Loan and Security Agreement - Align Technology Inc. and Comerica Bank-California
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Loan And Security Agreement
Align Technology, Inc.
AND
Comerica Bank - California
December 20, 2002
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Parties:
Comerica Bank "Comerica"
Align Technology, Inc. "Borrower"
Counsel:
Cooley Godward LLP, counsel to Comerica
Wilson Sonsini Goodrich & Rosati, counsel to Borrower
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TAB DOCUMENT
All documents are dated as of December 20, 2002 unless otherwise noted.
1. Loan and Security Agreement by and between Align Technology, Inc., a
Delaware corporation ("Borrower") and Comerica Bank-California
("Comerica").
A. Exhibits to Loan Agreement:
Exhibit A Definitions
Exhibit B Collateral Description Attachment
Exhibit C Form of Loan Payment/Advance Telephone Request
Exhibit D Form of Borrowing Base Certificate
Exhibit E Form of Compliance Certificate
2. Disclosure Letter.
A. Schedules to Disclosure Letter:
Exhibit A Permitted Indebtedness (Existing Indebtedness of
Borrower or Subsidiaries)
Exhibit A Permitted Investments (Subsidiaries of Borrower)
Exhibit A Permitted Investments (Existing Investments of
Borrower or Subsidiaries)
Exhibit A Permitted Liens (Existing Liens of Borrower or
Subsidiaries)
Schedule 5.4 5% Revenue Generating Inbound Licenses
Schedule 5.5 Prior and Other Names of Borrower
Schedule 5.6 Litigation
Schedule 5.12 Inbound Licenses
Schedule 5.13 Borrower Deposit and Investment Accounts
Schedule 7.10 Collateral Locations
3. UCC-1 Financing Statement wherein Borrower is debtor and Comerica is
secured party filed December 23, 2002 with the Delaware Secretary of State
UCC Division, file number 30020803.
4. Compliance Certificate.
5. Agreement to Provide Insurance.
6. Evidence of Insurance dated as of December 18, 2002.
7. Itemization of Amount Financed - Equipment Loan.
8. Itemization of Amount Financed - Revolver.
9. Automatic Debit Authorization - 0189209236 - 18.
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10. Automatic Debit Authorization - 0189209236 - 67.
11. Loan Payment/Advance Telephone Request.
12. Lockbox Agreement dated as of November 22, 2002.
13. Officer's Certificate.
Exhibit A Amended and Restated Certificate of Incorporation
Exhibit B Bylaws of Borrower
Exhibit C Resolutions
14. Certificate of Good Standing issued by the Delaware Secretary of State on
December 17, 2002.
15. Certificate of Status Foreign Corporation issued by the California
Secretary of State on December 17, 2002.
16. Tax Good Standing Letter issued by the California Franchise Tax Board on
December 17, 2002.
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LOAN AND SECURITY AGREEMENT
between
Align Technology, Inc.
and
Comerica Bank - California
December 20, 2002
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This Loan And Security Agreement (as amended, modified or supplemented from
time to time, this "Agreement") is entered into as of December 20, 2002, by and
between Comerica Bank-California ("Bank") and Align Technology, Inc., 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 definitions set forth on Exhibit A.
1.2 Accounting Terms. All accounting terms not specifically defined on
Exhibit A shall be construed in accordance with GAAP and all calculations shall
be made in accordance with GAAP. The term "financial statements" shall include
the accompanying notes and schedules.
2. Loans And Terms Of Payment.
2.1 Credit Extensions. Borrower promises to pay to Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Credit Extensions made by Bank to Borrower, together with interest on the
unpaid principal amount of such Credit Extensions at rates in accordance with
the terms hereof.
(a) Revolving Advances.
(i) Subject to and upon the terms and conditions of this
Agreement, Bank, agrees to make advances (each a "Revolving Advance" and
collectively, the "Revolving Advances") to Borrower, subject to Section
2.1(a)(ii), in an aggregate outstanding amount not to exceed the lesser of (A)
the Committed Revolving Line or (B) the Borrowing Base, minus, in each case, the
aggregate face amount of all Letters of Credit. Amounts borrowed pursuant to
this Section 2.1 (a) may be repaid and reborrowed at any time prior to the
earlier to occur of (i) the Revolving Maturity Date, at which time all Revolving
Advances under this Section 2.1 (a) shall be immediately due and payable or
(ii) the termination of Bank's obligation to advance money pursuant to Section
9.1(b).
(ii) Whenever Borrower desires a Revolving Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile transmission
or telephone to he received no later than 3:00 p.m. Eastern Standard Time, on
the Business Day that the Revolving Advance is to be made. Each such
notification shall be promptly confirmed by a
1.
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Payment/Advance Form in substantially the form of Exhibit C. The notice shall be
signed by a Responsible Officer or his or her designee. Bank is authorized to
make Revolving 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 Revolving 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 Revolving Advances made under this
Section 2.1(a) to Borrower's deposit account maintained with Bank.
(iii) Borrower shall use Revolving Advances solely for
working capital and general corporate purposes.
(b) Letter of Credit Usage. Subject to the availability under the
Committed Revolving Line and in reliance on the representations and warranties
of Borrower set forth herein, at any time and from time to time from the date
hereof through the Business Day immediately prior to the Revolving Maturity
Date, Bank shall issue for the account of Borrower such standby or commercial
letters of credit (each, a "Letter of Credit" and collectively, "Letters of
Credit") in an aggregate face amount not to exceed the least of (i) the
Committed Revolving Line minus the sum of (a) the aggregate principal amount of
the outstanding Revolving Advances at the time of issuance of such Letter of
Credit plus (b) the aggregate face amount of all outstanding Letters of Credit
at the time of issuance of such Letters of Credit, (ii) the Borrowing Base minus
the sum of (a) the aggregate principal amount of the outstanding Revolving
Advances at the time of issuance of such Letter of Credit plus (b) the aggregate
face amount of all outstanding Letters of Credit at the time of issuance of such
Letter of Credit and (iii) One Million Dollars ($1,000,000). The request for
such Letters of Credit shall be made by delivering to Bank a duly executed
letter of credit application on Bank's standard form. All Letters of Credit
shall be in form and substance acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank's form application and
letter of credit agreement (the "Application"). Borrower will pay any standard
issuance and other fees that Bank notifies Borrower will be charged for issuing
and processing Letters of Credit for Borrower. On any drawn but unreimbursed
Letter of Credit, the unreimbursed amount shall be deemed a Revolving Advance
under Section 2.1(a). No Letter of Credit shall have an expiration date which is
later than the Revolving Maturity Date unless Borrower shall deposit with Bank
cash collateral in an amount equal to or greater than one hundred five percent
(105%) of the undrawn face amount of all such outstanding Letters of Credit.
