<PAGE>
Page - 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission file number 0-22872
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SYMBOLLON CORPORATION
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-3463683
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Boston Post Road, Sudbury, MA 01776
- -------------------------------------------------------------------------------
(Address of principal executive offices)
508-443-0165
- -------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
May 12, 1997
-----------------
Class A Common Stock 2,468,790
Class B Common Stock 15,738
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
SYMBOLLON CORPORATION
(a development stage company)
INDEX
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
- March 31, 1997 and December 31, 1996 1
Unaudited Condensed Statements of Operations
and Deficit Accumulated During the Development
Stage - For the three months
ended March 31, 1997 and March 31, 1996 2
UnauditedCondensed Statements of Cash Flows
- For the three months ended March 31, 1997
and March 31, 1996 3
Notes to the Unaudited Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
or Plan of Operation 5
PART II. OTHER INFORMATION
Item 5 Other Information 6
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURE 7
INDEX TO EXHIBITS 8
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED BALANCE SHEETS
ASSETS
<CAPTION>
March 31, December 31,
1997 1996
------------- ------------
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents............................................... $ 1,791,575 $ 1,707,099
Accounts receivable..................................................... 26,432 50,406
Inventory............................................................... 46,066 17,818
Prepaid expenses........................................................ 59,529 82,439
----------- -----------
Total current assets.............................................. $ 1,923,602 $ 1,857,762
Equipment and leasehold improvements, net of
accumulated depreciation................................................. 111,495 124,463
Other assets:
Patent and trademark cost, net of accumulated amortization............ 119,182 127,097
Deposit................................................................... 5,000 5,000
------------ -----------
TOTAL............................................................. $ 2,159,279 $ 2,114,322
============ ===========
LIABILITIES
Current liabilities:
Accounts payable........................................................ $ 61,015 $ 41,173
Notes payable........................................................... 302,500
Legal fees payable to related party..................................... 10,000 30,676
Accrued Interest........................................................ 350
Other accrued professional fees......................................... 38,354 53,234
Deferred revenue........................................................ 17,596
Other current liabilities............................................... 7,575 14,441
------------ -----------
Total current liabilities......................................... 419,794 157,120
Accrued rent.............................................................. 9,333 14,000
------------ -----------
Total liabilities................................................. 429,127 171,120
------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share, 5,000,000 shares authorized
Convertible Preferred Stock, Series A, $.001 par value, 444,444 shares
(liquidation preference $500,000)........................................ 444 444
Common stock, Class A, par value $.001 per share,
18,750,000 shares authorized, 1,265,423 and 1,287,137 shares issued at
December 31, 1996 and March 31, 1997, respectively....................... 2,469 1,288
Common stock, Class B, par value $.001 per share,
1,250,000 shares authorized, 1,214,713 and 1,196,275 shares issued at
December 31, 1996 and March 31, 1997, respectively,
each convertible into one share of Class A common stock.................. 16 1,196
Additional paid-in capital................................................ 7,273,353 7,273,353
Deficit accumulated during the development stage.......................... (5,546,130) (5,333,079)
------------ -----------
Total stockholders' equity........................................... 1,730,152 1,943,202
------------ -----------
TOTAL............................................................. $ 2,159,279 $ 2,114,322
============ ===========
</TABLE>
See notes to condensed financial statements.
1
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<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
<CAPTION>
Period From
July 15, 1986
Three Months Ended (Inception) to
March 31, March 31,
1996 1995 1997
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net sales......................................... $ $ 13,285 $ 240,887
Contract revenue.................................. 40,337 510,328
License fee....................................... 540,000
----------- ----------- -----------
Total income.............................. 40,337 13,285 1,291,215
Operating Expenses:
Manufacturing costs........................... $ $ 6,861 $ 173,706
Research and development costs................ 148,316 345,321 3,622,654
General and administrative expenses........... 124,271 218,367 3,106,980
----------- ----------- -----------
Total operating expenses.................. 272,587 570,549 6,903,340
----------- ----------- -----------
Loss from operations.............................. (232,250) (557,264) (5,612,125)
Interest and other income......................... 19,549 23,876 406,381
Interest expense.................................. (350) (830) (340,386)
----------- ----------- -----------
NET LOSS.......................................... (213,051) (534,218) (5,546,130)
Deficit accumulated during the development stage,
beginning of period.............................. (5,333,079) (4,427,664)
----------- ----------- -----------
Deficit accumulated during the development stage,
end of period.................................... $(5,546,130) $(4,961,882) $(5,546,130)
=========== =========== ===========
NET LOSS PER SHARE OF
COMMON STOCK..................................... $ (0.12) $ (0.30)
=========== ===========
Weighted average number of common
shares outstanding............................... 1,784,528 1,780,136
=========== ===========
</TABLE>
See notes to condensed financial statements.
