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST ANY BORROWER IN CONNECTION WITH THIS
AGREEMENT OR SUCH OTHER LOAN DOCUMENT, MAY BE BROUGHT BY THE BANK OR BORROWER IN
ANY STATE OR
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<PAGE> 29
FEDERAL COURT SITTING IN THE COUNTY OF THE STATE IN WHICH BANK'S ADDRESS SHOWN
IN SECTION 10 ABOVE IS LOCATED, OR IN ANY OTHER COURT TO THE JURISDICTION OF
WHICH SUCH BORROWER OR ANY OF ITS PROPERTY IS OR MAY BE SUBJECT. EACH OF THE
BORROWER AND THE BANK IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE AFORESAID
STATE AND FEDERAL COURTS, AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION
TO VENUE IN ANY SUCH COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT
IS AN INCONVENIENT FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
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 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,
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<PAGE> 30
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, under seal, as of the date first above written.
TRIPATH IMAGING, INC.
By: /s/ Eric Linsley (SEAL)
------------------------------------
Title: CFO
------------------------------
SILICON VALLEY BANK
By: /s/ Andrew A. Rico
------------------------------------
Title: Vice President
------------------------------
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<PAGE> 31
EXHIBIT A
The Collateral consists of all of Borrowers' right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrowers' custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, 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, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrowers
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrowers, 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 Borrowers;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrowers' Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrowers' Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE> 32
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME
DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:___________________
FAX#: (781)431-0755 TIME:___________________
FROM: TRIPATH IMAGING, INC.
FROM:_________________________________________________________________________
AUTHORIZED SIGNER'S NAME
_________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:______________________________________________________________________
FROM ACCOUNT #____________________________________
TO ACCOUNT#___________________________________
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
__________________________ _____________________
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $_____________________________
PRINCIPAL PAYMENT (ONLY) $____________________________
INTEREST PAYMENT (ONLY) $_____________________________
PRINCIPAL AND INTEREST (PAYMENT) $____________________________
</TABLE>
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 #____________________________
<PAGE> 33
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: TRIPATH IMAGING, INC. Bank: Silicon Valley Bank
Commitment Amount: $5,000,000
- --------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
<TABLE>
<S> <C> <C>
1. Accounts Receivable Book Value as of $
-------- ----------------
2. Additions (please explain on reverse) $
----------------
3. TOTAL ACCOUNTS RECEIVABLE $
----------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
-----------------
5. Balance of 50% over 90 day accounts $
----------------
6. Concentration Limits (35% for Quest and Laboratory Corporation) $
----------------
7. Foreign Accounts $
-----------------
8. Governmental Accounts $
-----------------
9. Contra Accounts $
-----------------
10. Promotion or Demo Accounts $
----------------
11. Intercompany/Employee Accounts $
-----------------
12. Other (please explain on reverse) $
-----------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
----------------
14. Eligible Accounts (#3 minus #13) $
----------------
15. LOAN VALUE OF ACCOUNTS (80% of #14) $
----------------
BALANCES
16. Maximum Loan Amount $
----------------
17. Total Funds Available [Lesser of #16 or #15] $
----------------
18. Present balance owing on Line of Credit $
----------------
19. Outstanding under Sublimits ( ) $
----------------
20. RESERVE POSITION (#17 minus #18 and #19) $
----------------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
===============================
BANK USE ONLY
RECEIVED BY:
--------------------
DATE:
----------------
REVIEWED BY:
-------------------
COMPLIANCE STATUS: YES / NO
===============================
TRIPATH IMAGING, INC.
By:
-----------------------------
Authorized Signer
<PAGE> 34
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: TRIPATH IMAGING, INC.
The undersigned authorized member of TRIPATH IMAGING, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between each of the Borrower and Bank (the "Agreement"), (i)
the Borrower is in complete compliance for the period ending with all
required covenants except as noted below and (ii) all representations and
warranties of the 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 Member 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 Member expressly
acknowledges that h 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.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
A/R and Borrowing Base Monthly within 20 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.40:1.0 :1.0 Yes No
-------
Maintain on a Quarterly Basis:
Quarterly Net Losses not to exceed:
1Q ($4,500,000) Yes No
----------
2Q ($3,500,000) Yes No
----------
3Q ($2,250,000) Yes No
----------
4Q ($1,500,000) Yes No
----------
</TABLE>
=====================================
BANK USE ONLY
RECEIVED BY:
---------------------
DATE:
----------------
REVIEWED BY:
---------------------
COMPLIANCE STATUS: YES / NO
=====================================
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
- ----------------------- Date:--------------
SIGNATURE
- -----------------------
TITLE
<PAGE> 35
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: TRIPATH IMAGING, INC. Bank: Silicon Valley Bank
- --------------------------------------------------------------------------------
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $5,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: working capital
DISBURSEMENT INSTRUCTIONS. Borrower understand that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line
--------------
<S> <C>
Amount paid to Borrower directly: $
-------
Undisbursed Funds $
-------
Principal $
-------
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Finance Charges Paid in Cash: $10,000.00
$25,000.00 Initial Loan Fee ($15,000 previously paid)
$ Accounts Receivables Audit
Other Charges Paid in Cash: $10,632.25
$ 426.00 UCC Search Fees
$10,206.25 Outside Counsel Fees and Expenses
Total Charges Paid in Cash $20,632.25
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered the amount of any loan payment. If the funds
------
in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF JANUARY 25, 2000.
BORROWER:
- ------------------------------------
Authorized Signature
<PAGE> 36
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: TRIPATH IMAGING, INC. BANK: Silicon Valley Bank
- --------------------------------------------------------------------------------
INSURANCE REQUIREMENTS. TRIPATH IMAGING, 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 January 25, 2000, 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
JANUARY 25, 2000.
GRANTOR:
x
--------------------------------
Authorized Member
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 18,470,806
<SECURITIES> 0
<RECEIVABLES> 10,404,916
<ALLOWANCES> (1,255,366)
<INVENTORY> 6,734,296
<CURRENT-ASSETS> 35,138,598
<PP&E> 11,463,311
<DEPRECIATION> (9,122,575)
<TOTAL-ASSETS> 64,634,353
<CURRENT-LIABILITIES> 13,077,765
<BONDS> 0
0
0
<COMMON> 282,224
<OTHER-SE> 46,288,280
<TOTAL-LIABILITY-AND-EQUITY> 64,634,353
<SALES> 7,446,816
<TOTAL-REVENUES> 7,446,816
<CGS> 3,712,727
<TOTAL-COSTS> 3,712,727
<OTHER-EXPENSES> 6,373,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325,569
<INCOME-PRETAX> (2,765,114)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,765,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,765,114)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