(i) The obligation of Borrower to reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, the Application, and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold
Bank harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection with any
Letters of Credit, except for losses, costs, expenses or liabilities caused by
Bank's gross negligence or willful misconduct.
2.
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(c) Equipment Advances.
(i) Bank agrees to make an advance ("Equipment Advance") to
Borrower, in an aggregate outstanding amount not to exceed the Equipment Line.
The Equipment Advance shall not exceed (i) for new equipment with invoices dated
from September 20, 2002 through the Closing Date, one hundred percent (100%) of
the invoice amount, less taxes, freight, installation and other soft costs, (ii)
for equipment with invoices dated June 1, 2002 through September 20, 2002, one
hundred percent (100%) of the invoice amount, less taxes, freight, installation
and other soft costs, discounted for the number of months that such invoices are
dated prior to September 20, 2002, and (iii) for equipment purchased prior to
June 1, 2002, ninety percent (90%) of the forced sale value of such equipment as
determined by an appraiser approved by Bank. All such equipment invoices shall
be approved by Bank.
(ii) Borrower shall provide notice to Bank of the requested
Equipment Advance in substantially in the form of the Payment/Advance Form
attached hereto as Exhibit C. The notice shall be signed by a Responsible
Officer or his or her designee and include a copy of the invoice for any
Equipment to be financed, and shall include the serial numbers of such
equipment.
2.2 Overadvances. If, at any time, (a) the aggregate amount of the
outstanding Revolving Advances exceeds the amounts permitted to be borrowed
under Section 2.1(a)(i); or (b) the aggregate amount of the outstanding
Equipment Advances exceeds the Equipment Line, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 Principal Repayments.
(a) Revolving Loans. All Revolving Advances shall be due and
payable on the Revolving Maturity Date.
(b) Equipment Advances. The Equipment Advance shall be due and
payable in thirty-six (36) equal monthly installments of principal, beginning on
January 1, 2003 and continuing on the first day of each month thereafter through
the Equipment Maturity Date, at which time all amounts due in, connection with
Equipment Advances made under Section 2.1(c), along with accrued but unpaid
interest thereon, shall be immediately due and payable.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Revolving Advances. Except as set forth in Section
2.4(b), the Revolving Advances shall bear interest, on the outstanding daily
balance thereof, at a rate equal to One and Three Quarters of One Percent
(1.75%) above the Prime Rate.
(ii) Equipment Advances. Except as set forth in Section
2.4(b), the Equipment Advances shall bear interest, on the outstanding daily
balance thereof, at a rate equal to Two and One Quarter of One Percent (2.25%)
above the Prime Rate.
3.
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(b) Late Fee; Default Rate. If any payment is not made within ten
(10) days after the date such payment is due, Borrower shall pay Bank a late fee
equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount
or (ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate, equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.
(c) Payments. Interest on Revolving Advances and Equipment
Advances hereunder shall be due and payable in arrears on the first day of each
month during the term hereof. Bank may, at its option, charge such interest, all
Bank Expenses, and all Periodic Payments against any of Borrower's deposit
accounts or against the Committed Revolving Line, in which case those amounts
shall thereafter accrue interest at the rate then applicable hereunder. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interest hereunder shall be increased
or decreased, effective as of the day the Prime Rate is changed, by an amount
equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
2.5 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 and during the continuance of an Event of Default, the receipt by
Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
Standard Time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.6 Fees. Borrower shall pay to Bank the following:
(a) Revolving Commitment Fee. On the Closing Date, a Revolving
Commitment Fee equal to Fifty Thousand Dollars ($50,000).
(b) Revolving Facility Fee. A Revolving Facility Fee equal to
Twenty Five Thousand Dollars ($25,000) per year, payable quarterly in advance,
which amount, once paid, is not refundable;
4.
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(c) Equipment Commitment Fee. On the Closing Date, an Equipment
Commitment Fee equal to Twenty-Five Thousand Dollars ($25,000).
(d) Bank Expenses. On the Closing Date, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses and, after the Closing Date, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.7 Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a
term ending on the Equipment Maturity Date.
2.8 Prepayment; Reduction of Committed Revolving Line. Upon two (2)
Business Days prior written notice to Bank, Borrower may prepay the Credit
Extensions in whole or in part without premium or penalty. Any partial
prepayment must be in a principal amount of at least Fifty Thousand Dollars
($50,000) or an integral multiple of Ten Thousand Dollars ($10,000) in excess
thereof. Upon two (2) Business Days prior written notice to Bank, Borrower may
reduce or terminate the Committed Revolving Line to an amount not less than the
then outstanding principal amount of all Revolving Advances; provided, that any
partial reduction shall be in amount not less than Fifty Thousand Dollars
($50,000) or an integral multiple of Ten Thousand Dollars ($10,000) in excess
thereof. Once reduced in accordance with this section, the Committed Revolving
Line may not be increased.
3. Conditions Of Loans.
3.1 Conditions Precedent to Initial Credit Extension. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) an officer's certificate of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a financing statement (Form UCC- 1);
(d) an agreement to provide insurance;
(e) a lockbox agreement in form and substance satisfactory to
Bank;
(f) evidence of insurance, satisfactory to Bank, showing Bank as
loss payee;
(g) payment of the fees and Bank Expenses then due specified in
Section 2.6;
(h) an audit of the Collateral, including the Accounts, the
results of which shall be satisfactory to Bank;
5.