2
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<TABLE>
SYMBOLLON CORPORATION
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Period From
July 15, 1986
Three Months Ended (Inception) to
March 31, March 31,
1997 1996 1997
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (213,051) $ (534,218) $(5,546,130)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization expense............... 13,723 15,636 333,248
Amortization of debt issuance costs................. 130,000
Accrued rent........................................ (4,667) (2,250) 9,333
Changes in operating assets and liabilities:
Accounts receivable............................... 23,974 30,870 (26,432)
Inventory......................................... (28,247) (17,086) (46,065)
Prepaid expenses.................................. 22,910 (16,262) (59,529)
Deferred revenue.................................. (17,596)
Accounts payable and other current liabilities.... (22,230) 135,921 174,469
----------- ----------- -----------
Net cash used in
operating activities.............................. (225,184) (387,389) (5,031,106)
----------- ----------- -----------
Cash flows from investing activities:
Equipment and leasehold improvements costs............ (8,752) (255,320)
Patent and trademark costs............................ 7,160 (10,724) (308,605)
Deposit............................................... (5,000)
----------- ----------- -----------
Net cash used in investing activities............... 7,160 (19,476) (568,925)
----------- ----------- -----------
Cash flows from financing activities:
Notes Payable......................................... 302,500 302,500
Warrant conversion.................................... 629,204
Borrowings from stockholders.......................... 253,623
Repayment to stockholders............................. (127,683)
Sale of common stock and units........................ 7,227,364
Sale of preferred stock............................... 450,000
Sale of option to purchase units...................... 100
Public offering costs................................. (1,343,502)
----------- ----------- -----------
Net cash provided by
financing activities................................ 302,500 7,391,606
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................... 84,476 (406,865) 1,791,575
Cash at beginning of period............................... 1,707,099 2,087,753
----------- ----------- -----------
CASH AT END OF PERIOD..................................... $ 1,791,575 $ 1,680,888 $ 1,791,575
=========== =========== ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
SYMBOLLON CORPORATION
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - Description of Business:
Symbollon Corporation (the "Company") was originally incorporated as an
Illinois corporation on July 15, 1986 as Symbollon, Inc. On May 21, 1991,
Symbollon, Inc. was merged into Symbollon Corporation, a newly formed
Massachusetts corporation (which was subsequently reincorporated in Delaware in
August 1993), to carry on the business of Symbollon Inc. Except where otherwise
indicated, references to the Company in these financial statements and notes
thereto include the activities of Symbollon, Inc.
The Company was formed to develop and commercialize proprietary
iodine-based products for infection control and treatment in biomedical and
bioagricultural industries.
The Company is in the development stage and its efforts since inception
have been principally devoted to research and development, securing patent and
trademark protection and raising capital. In connection with its research and
development efforts, several grants under the Small Business Innovation Research
("SBIR") program concerning the Company's technology have been funded and
additional grants are being pursued. Management of the Company anticipates that
additional losses will be incurred as these efforts are pursued. In 1995, the
Company signed a marketing and supply agreement for its first product and
commenced shipping.