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(i) an appraisal of the Collateral, the results of which shall be
satisfactory to Bank;
(j) current financial statement in accordance with Section 6.2;
(k) control agreements with respect to those deposit accounts and
securities accounts set forth in the Disclosure Letter; provided, however, Bank
may, in its discretion, make Credit Extensions if all such control agreements
are not in place on the Closing Date, but it shall be an Event of Default
hereunder if all control agreements are not in place within forty-five (45) days
of the Closing Date; and
(l) 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(a)(iii) and Section 2.1(b)(ii); and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true and correct in all material
respects as of such date). The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2.
4. Creation Of Security Interest.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral to secure prompt repayment of any and all Obligations and to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Except as set forth in the Disclosure Letter, and subject to
Permitted Liens, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in later-acquired Collateral.
Notwithstanding any termination, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
6.
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5. Representations And Warranties.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
is a corporation duly existing under the laws of its jurisdiction of
incorporation and qualified and licensed to do business in any state in which
the conduct of its business or its ownership of property requires that it be so
qualified, except where the failure to do so could not reasonably be expected to
cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized by all necessary corporate actions on the part of Borrower,
and are not in conflict with nor constitute a breach of any provision contained
in Borrower's Certificate of Incorporation or Bylaws, nor will they constitute
an event of default under any material agreement by which Borrower is bound.
Borrower is not in default under any agreement by which it is bound, which
default could reasonably be expected to have a Material Adverse Effect.
5.3 Collateral. Borrower has good title to the Collateral, free and
clear of Liens, except for Permitted Liens. The Eligible Accounts are bona fide
existing obligations. The property or services giving rise to such Eligible
Accounts has been delivered to the account debtor or its agent for immediate
shipment to and unconditional acceptance by the account debtor or have been
fully and completely performed. Borrower has not received notice of actual or
imminent Insolvency Proceeding of any account debtor whose accounts are included
in any Borrowing Base Certificate as an Eligible Account. All Inventory is in
all material respects of good and marketable. quality, free from all material
defects, except for Inventory for which adequate reserves have been made in
accordance with GAAP.
5.4 Intellectual Property. Borrower is the sole owner of its
Intellectual Property, except for Licenses granted by Borrower to others in the
ordinary course of business and Permitted Liens. Each of the Copyrights,
Trademarks and Patents is valid and enforceable, and no part of the Borrower's
Intellectual Property has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of its Intellectual Property
violates the rights of any third party except to the extent such claim could not
reasonably be expected to cause a Material Adverse Effect. Except as set forth
in the Disclosure Letter, Borrower's rights as a licensee of intellectual
property do not give rise to more than five percent (5%) of its gross revenue in
any given month, including, without limitation, revenue derived from the sale,
licensing, rendering or disposition of any product or service.
5.5 Name; Location of Chief Executive Office. Except as disclosed in
the Disclosure Letter, Borrower has not done business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.6 Litigation. Except as set forth in the Disclosure Letter, there
are no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which a likely adverse decision
could reasonably be expected to have a
7.
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Material Adverse Effect, or a material adverse effect on Borrower's interest in
or Bank's security interest in the Collateral.
5.7 No Material Adverse Change in Financial Statements. All
consolidated financial statements of the Borrower and its Subsidiaries that are
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts
(including trade debts) as they mature; the fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; and Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary
have met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. Borrower
is not engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations T and U of the Board of Governors of
the Federal Reserve System). Borrower has complied in all material respects with
all the provisions of the Federal Fair Labor Standards Act. Borrower is in
compliance with all environmental laws, regulations and ordinances except where
the failure to comply could not reasonably be expected to have a Material
Adverse Effect. Borrower has not violated any statutes, laws, ordinances or
rules applicable to it, the violation of which could have a Material Adverse
Effect. Borrower and each Subsidiary have filed or caused to be filed all tax
returns required to be filed, and have paid, or have made adequate provision for
the payment of, all taxes reflected therein except those being contested in good
faith and for which adequate reserves are maintained in accordance with GAAP.
5.10 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.11 Government Consents. Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on the Disclosure Letter,
Borrower is not a party to, nor is bound by, any license or other agreement that
prohibits or otherwise restricts Borrower from granting a security interest in
Borrower's interest in such license or agreement or any other property.
8.
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5.13 Deposit Accounts and Securities Accounts. The name and address of
each depository institution at which Borrower maintains any deposit account and
the account number and account name of each such deposit account is listed in
the Disclosure Letter. The name and address of each securities intermediary or
commodity intermediary at which Borrower maintains any securities account or
commodity account and the account number and account name is listed in the
Disclosure Letter. Borrower agrees to amend the Disclosure Letter from time to
time within five (5) Business Days after opening any additional deposit account,
securities account or commodity account, or closing or changing the account name
or number on any existing deposit account, securities account, or commodity
account.
5.14 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank taken
together with all such certificates and written statements furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading, it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not to be viewed as facts and that actual results during the
period or periods covered by any such projections and forecasts may differ from
the projected or forecasted results.
6. Affirmative Covenants.
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance. Except as otherwise
provided in Section 7.2, Borrower shall maintain its and each of its
Subsidiaries' corporate existence 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 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, in all material respects, with all statutes,
laws, ordinances and government rules and regulations to which it is subject,
and shall maintain, and shall cause each of its Subsidiaries to maintain, in
force all licenses, approvals and agreements, the loss of which or failure to
comply with which could have a Material Adverse Effect, or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral.
6.2 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each calendar month, a company prepared consolidated and
consolidating balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form reasonably acceptable to
Bank and certified by a Responsible Officer; (b) as soon as available, but in
any event within ninety (90) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an opinion which is unqualified
or otherwise consented to in writing by Bank on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
copies of all statements, reports and notices sent or made available
9.
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generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Forms 10-K (which shall be delivered within ninety (90)
days after the end of each fiscal year of Borrower) and 10-Q (which shall be
delivered within forty-five (45) days after the end of each fiscal quarter of
Borrower) 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 reasonably be expected to result
in damages or costs to Borrower or any Subsidiary of Five Hundred Thousand
Dollars ($500,000) or more; and (e) such budgets, sales projections and
pipelines, operating plans or other financial exhibits and information generally
prepared by Borrower in the ordinary course of business as Bank may reasonably
request from time to time.
(a) Within fifteen (15) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit D hereto, together with
aged listings of accounts receivable and accounts payable.
(b) Within thirty (30) 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 E hereto.
(c) Bank (through any of its officers, employees or agents) shall
have a right from time to time, upon reasonable prior notice during Borrower's
usual business hours, hereafter to (i) audit Borrower's Accounts, provided that
such audits of Borrower's Accounts will be conducted no more often than two (2)
times per calendar year; provided, however, upon two (2) consecutive quarters of
positive Net Income, such audit rights shall decrease to no more often than
every twelve (12) months, and (ii) inspect Borrower's Books and to make copies
thereof and to check, test and appraise Borrower's Collateral, provided that
such appraisals of Borrower's Collateral will be conducted no more often than
every twelve (12) months, unless, in each case, an Event of Default has occurred
and is continuing.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects except for Inventory for
which adequate reserves have been made in accordance with GAAP. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist on the Closing Date. Borrower shall promptly notify Bank of all
returns and recoveries and of all disputes and claims involving more than One
Hundred Thousand Dollars ($100,000).
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due
and timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, including, but not limited
to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability,
and will execute and deliver to Bank, on demand, proof satisfactory to Bank
indicating that Borrower or a Subsidiary has made such payments or deposits and
any appropriate certificates attesting to the payment or deposit thereof;
provided that Borrower or a Subsidiary need not make any payment if the amount
or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by Borrower
or such Subsidiary.
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6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain liability
and other insurance in amounts and of a type that are customary to businesses
similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
policies of property insurance shall contain a lender's loss payable
endorsement, in a form reasonably satisfactory to Bank, showing Bank as an
additional loss payee, and all liability insurance policies shall show Bank as
an additional insured and specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of the policies of
insurance and evidence of all premium payments. If no Event of Default has
occurred and is continuing, proceeds payable under any casualty policy will, at
Borrower's option, be payable to Borrower to replace the property subject to the
claim, provided that any, such replacement property shall, be deemed Collateral
in which Bank has been granted a first priority security interest. If an Event
of Default has occurred and is continuing, all proceeds payable under any such
policy shall, at Bank's option, be payable to Bank to be applied on account of
the Obligations.
6.6 Primary Depository. Borrower shall maintain its primary depository
account, lockbox account and money market account with Bank. In addition,
Borrower shall maintain, at all times, at least Three Million Dollars
($3,000,000) of Borrower's unrestricted cash with Bank or a Bank Affiliate,
with an applicable control agreement.
6.7 Financial Covenants. Borrower shall maintain, as of the last day
of each calendar month unless stated otherwise:
(a) Quick Ratio. A ratio of Quick Assets to current Liabilities
of at least 1.75 to 1.00
(b) Tangible Net Worth. A Tangible Net Worth of not less than
Forty Eight Million Dollars ($48,000,000), to be increased at the end of each
calendar month by seventy five percent (75%) of the increase in Net Income and
one hundred percent (100%) of new equity.
(c) EBITDA. EBITDA in the following amounts for the following
periods, to be maintained on the, last day of each fiscal quarter of Borrower:
Quarterly EBITDA not to exceed: Quarterly EBITDA to be at least:
12/31/02 ($8,500,000) 09/30/03 $2,000,000
03/31/03 ($3,500,000) 12/31/03 $3,500,000
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06/30/03 ($1,500,000) 03/31/04 $4,000,000
06/30/04 &
thereafter $5,000,000
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as the case
may be, those registerable intellectual property rights now owned or hereafter
developed or acquired by Borrower, to the extent that Borrower, in its
reasonable business judgment, deems it appropriate to so protect such
intellectual property rights.
(b) Borrower shall promptly give Bank written notice of any
applications or registrations of intellectual property rights filed with the
United States Patent and Trademark Office, including the date of such filing and
the registration or application numbers, if any.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the trade secrets, Trademarks, Patents and Copyrights,
(ii) use commercially reasonable efforts to detect infringements of the
Trademarks, Patents and Copyrights and promptly advise Bank in writing of
material infringements detected and (iii) not allow any material Trademarks,
Patents or Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Bank, which shall not be unreasonably withheld.
6.9 Minimum Assets. A minimum of seventy five percent (75%) of
Borrower's consolidated assets shall be assets of Borrower, which assets shall
not include any notes receivable held by Borrower from any Subsidiary, and not
of any Subsidiary.
6.10 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. Negative Covenants.
Borrower covenants and agrees that, until payment in full of the
outstanding Obligations, and for so long as Bank may have any commitment to make
any Credit Extension hereunder, Borrower will not do any of the following
without Bank's prior written consent, which shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, to "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than transfers in the
ordinary course of business, Permitted Transfers and Permitted Liens.
7.2 Change in Business; Change in Control, Executive Office or
Jurisdiction of Incorporation. Engage in any business, or permit any of its
Subsidiaries to
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engage in any business, other than the business currently engaged in by Borrower
or businesses reasonably related or incidental thereto. Borrower will not have a
Change in Control, and will not, without thirty (30) days prior written
notification to Bank, (i) relocate its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located, or (ii) change its jurisdiction of incorporation, its corporate name
or in any trade name used to identify it in the conduct of its business or the
ownership of its properties, its identity or corporate structure or its federal
taxpayer identification number.
7.3 Mergers or Acquisitions. Except as otherwise permitted by Section
7.7, merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with or into any other Person (other than mergers or consolidations
of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit
any of its Subsidiaries to acquire, all or substantially all of the capital
stock or property of another Person except where (i) such transactions do not in
the aggregate exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year
and (ii) no Event of Default has occurred, is continuing or would exist after
giving effect to such transaction.
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 allow any Lien with respect
to any of its property, including, without limitation, the Intellectual
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, or covenant to any other Person that Borrower in the future
will refrain from creating, incurring, assuming or allowing any Lien with
respect to any of Borrower's property, including, without limitation, the
Intellectual Property, except for Permitted Restrictions.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except that (a) Borrower may repurchase the stock of former employees
pursuant to stock repurchase agreements in an aggregate amount not to exceed
One Hundred Thousand Dollars ($100,000) in any fiscal year, as long as an Event
of Default does not exist prior to such repurchase or would not exist after
giving effect to such repurchase; provided that the foregoing limit on the
aggregate amount of such repurchases shall not apply to repurchases to the
extent made by the cancellation of indebtedness, (b) each Subsidiary may pay any
dividend or make any other distribution or payment to Borrower or any other
Subsidiary, (c) Borrower and each Subsidiary may declare and pay dividends or
other distributions solely in common stock, (d) Borrower may distribute noncash
rights in connection with any stockholders' rights plan, or (e) Borrower may
purchase, redeem or acquire non-cash rights distributed in connection with any
stockholders' rights plan.