Note B - Accounting Policies and Disclosure:
The accompanying unaudited financial statements do not contain all of
the disclosures required by generally accepted accounting principles and should
be read in conjunction with the financial statements and related notes included
in the Company's Form 10-KSB for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
In the opinion of management, the financial statements reflect all
adjustments, all of which are of a normal recurring nature, to fairly present
the Company's financial position, results of operations and cash flows. The
results of operations for the three-month period ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
Note C - Line of Credit:
During the first quarter of 1997 the Company established a $500,000
line of credit with Silicon Valley Bank. The line of credit is secured by the
Company's assets and contains various restrictive covenants, including a
restriction on dividends. The line of credit has an interest rate of prime plus
1 1/2% and expires in one year.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is a development stage company. Since inception of the
Company's predecessor in 1986, the Company's efforts have been principally
devoted to research and development, securing patent and trademark protection
and raising capital, most of which efforts commenced after May 1991. Except for
revenue earned since 1995 on sales of IodoZyme, the Company's sole revenue to
date has been from research and development contracts with corporate partners
and interest income.
Forward-Looking Statements
Any statements set forth below or otherwise made in writing or orally
by the Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company makes such statements based on assumptions which it believes to be
reasonable, the Company's business is subject to significant risks and there can
be no assurance that actual results will not differ materially from the
Company's expectations. Accordingly, the Company hereby identifies the following
important factors, among others, which could cause its results to differ from
any results which might be projected, forecasted or estimated by the Company in
any such forward-looking statements: (i) the timely development and acceptance
of new products, (ii) the achievement of product development milestones by the
Company's corporate partners, (iii) the timely receipt of regulatory clearances
required to market the Company's proposed products, (iv) the continued sale of
IodoZyme, the Company's only product, and (v) the Company's ability to enter
into new arrangements with corporate partners.
Results of Operations
Symbollon's net loss decreased by $321,167 or 60.1% from $534,218 in
the three month period ended March 31, 1996 to $213,051 in the comparable 1997
period. This decrease resulted primarily from decreased development efforts and
decreased general and administrative expenses, and increased contract revenues.
The Company expects to continue to incur operating losses for the foreseeable
future.
Product revenues from sales of IodoZyme decreased by $13,285 or 100%
from $13,285 in the three month period ended March 31, 1996 to none in the
comparable 1997 period. The Company anticipates that future sales of IodoZyme
for the remainder of 1997 will equal or exceed the levels achieved during 1996.
Contract revenues increased by $40,337 or 100% from none in the three
month period ended March 31, 1996 to $40,337 in the comparable 1997 period. This
increase resulted from revenues generated from a research and development
contract with a corporate partner not in existence during the three month period
ended March 31, 1996.
General and administrative expenses decreased by $94,096 or 43.1% from
$218,367 in the three month period ended March 31, 1996 to $124,271 in the
comparable 1997 period. This decrease resulted from decreased legal fees,
insurance costs and director fees. Research and development expenses decreased
by $197,005 or 57.1% from $345,321 in the three month period ended March 31,
1996 to $148,316 in the comparable 1997 period. This decrease resulted from
decreases in labor costs associated with a reduction in the work force and the
discontinuation of the development expenses, including third party testing and
consultant fees, related to the preparation of the 510(k) filing with the
Federal Food and Drug Administration covering the Company's high level
disinfectant formulation.
Liquidity and Capital Resources
The Company has funded its activities through proceeds from Class A
Warrant exercises, its initial public offering and private placements of equity
and debt securities and through loans from principal stockholders. Independent
research and development activities regarding the Company's technology has been
funded through SBIR grants received and administered by Biomedical Development
Corporation. As of March 31, 1997, the Company had working capital of
$1,503,808.
The Company has had no significant revenue and has incurred a
cumulative loss through March 31, 1997 of $5,546,130. However, the Company
believes that it has the necessary liquidity and capital resources, together
with anticipated future revenues, to sustain planned operations for the twelve
months following March 31, 1997. In the event that the Company's internal
estimates relating to its planned revenues or expenditures prove materially
inaccurate, the Company may be required to reallocate funds among its planned
activities and curtail certain planned expenditures. In any event, the Company
anticipates that it will require additional funds after March 31, 1998.
During the remainder of 1997, the Company anticipates paying
approximately $210,000 as compensation for its current executive officers, and
approximately $38,250 for lease payments on its facilities. At December 31,1996,
the Company had a net operating loss carryforward for Federal income tax
purposes of approximately $5,010,000 expiring through 2011.