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
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the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment
with a bailee, warehouseman, or similar 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 and Equipment only at the
locations set forth in Section 10, locations set forth in the Disclosure Letter,
such other locations within the United States for which Borrower gives Bank
prior written notice, such other locations outside of the United States for
which Bank gives its prior written consent, and at the premises of Elamex, S.A.
DE C.V. ("Elamex") located in C. Juarez, Chihuahua, Mexico pursuant to the terms
of that certain Shelter Services Agreement between Borrower and Elamex dated as
of June 3, 2002; provided, however, the total value of such Inventory and
Equipment shall not, at any time, exceed Nine Million Dollars ($9,000,000),
Provided, however, Borrower shall not keep any Equipment or other assets
purchased with an Equipment Advance or for which Borrower was reimbursed by an
Equipment Advance at any location other than the location set forth in Section
10 without Bank's prior written consent which consent will not be unreasonably
withheld.
7.11 Compliance. Become or be controlled by an "investment company,"
within the meaning of the Investment Company Act of 1940, or become principally
engaged in, or undertake as one of its important activities, the business of
extending credit for the purpose of purchasing or carrying margin stock, or use
the proceeds of any Credit Extension for such purpose. 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 failure, violation
or occurrence could reasonably be expected to 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.
7.12 Negative Pledge Agreements. Permit the inclusion in any contract
to which it becomes a party of any provisions that could restrict or invalidate
the creation of a security interest in Borrower's rights and interests in any
Collateral, except any such provisions (a) contained in agreements or documents
evidencing Indebtedness described in clause (c) of the definition of Permitted
Indebtedness, (b) imposed on a Subsidiary and existing at the time it became a
Subsidiary if such restrictions were not created in connection with or in
anticipation of the transaction or series of transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by Borrower, (c) under any
agreement, instrument or contract affecting property or a Person at the time
such property or Person was acquired by Borrower or any of its Subsidiaries, so
long as such restriction relates solely to the property or Person so acquired
and was not created in connection with or in anticipation of such acquisition,
or (d) existing by virtue
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of, or arising under, applicable law, regulation, order, approval, license,
permit or similar restriction, in each case issued or imposed by a governmental
authority.
8. Events of Default.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay any of the Obligations
and such failure continues for tree (3) business days or more after the due
date, provided that within such three (3) business day cure period, the failure
to pay shall not be deemed an Event of Default, but no Credit Extensions will
be-made;
8.2 Covenant Default. If Borrower fails to perform any obligation
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under Article 6 or such other term, provision, condition
or covenant that can be cured, has failed to cure such default within fifteen
(15) 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 fifteen (15) day period or cannot after diligent
attempts by Borrower be cured within such fifteen (15) 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
but no Credit Extensions will be made;
8.3 Material Adverse Change. If there occurs a material adverse change
in Borrower's business or, financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
seized, or comes into the possession of any trustee, receiver or person acting
in a similar capacity, or is attached, subjected to a writ or distress warrant
or is levied upon and such attachment, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days if such attachment,
writ or distress warrant or levy was issued by a United States court or other
United States governmental entity, or within thirty (30) days if such
attachment, writ or distress warrant or levy was issued by a non-United States
court or other non-United States entity or if Borrower is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes a
lien or encumbrance upon any material portion of Borrower's assets, or if a
notice of lien, levy, or assessment is filed of record with respect to any of
Borrower's assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within ten (10) days if within the Unites
States or within thirty (30) days if outside of the United States, after
Borrower receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where
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such action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrower (provided that no Credit Extensions will be
required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions 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 having a principal amount in excess of Five Hundred Thousand
Dollars ($500,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent the payment is allowed under this
Agreement or any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of Five Hundred Thousand Dollars
($500,000) or more shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of the
judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement when made or deemed made in any warranty or representation set
forth herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.
9. Bank's Rights and Remedies.
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5, 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;
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(d) 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) 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) Convert the Committed Revolving Line and the Equipment Line
to a full remittance basis or a dominion of funds basis;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, Patents, Copyrights, rights of use of any name, trade
secrets, trade names, Trademarks, service marks, and, advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or 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) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance;
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(f) settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; and (g) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral; provided Bank may exercise such power of attorney to sign the name
of Borrower on any of the documents described in Section 4.2 regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 Accounts Collection. Upon the occurrence and continuance of an
Event of Default, Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and immediately deliver such
payments to Bank in their original form as received from the account debtor,
with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following after
reasonable notice to Borrower: (a) make payment of the same or any part thereof;
(b) set up such reserves under the Revolving Facility as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.5 of this
Agreement, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices and Section 9207 of the UCC, 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 UCC, 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,
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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:
If to Borrower: Align Technology, Inc.
881 Martin Avenue
Santa Clara, California 95050
Attn: Roger E. George
FAX: (408) 727-1393
If to Bank: Comerica Bank-California
5 Palo Alto Square, Suite 800
Palo Alto, California
Attn:. Rob Ways
FAX: (650)213-1710
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. Choice Of Law And Venue; Jury Trial Waiver.
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby sgbmits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT .IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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12. General Provisions.
12.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for obligations, demands, claims, liabilities and 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. All amendments to or
terminations of this Agreement must be in writing. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement, if any, are
merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information of
Borrower, Bank and all employees and agents of Bank shall exercise the same
degree of care that Bank exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement except that
disclosure of such information may be made (i) to the subsidiaries or
20.
<PAGE>
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 Credit Extensions, provided that they have entered into a
comparable confidentiality agreement in favor of Borrower and have delivered a
copy to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in connection
with the examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed as of the date first above written.
Align, Technology, Inc.
By: /s/ Roger E. George
-------------------------------
Title: Vice President
Legal Affairs &
General Counsel
Comerica Bank-California
By: /s/ Illegible
--------------------------------
Title: SVP
21.
<PAGE>
Exhibit A
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.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
reasonable Collateral audit fees; and Bank's reasonable attorneys' fees and
expenses incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an
Insolvency Proceeding, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records including:
ledgers; records concerning Borrower's assets or liabilities, the Collateral,
business operations or financial condition; and all computer programs, or tape
files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to the lesser of (i) eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower or (ii) forty-five (45)
days of cash collections of accounts receivable.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which banks in the State of California are authorized or required to close.
"Cash Equivalents" means (a) securities issued or unconditionally
guaranteed or insured by the United States Government or any agency or any State
thereof and backed by the full faith and credit of the United States or such
State having maturities of not more than one (1) year from the date of
acquisition; (b) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements or bankers'
acceptances, having in each case a tenor of not more than one (1) year issued by
any nationally or state chartered commercial bank or any branch or agency of a
foreign bank licensed to conduct business in the United States having combined
capital and surplus of not less than $100,000,000 whose short term securities
are rated at least A-1 by Standard & Poor's Rating Group and P-1 by Moody's
Investors Service, Inc.; (c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Rating Group or P-1 by Moody's Investors Service, Inc. and in
either case having a tenor of not more than two hundred and seventy (270) days;
and (d) money market funds at least ninety-five percent (95%)
1.
<PAGE>
of the assets of which constitute Cash Equivalents of the kinds described in
clauses (a) through (c) above.
"Change in Control" shall mean a transaction in which any "person" or
"group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a
sufficient number of shares of all classes of stock then outstanding of Borrower
ordinarily entitled to vote in the election of directors, empowering such
"person" or "group" to elect a majority of the Board of Directors of Borrower,
who did not have such power before such transaction.
"Chattel Paper" means any "chattel paper," as such term is defined in
Section 9102(a)(11) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires an interest.
"Closing Date" means the date of this Agreement.
"Collateral" means the property described on Exhibit B attached hereto
except to the extent any such property or rights (i) are nonassignable by their
terms without the consent of the licensor thereof or another party (but only to
the extent such prohibition on transfer is enforceable under applicable law,
including, without limitation, Section 9406 of the UCC), (ii) the granting of a
security interest therein is contrary to applicable law or the terms of the
agreement pursuant to which the rights or property is acquired, provided that
upon the cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral, (iii) are with respect to the
capital stock of a controlled foreign corporation (as defined in the Internal
Revenue Code of 1986, as amended), in excess of 65% of the voting power of all
classes of capital stock of such controlled foreign corporations entitled to
vote.
"Committed Revolving Line" means a Credit Extension of up to Ten Million
Dollars ($10,000,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
2.
<PAGE>
"Copyrights" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"Credit Extension" means each Revolving Advance, each Letter of Credit,
each Equipment Advance, or any other extension of credit by Bank for the benefit
of Borrower hereunder.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.
"Deposit Accounts" means any "deposit account" as such term is defined in
Section 9102(a)(29) of the UCC, and should include, without limitation, any
demand, time, savings passbook or like account, now or hereafter maintained by
or for the benefit of Borrower, or in which Borrower now holds or hereafter
acquires any interest, with a bank, savings and loan association, credit union
or like organization (including Bank) and all funds and amounts therein, whether
or not restricted or designated for a particular purpose.
"Disclosure Letter" means the Disclosure Letter dated December 20, 2002
executed by Borrower in connection with this Agreement.
"EBITDA" means, on a consolidated basis for Borrower and its Subsidiaries,
for any period of determination, the sum of (a) Net Income plus (b) to the
extent included in the determination of Net Income, an amount equal to: (i) the
provision for income taxes plus (ii) depreciation expense plus (iii)
amortization expense including, but not limited to, amortization of non-cash
deferred compensation plus (iv) Net Interest Expense.
"Eligible Accounts" means those Accounts that arise in the ordinary course
of Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.3; provided, that Bank may change the
standards of eligibility by giving Borrower thirty (30) days prior written
notice. Unless otherwise agreed to by Bank, Eligible Accounts shall not include
the following:
(a) Accounts that the account debtor has failed to pay within one
,hundred twenty (120) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within one hundred
twenty (120) days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
3.
<PAGE>
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates of such account debtor, whose total obligations to
Borrower exceed twenty percent (20%) of all Accounts, to the extent such
obligations exceed the aforementioned percentage, except as approved in writing
by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
after inquiry and consultation with Borrower to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit in an amount
and of a tenor, and issued by a financial institution, reasonably acceptable to
Bank, or (ii) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" or "Equipment Advances" shall have the meaning set
forth in Section 2.1(c).
"Equipment Line" means a Credit Extension of up to Five Million Dollars
($5,000,000).
"Equipment Maturity Date" means December 20, 2005.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
4.
<PAGE>
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Gross Interest Expense" shall mean, as calculated on a consolidated basis
for Borrower and its Subsidiaries for any period of determination, cash interest
expense for such period (including all commissions, discounts, fees, and other
charges under letters of credit and similar instruments) classified and
accounted for in accordance with GAAP.
"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.
"Instruments" means any "instrument," as such term is defined in Section
9102(a)(47) of the UCC now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest, including, without
limitation, all notes, certificated securities, and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"Intellectual Property" means all of Borrower's right, title, and interest
in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights; and
5.
<PAGE>
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents.
"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.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Letter of Credit" has the meaning set forth in Section 2.1(b).
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower in connection with this Agreement, and any other agreement
entered into between Borrower and Bank in connection with this Agreement, all as
amended or extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"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.
"Net Income" means the net income (or loss) of a Person on a consolidated
basis for any period determined in accordance with GAAP, but excluding in any
event:
(i) to the extent included in net income, any gains or losses on the
sale or other disposition, not in the ordinary course of business, of
investments or fixed or capital assets, and any taxes on the excluded gains and
any tax deductions or credits on account of any excluded losses; and
(ii) in the case of Borrower, net earnings of any Person in which
Borrower has an ownership interest (other than a Subsidiary of Borrower), unless
such net earnings shall have actually been received by Borrower in the form of
cash distributions.
6.