Part II - Other Information
Item 5. Other Information
During the first quarter of 1997 the Company established a $500,000
line of credit with Silicon Valley Bank. The line of credit is secured by the
Company's assets and contains various restrictive covenants, including a
restriction on dividends. The line of credit has an interest rate of prime plus
1 1/2% and expires in one year.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
SYMBOLLON CORPORATION
Date: May 12, 1997 By: /s/ Paul C. Desjourdy
---------------------
Paul C. Desjourdy, Vice
President/CFO
and authorized signatory
<PAGE>
SYMBOLLON CORPORATION
INDEX TO EXHIBITS
Page #
10.17 Loan and Security Agreement, dated March 26, 1997, between
the Company and Silicon Valley Bank............................
11.1 Statement re: Computation of Earnings per Share................
27.1 Financial Data Schedule........................................
LOAN AND SECURITY AGREEMENT,
DATED AS OF MARCH 26, 1997,
by and between
SILICON VALLEY BANK
and
SYMBOLLON CORPORATION
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 7
2. LOAN AND TERMS OF PAYMENT 7
2.1 Advances 7
2.2 Overadvances 7
2.3 Interest Rates, Payments and Calculations 8
2.4 Crediting Payments 8
2.5 Fees 9
2.6 Additional Cost 9
2.7 Term 9
3. CONDITIONS OF LOAN 10
3.1 Conditions Precedent to Initial Credit Extension 10
3.2 Conditions Precedent to all Credit Extensions 10
4. CREATION OF SECURITY INTEREST 11
4.1 Grant of Security Interest 11
4.2 Delivery of Additional Documentation Required 11
4.3 Right to Inspect 11
5. REPRESENTATIONS AND WARRANTIES 11
5.1 Due Organization and Qualification 11
5.2 Due Authorization; No Conflict 11
5.3 No Prior Encumbrances 12
5.4 Bona Fide Accounts 12
5.5 Merchantable Inventory 12
5.6 Name; Location of Chief Executive Office 12
5.7 Litigation 12
5.8 No Material Adverse Change in Financial Statements 12
5.9 Solvency 12
5.10 Regulatory Compliance 12
5.11 Environmental Condition 13
5.12 Taxes 13
5.13 Subsidiaries 13
5.14 Government 13
5.15 Intellectual Property Rights 13
5.16 Full Disclosure 13
<PAGE>
6. AFFIRMATIVE COVENANTS 14
6.1 Good Standing 14
6.2 Government Compliance 14
6.3 Financial Statements, Reports, Certificates 14
6.4 Inventory; Returns 15
6.5 Taxes 15
6.6 Insurance 15
6.7 Principal Depository 15
6.8 Liquidity 16
6.9 Tangible Net Worth 16
6.10 Further Assurances 16
7. NEGATIVE COVENANTS 16
7.1 Dispositions 16
7.2 Change in Business 16
7.3 Mergers or Acquisitions 16
7.4 Indebtedness 17
7.5 Encumbrances 17
7.6 Distributions 17
7.7 Investments 17
7.8 Transactions with Affiliates 17
7.9 Subordinated Debt 17
7.10 Inventory 17
7.11 Compliance 17
8. EVENTS OF DEFAULT 18
8.1 Payment Default 18
8.2 Covenant Default 18
8.3 Material Adverse Developments 18
8.4 Attachment 18
8.5 Insolvency 19
8.6 Other Agreements 19
8.7 Subordinated Debt 19
8.8 Judgments 19
8.9 ERISA 19
8.10 Misrepresentations 20
9. BANK'S RIGHTS AND REMEDIES 20
9.1 Rights and Remedies 20
9.2 Power of Attorney 21
9.3 Accounts Collection 21
9.4 Bank Expenses 21
9.5 Bank's Liability for Collateral 22
<PAGE>
9.6 Remedies Cumulative 22
9.7 Demand; Protest 22
10. NOTICES 22
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER 23
12. GENERAL PROVISIONS 24
12.1 Successors and Assigns 24
12.2 Indemnification 24
12.3 Time of Essence 24
12.4 Severability of Provisions 24
12.5 Amendments in Writing; Integration 24
12.6 Counterparts 24
12.7 Survival 24
12.8 Confidentiality 25
12.9 Countersignature 25
SCHEDULE A Schedule of Exceptions
EXHIBIT A Description of Collateral
EXHIBIT B Loan Payment/Advance Telephone Request Form
EXHIBIT C Compliance Certificate
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of the 26st day of
March, 1997, by and between SILICON VALLEY BANK, a California-chartered bank
("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under
the name "Silicon Valley East", and SYMBOLLON CORPORATION, a Delaware
corporation ("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 Person's managers and
members.