<PAGE>
"Net Interest Expense" means, as calculated on a consolidated basis for
Borrower and its Subsidiaries for any period of determination (a) Gross Interest
Expense minus (b) interest income for that period.
"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.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring payments
that Borrower may now or hereafter become obligated to pay to Bank pursuant to
the terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Disclosure Letter:
(c) Indebtedness secured by a lien described in clause (c) of the
defined term "Permitted' Liens," provided such Indebtedness does not exceed the
lesser of the cost or fair market value of the equipment financed with such
Indebtedness;
(d) Indebtedness arising from the endorsement of instruments in
the ordinary course of business;
(e) Subordinated Debt;
(f) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to any other Subsidiary (provided the primary obligations are not
prohibited hereby);
(g) Indebtedness of any Subsidiary to Borrower, provided that
Borrower is in compliance with each of the covenants set forth in Sections 6 and
7 hereof, including Section 6.9, and the aggregate principal amount of such
Indebtedness shall not at any time exceed five percent (5%) of the assets of
Borrower as of the end of the most recent fiscal quarter, determined in
accordance with GAAP;
7.
<PAGE>
(h) other unsecured Indebtedness of Borrower or any Subsidiary
incurred in the ordinary course of business in an aggregate amount not to exceed
$1,000,000 at any time; and
(i) Indebtedness of Borrower consisting of international standby
letters of credit incurred in the ordinary course of business in an aggregate
amount not to exceed $2,500,000 at any time.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Disclosure Letter;
(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 year from the date of acquisition thereof, (ii) commercial
paper maturing no more than one year from the date of creation thereof and
currently having rating of at least A-2 or P-2 from either Standard & Poor's
Corporation or Moody's Investors Service, (iii) Bank's certificates of deposit
maturing no more than one year from the date of investment therein, (iv) Bank's
money market accounts and (v) any Cash Equivalents;
(c) Repurchases of stock from former employees or directors of
Borrower under the terms of applicable repurchase agreements in an aggregate
amount not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in
any fiscal year, provided that no Event of Default has occurred, is continuing
or would exist after giving effect to the repurchases; provided further that the
foregoing limit on the aggregate amount of such repurchases shall not apply to
the extent such repurchases are made by the cancellation of indebtedness;
(d) Investments accepted in connection with Permitted Transfers;
(e) Investments of Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed One Million
Dollars ($1,000,000) in the aggregate in any fiscal year;
(f) Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plan agreements approved by Borrower's Board of
Directors;
(g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of Borrower's business;
(h) Investments consisting of accounts receivable of, notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers who are not
8.
<PAGE>
Affiliates, in the ordinary course of business, provided that this subparagraph
(h) shall not apply to Investments of Borrower in any Subsidiary;
(i) Joint ventures or strategic alliances in the ordinary course
of Borrower's business consisting of the non-exclusive licensing of technology,
the development of technology or the providing of technical support, provided
that any cash Investments by Borrower do not exceed One Hundred Thousand Dollars
($100,000) in the aggregate in any fiscal year; and
(j) Investments permitted by subsection (f) and (g) of the
definition of Permitted Indebtedness.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Disclosure Letter or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and for which Borrower maintains adequate reserves in
accordance with GAAP, provided the same have no priority over any of Bank's
security interests;
(c) Liens, not to exceed Five Hundred Thousand Dollars ($500,000)
in the aggregate (i) upon or in any Equipment (and additions, accessions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds
thereof) 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 additions, accessions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds
of such Equipment;
(d) Liens to secure payment of workers' compensation, employment
insurance, old age pensions, social security or other like obligations incurred
in the ordinary course of business;
(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 (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;
(f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Sections 8.4 or 8.8;
(g) Liens in favor of other financial institutions arising in
connection with Borrower's Deposit Accounts or other accounts maintained with a
depository institution or institutions holding securities accounts, provided
that Bank has a perfected security interest in the amounts held in such Deposit
Accounts and other accounts;
9.
<PAGE>
(h) carriers' warehousemen's, mechanics, materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not delinquent or which are being contested in good faith and by appropriate
proceedings and for which Borrower maintains adequate reserves in accordance
with GAAP;
(i) easements, rights-of-way, restrictions and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of Borrower or any applicable Subsidiary;
(j) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of business which do not interfere in any material
respect with the business operations of the Borrower or any applicable
Subsidiary;
(k) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods; and
(l) Other Liens not described above arising in the ordinary
course of business and not having or not reasonably likely to have a Material
Adverse Effect on borrower and its Subsidiaries taken as a whole.
"Permitted Restrictions" means any covenant restricting the creation,
incurrence, assumption or allowance of any Lien with respect to any property
contained in any agreement, but only to the extent such prohibition is
enforceable under applicable law, including, without limitation, Section 9406 of
the UCC.
"Permitted Transfer" means the conveyance, sale, lease, transfer or
disposition by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property
of Borrower or its Subsidiaries in the ordinary course of business;
(c) assets of any Subsidiary to another Subsidiary or to the
Borrower;
(d) surplus, worn-out or obsolete Equipment;
(e) other assets of Borrower or its Subsidiaries which do not in
the aggregate exceed Five Hundred Thousand Dollars ($500,000) in any fiscal
year; or
(f) assets consisting of real property, equipment and office
furniture having a book value of $2,500,000 in connection with the closing of
Borrower's location in Lahore, Pakistan.
10.
<PAGE>
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof shall be
determined, the unrestricted cash and Cash Equivalents, net accounts receivable
and investments with maturities not to exceed ninety (90) days, of Borrower
determined on a consolidated basis in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller of Borrower.
"Revolving Advance" or "Revolving Advances" shall have the meaning set
forth in Section 2.1(a).
"Revolving Facility" means the facility under which Borrower may request
Bank to issue Advances, as specified in Section 2.1(a) hereof.
"Revolving Maturity Date" means June 20, 2004.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation, limited liability company or
partnership in which (i) any general partnership interest or (ii) more than
fifty percent (50%) of the stock of which by the terms thereof ordinary voting
power to elect the Board of Directors, managers or trustees of the entity, at
the time as of which any determination is being made, is owned by Borrower,
either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof shall
be determined, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of Borrower and its
Subsidiaries minus intangible assets, plus Subordinated Debt, on a consolidated
basis determined in accordance with GAAP.