"Agreement" means this Loan and Security Agreement,
as amended, supplemented or modified from time to time in accordance with its
terms.
"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>
and expenses of appeal or review, or those incurred in any Insolvency
Proceeding), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial
Code.
"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Revolving Line" means a credit extension
of up to Five Hundred Thousand Dollars ($500,000).
"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.
"Controlled Group" means all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with Borrower, are treated as a single
employer under Section 414 of the IRC.
<PAGE>
"Credit Extension" means each Advance or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"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.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including, without limitation, reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intellectual Property" has the meaning set forth in
Section 5.15 hereof.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
<PAGE>
"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.
"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.
"Multiemployer Plan" means at any time an employee
pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which
Borrower or any member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions, including for these purposes any Person which ceased to be
a member of the Controlled Group during such five year period.
"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, and
Borrower's Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the last calendar day of each
month.
"PBGC" means the Pension Benefit Guaranty Corporation
or any entity succeeding to any or all of its functions under ERISA.
"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 Schedule A;
(c) Subordinated Debt;
<PAGE>
(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 and
disclosed in Schedule A; 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 Schedule A;
(b) Liens in favor of Bank, including, without
limitation, Liens arising under this Agreement or the other Loan Documents;
(c) 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;
(d) 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;
(e) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (d) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation,
<PAGE>
institution, public benefit corporation, firm, joint stock company, estate,
entity or governmental agency.
"Plan" means any employee pension benefit plan which
is covered by Title IV of ERISA or subject to minimum funding standards under
Section 412 of the IRC and is either (a) maintained by Borrower or any member
of the Controlled Group for employees of Borrower or any member of the
Controlled Group or (b) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which Borrower or any member of the Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"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.
"Revolving Maturity Date" means March 26, 1998.
"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, any
corporation, partnership, company association, joint venture or any other
business entity of which (1) any general partnership interest or (ii) more than
50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by such Person or one or more of Affiliates of such
Person's Affiliates.
"Tangible Net Worth" means, as of any applicable
date, the consolidated total assets of Borrower and its Subsidiaries minus,
without duplication, (i) the sum of any amounts attributable to (a) goodwill,
(b) intangible items such as unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, and (c) all reserves not already deducted from
assets, and (ii) Total Liabilities.
"Total Liabilities" means, as of any applicable date,
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.
"Unfunded Liabilities" means, with respect to any
Plan, at any time, the amount (if any) by which (a) the present value of all
benefits under such Plan exceeds (b) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent
<PAGE>
valuation date for such Plan, but only to the extent that such excess represents
a potential liability of Borrower or any member of the Controlled Group to the
PBGC or such Plan under Title IV of ERISA.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP, and all calculations and
determinations made hereunder shall be made in accordance with GAAP. When used
herein, the terms "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
(a) Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower in an aggregate amount
not to exceed the Committed Revolving Line. 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.
(b) Whenever Borrower desires an Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific 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
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on
the Revolving 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
outstanding principal amount of Advances hereunder exceeds the Committed
Revolving Line, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
<PAGE>
. 2.3 Interest Rates, Payments and Calculations
(a) Interest Rate. Except as set forth in Section
2.3(b), each Advance shall bear interest, on the average daily balance
thereof, at a rate equal to one and one-half of one percentage point (1.500%)
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 percentage points (5.000%) above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on the Payment Date of each month during the term hereof. 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 the Obligations, but shall not be considered
a payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00 noon
Pacific time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business Day. Whenever any payment to
Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
<PAGE>
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fees. A Facility Fee equal to one-half
of one percentage point (0.500%) of the Committed Revolving Line or Two Thousand
Five Hundred Dollars ($2,500), which fee shall be due and payable on the Closing
Date and on each anniversary thereof during the term of this Agreement, and
shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred through
the date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
2.6 Additional Cost. In case any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United States
of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement;
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this
Agreement shall become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect
<PAGE>
until all Obligations are paid in full. 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,
Bank's Lien on the Collateral shall remain in effect for so long as any
Obligations are outstanding.
3. CONDITIONS OF LOAN
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
conditions precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to charter documents, bylaws, corporate good standing, foreign
qualification(s), incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an opinion of Borrower's counsel;
(d) financing statements (Forms UCC-1);
(e) insurance certificate(s);
(f) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof; and
(g) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial
Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of
Default shall have occurred and be continuing, or would result from such
Credit Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower
<PAGE>
on the date of such Credit Extension 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 repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in
Schedule A annexed hereto, 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, and pay all fees,
expenses and taxes related thereto, to perfect and continue perfected
Bank's security interests in the Collateral and in order to fully consummate all
of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral
in order to verify Borrower's financial condition or the amount, condition of,
or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary are corporations duly existing and in good standing under the laws
of their respective states of incorporation and are qualified and licensed to
do business in, and are in good standing in, any state in which the conduct of
their businesses or their ownership of property requires that they 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 or Bylaws, nor
will they constitute an event of default under any material agreement
<PAGE>
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 Accounts. Borrower's Accounts are bona fide
existing obligations. The service or property giving rise to such Accounts
has been performed for the account debtor or delivered to the account debtor
or to the account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in Schedule A annexed hereto, 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.
5.7 Litigation. Except as disclosed in Schedule A annexed
hereto, there are no actions or proceedings pending by or against Borrower or
any Subsidiary before any court or administrative agency in which an adverse
decision could have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral.
5.8 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.
5.9 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to
result in Borrower's incurring any liability that could have a Material
Adverse Effect. Borrower is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. Borrower is not engaged principally,
or as one of its important activities, in the business of extending credit for
the
<PAGE>
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused
to be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 Government. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Intellectual Property Rights. Borrower and each of its
Subsidiaries owns or possesses all of the copyrights, patents, trademarks and
similar rights ("Intellectual Property") necessary for the conduct of its
business as now conducted, without any known conflict with the rights of others
which would have a Material Adverse Effect.
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.
<PAGE>
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 any Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of
its Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Governmental Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower
shall deliver to Bank: (a) as soon as available, but in any event within
twenty-five (25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, certified by an officer of Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within five (5)
days of filing with the Securities and Exchange Commission, audited consolidated
annual financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more in the aggregate; and (e) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time.
Within twenty-five (25) days after the last day of each month,
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit C hereto.
Bank shall have a right from time to time after the occurrence
of an Event of Default to audit Borrower's Accounts at Borrower's expense.
<PAGE>
6.4 Inventory Returns. Borrower shall keep all Inventory in
good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes
and claims, where the return, recovery, dispute or claim involves more than
Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Bank, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment (i) is 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
therefrom.
6.6 Insurance
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the Collateral
in amounts and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as reasonably satisfactory to
Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must
give at least twenty (20) days' notice to Bank before canceling its policy for
any reason. At Bank's request, Borrower shall deliver to Bank certified
copies of such policies of insurance and evidence of the payments of all
premiums therefor. All proceeds payable under any such policy shall, at the
option of Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
<PAGE>
6.8 Liquidity. Borrower shall maintain, as of the last day
of each calendar month, minimum Liquidity of $1,000,000. For purposes of this
Section 6.8, Liquidity means the sum of (i) unrestricted cash (and equivalents),
plus (ii) fifty percent (50%) of gross Accounts.
In the event that Liquidity shall be greater than or equal to
$600,000 but less than $1,000,000 as of any applicable date, Borrower shall
pledge cash equal to fifty percent (50%) of aggregate Advances then outstanding
to Bank pursuant to such instruments or agreements as Bank may reasonably
require. In the event that Liquidity shall be less than $600,000 as of any
applicable date, Borrower shall pledge cash equal to one hundred percent (100%)
of aggregate Advances then outstanding to Bank pursuant to such instruments or
agreements as Bank may reasonably require.
6.9 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calender month, a Tangible Net Worth of not less than
$1,250,000.
6.10 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Credit
Extension, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) Transfers that constitute payment of
normal and usual operating expenses in the ordinary course of business; or (iv)
Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership, management or directors. 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.