"Trademarks" means any trademark and servicemark rights, whether registered
or not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.
"UCC" means the Uniform Commercial Code as the same may from time to time
be in effect in the State of California (and each reference in this Agreement to
an Article thereof (denoted as a Division of the UCC as adopted and in effect in
the State of California) shall refer to that Article (or Division, as
applicable) as from time to time in effect; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection
11.
<PAGE>
or priority of the Secured Party's security interest in any collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code (including the Articles thereof) as in effect at such time in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions. Notwithstanding anything contained herein to the contrary, the
parties intend that the terms used herein which are defined in the UCC have, at
all times, the broadest and most inclusive meanings possible. Accordingly, if
the UCC shall in the future be amended or held by a court to define any term
used herein more broadly or inclusively than the UCC in effect on the date of
this Agreement, then such term, as used herein, shall be given such broadened
meaning. If the UCC shall in the future be amended or held by a court to define
any term used herein more narrowly, or less inclusively, than the UCC in effect
on the date of this Agreement, such amendment or holding shall be disregarded in
defining terms used in this Agreement.
12.
<PAGE>
DEBTOR ALIGN TECHNOLOGY, INC.
SECURED PARTY: COMERICA BANK-CALIFORNIA
Exhibit B
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Debtor of every kind, whether presently existing or
hereafter created, written, produced or acquired, including, but not limited to:
(a) all accounts (including healthcare-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents
(including negotiable documents), equipment (including all accessions and
additions thereto), general intangibles (including payment intangibles and
software), goods (including fixtures), instruments (including promissory notes),
inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), Negotiable
Collateral, letter of credit rights, money, and all of Debtor's books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records and (b) any and all cash proceeds and/or
noncash proceeds of any of the foregoing, including, without limitation,
insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment. All terms above have the meanings given to them in the
California Uniform Commercial Code, as amended or supplemented from time to
time.
Notwithstanding anything to the contrary contained in the foregoing, the
"collateral" shall not include the Intellectual Property of Debtor, but shall
include any and all cash proceeds and/or noncash proceeds of Debtor's
Intellectual Property.
<PAGE>
Exhibit C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING FOR
REVOLVING ADVANCES IS 3:00 P.M., E.S.T., AND FOR EQUIPMENT ADVANCES IS 3:00 P.M.
E.S.T., 3 BUSINESS DAYS PRIOR TO THE EQUIPMENT ADVANCE
TO: [____________________] DATE:
--------------------
FAX #:[____________________] TIME:
--------------------
FROM: ALIGN TECHNOLOGY, INC.
--------------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
-------------------------------- -------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
$
------------------------------
PRINCIPAL INCREASE (ADVANCE) $
------------------------------
PRINCIPAL PAYMENT (ONLY) $
------------------------------
INTEREST PAYMENT (ONLY) $
------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
------------------------------
OTHER INSTRUCTIONS:
-------------------------------------------------------------
--------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for an Advance confirmed by this Payment/Advance Form;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BANK USE ONLY TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
---------------------------------------------------- -------------------------
Authorized Requester Phone #
---------------------------------------------------- -------------------------
Received By (Bank) Phone #
----------------------------------------------------
Authorized Signature (Bank).
--------------------------------------------------------------------------------
1.
<PAGE>
Exhibit D
BORROWING BASE CERTIFICATE
Borrower: Align Technology, Inc. Lender: Comerica Bank-California
Commitment Amount: $10,000,000 for Revolving Advances
<CAPTION>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $
------- ------------------------
2. Additions (please explain on reverse) $
------------------------
3. TOTAL ACCOUNTS RECEIVABLE $
------------------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 120 days due $
------------------------
5. Balance of 50% over 120 day accounts $
------------------------
6. Concentration Limits $
------------------------
7. Foreign Accounts $
------------------------
8. Governmental Accounts $
------------------------
9. Contra Accounts $
------------------------
10. Demo Accounts $
------------------------
11. Intercompany/Employee Accounts $
------------------------
12. Other (please explain on reverse) $
------------------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
------------------------
14. Eligible Accounts (#3 minus #13) $
------------------------
15. LOAN VALUE OF ACCOUNTS(80% of #14) $
------------------------
16. 45 days of cash collections of accounts receivable $
------------------------
BALANCES
17. Maximum Loan Amount $
------------------------
18. Total Funds Available [Lesser of #17, #16 or #15] $
------------------------
19. Present balance owing on Line of Credit $
------------------------
20. Outstanding under Sublimits (Letters of Credit) $
------------------------
21. RESERVE POSITION (#18 minus #19 and #20) $
------------------------
The undersigned represents and warrants that the foregoing is true,
complete and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Comerica
Bank-California.
Align Technology, Inc.
By:
----------------------------------
Authorized Signer
1.
<PAGE>
Exhibit E
COMPLIANCE CERTIFICATE
TO: COMERICA BANK-CALIFORNIA
FROM: ALIGN TECHNOLOGY, INC.
The undersigned authorized officer of Align Technology, Inc. hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending with all required
------------
covenants, including without limitation Section 6.7, except as noted below and
(ii) all representations and warranties of Borrower stated in the Agreement are
true and correct in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies
----------------------------------------- ------------------------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
I0K and 1OQ (as applicable) Yes No
A/R & A/P Agings, Borrowing Base Cert. Monthly within 15 days Yes No
A/R Audit Initial and [Semi-]Annual Yes No
Financial Covenant Required Actual Complies
----------------------------------------- ---------- ---------- --------
Maintain on a Monthly/Quarterly Basis, as
applicable:
Minimum Quick Ratio :1.00 :1.00 Yes No
----- -----
Minimum Tangible Net Worth $ $ Yes No
--------- -----------
EBITDA $ $ Yes No
--------- -----------
Comments Regarding Exceptions: See Attached.
----------------------------------------
BANK USE ONLY
Sincerely, Received by:
---------------------------
AUTHORIZED SIGNER
-------------------------------------
SIGNATURE Date:
----------------------------------
-------------------------------------
TITLE Verified:
------------------------------
------------------------------------- AUTHORIZED SIGNER
DATE
Date:
----------------------------------
Compliance Status Yes No
----------------------------------------
1.