<PAGE>
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist
any Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.
7.9 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 the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest and pays all fees,
expenses and taxes required to be paid in connection therewith..
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, as amended, or become principally engaged in, or
undertake as one of its important activities, the business of extending credit
for the purpose of purchasing or carrying margin stock, or use the proceeds
of any Credit Extension for such purpose; fail to meet the minimum funding
requirements of ERISA; permit a "Reportable Event" or "Prohibited Transaction,"
as defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any law or regulation, which violation could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral; or permit any of its Subsidiaries
to do any of the foregoing.
<PAGE>
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any
of the Obligations;
8.2 Covenant Default
(a) If Borrower fails to perform any obligation
under Sections 6.7, 6.8 or 6.9 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement or in any of the other Loan Documents 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
Borrower receives notice thereof or any officer of Borrower becomes aware
thereof, provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Credit
Extension will be required to be made during such cure period), or
(c) If a default occurs under any other present or
future agreement between Borrower and Bank, and such default has not been
expressly waived in writing, permits the acceleration of debt issued or
otherwise created pursuant thereto, or if any such debt is declared due and
payable prior to the stated maturity thereof or is not paid in full at the
stated maturity thereof;
8.3 Material Adverse Developments. If (i) there occurs a
material impairment of the perfection or priority of the Bank's security
interest in the Collateral or of the value of such Collateral which is not
covered by adequate insurance or (ii) the Bank determines, based upon
information available to it and in the exercise of its reasonable judgment,
that there is a reasonable likelihood that Borrower will fail to comply with one
or more of the financial covenants set forth in Section 6 during the next
succeeding financial reporting period;
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,
<PAGE>
any material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any material portion of Borrower's
assets, or if a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extension 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 thirty
(30) days (provided that no Credit Extension will be made prior to the dismissal
of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement
to which Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) in the aggregate or that could have a Material Adverse
Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
8.8 Judgements. If a judgment or judgments for the payment
of money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extension will be made prior to the satisfaction or stay of such judgment);
8.9 ERISA. If Borrower or any member of the Controlled
Group fails to pay when due an amount or amounts aggregating in excess of
$100,000 which it is obligated to pay to the PBGC or to a Plan under Title IV
of ERISA; or a notice of intent to terminate a Plan or Plans having aggregate
Unfunded Liabilities in excess of $100,000 shall be filed under Title IV of
ERISA by Borrower or any member of the Controlled Group, any plan administrator
or any combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any such Plan or Plans or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans against Borrower or any member of the
Controlled Group to enforce Sections 515 or 4219(c)(5) of ERISA; or a
condition shall exist by reason of which the PBGC would be entitled to obtain
a decree adjudicating that any such Plan or Plans must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause Borrower or one or more members of the
Controlled Group to incur a current payment obligation in excess of $100,000; or
<PAGE>
8.10 Misrepresentations. If any material misrepresentation
or material misstatement exists now or hereafter in any warranty or
representation set forth herein or in any certificate 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.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises, Borrower
hereby grants Bank a license to enter into possession of such premises and to
occupy the same, without charge in order to exercise any of Bank's rights or
remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, mask rights, rights of use
of any name, trade secrets, trade names, trademarks, service marks and
advertising matter, or any property of a similar nature,
<PAGE>
as it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable, and apply 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
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; (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; and
(f) to file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral
without the signature of Borrower where permitted by law; provided that Bank
may exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to make any Credit Extension hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the
continuation of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and, if requested or required
by Bank, immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement,
<PAGE>
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 inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed
on behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
<PAGE>
If to Borrower Symbollon Corporation
122 Boston Post Road
Sudbury, MA 01776
Attn: Paul C. Desjourdy, Executive Vice President
FAX: (508) 443-0166
If to Bank Silicon Valley East,
a Division of Silicon Valley Bank
40 William Street, Suite 350
Wellesley, MA 02181
Attn: Mark J. Pasculano, Vice President
FAX: (617) 431-9906
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. Each such notice, request or other communication shall be effective
(i) if given by telecopy, when such telecopy is transmitted to the telecopy
number specified in this Section and the appropriate confirmation is received,
(ii) if given by certified mail, 72 hours after such communication is deposited
with the post office, addressed as aforesaid or (iii) if given by any other
means (including, without limitation, by air courier), when delivered at the
address specified in this Section.
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of The Commonwealth of Massachusetts, without
regard to principles of conflicts of law. BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF
MASSACHUSETTS IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH
ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY
REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA
CLARA COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY
<PAGE>
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of
each of the parties; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which consent may be granted or withheld in Bank's sole discretion.
Bank shall have the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall indemnify, defend,
protect and hold harmless Bank and its officers, employees, and agents against:
(a) all obligations, demands, claims, and liabilities claimed or asserted by
any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under the Loan
Documents, or otherwise (including, without limitation, reasonable attorneys
fees and expenses), except for losses caused by Bank's gross negligence or
willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing; Integration. This Agreement
cannot be amended or terminated except by a writing signed by Borrower and Bank.
All prior agreements, understandings, representations, warranties, and
negotiations between the parties hereto with respect to the subject matter of
this Agreement, if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses,
<PAGE>
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, provided that so long as the obligations set
forth in the first sentence of this Section 12.7 have been satisfied, and Bank
has no commitment to make any Credit Extension or to make any other loans to
Borrower, Bank shall release all security interests granted hereunder and
redeliver all Collateral held by it in accordance with applicable law. Borrower
shall pay all fees, expenses and taxes required to be paid in connection with
any such redelivery of Collateral.
12.8 Confidentiality. In handling any confidential
information Bank shall exercise the same degree of care that it exercises with
respect to its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Obligations, provided that
they have entered into a comparable confidentiality agreement in favor of
Borrower and have delivered a copy to Borrower, (iii) as required by law,
regulations, rule or order, subpoena, judicial order or similar order, (iv) as
may be required in connection with the examination, audit or similar
investigation of Bank, and (v) as Bank may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either: (a) is in the public domain
or in the knowledge or possession of Bank when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank through no fault of Bank; or
(b) is disclosed to Bank by a third party, provided Bank does not have actual
knowledge that such third party is prohibited from disclosing such information.
12.9 Countersignature. This Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Agreement become effective until signed by an officer of
Bank in California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first above written.
SYMBOLLON CORPORATION.
By: /s/ Paul C. Desjourdy
------------------------
Name: Paul C. Desjourdy
Title: Exec. Vice President/CFO
<PAGE>
SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By:______________________________
Name:____________________________
Title:_____________________________
SILICON VALLEY BANK
By:______________________________
Name:____________________________
Title:_____________________________
(signed in Santa Clara County, California)
<PAGE>
SCHEDULE A
SCHEDULE OF EXCEPTIONS
Indebtedness
None
Investments
None
Liens
None
Name; Chief Executive Office
None
Litigation
None
<PAGE>
EXHIBIT A
DESCRIPTION OF COLLATERAL
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) 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;
(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;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, 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, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment
property, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) All Borrower's 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>
Page - 1
Exhibit 11.1
<TABLE>
SYMBOLLON CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
The Three-Months Ended March 31,
------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Loss.......................... $ (213,051) $ (534,218)
Preferred Stock Dividend.......... (25,096)
------------ ------------
Net Loss on Per Share Basis....... (238,147) (534,218)
============ ============
Primary loss per share:
Weighted average common shares
outstanding..................... 2,484,528 2,480,136
Shares subject to restriction... (700,000) (700,000)
------------ ------------
1,784,528 1,780,136
============ ============
Loss per share (1):............... $ (0.13) $ (0.30)
============ ============
(1) There is no difference between primary and fully diluted loss per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED UNAUDITED FINANCIAL STATEMENT OF SYMBOLLON CORPORATION FOR THE NINE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENT AS FILED IN THE FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,791,575
<SECURITIES> 0
<RECEIVABLES> 26,432
<ALLOWANCES> 0
<INVENTORY> 46,066
<CURRENT-ASSETS> 1,923,602
<PP&E> 255,319
<DEPRECIATION> 143,824
<TOTAL-ASSETS> 2,159,279
<CURRENT-LIABILITIES> 419,794
<BONDS> 0
0
444
<COMMON> 2,485
<OTHER-SE> 1,727,223
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</TABLE>
