Loan and Security Agreement - Silicon Valley Bank and Applied Molecular Evolution Inc.
This LOAN AND SECURITY AGREEMENT dated as of the Effective Date,
between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and Applied Molecular Evolution, Inc. ("Borrower"),
whose address is 3520 Dunhill Street, San Diego, California 92121, provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not determined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY.
Borrower promises to pay Bank the unpaid principal amount of the Term
Loan, interest thereon and all other Obligations relating thereto in accordance
with the terms and provisions hereof.
2.2 TERM LOAN.
(a) Bank agrees to make the Term Loan available to the Borrower in
accordance with the provisions hereof, which loan is intended to be extended in
the form of a single advance concurrently with the closing of this Agreement,
the making of which shall occur, in any event, no later than October 31, 2003.
Further, it is understood that any unused portion of the possible maximum Term
Loan amount that is not extended at the time of the making of the Term Loan
advance shall not be available for further advances thereafter. The maximum
aggregate amount of the Term Loan shall not exceed 100% of the documented cost
of Eligible Equipment, provided that no more than 35% of the Term Loan amount
extended hereunder shall be based on and relate to Eligible Equipment consisting
of Other Equipment.
(b) Interest accrues from the date of the making of the Term Loan
at the rate set forth in Section 2.3 hereof. The Term Loan is payable in 36
equal monthly installments of principal and interest, beginning on the November
1, 2003 and continuing on the 1st day of each of the succeeding 35 months, and
on the final monthly payment that arises in accordance with the foregoing (such
date being referred to herein as the "Maturity Date"), the Term Loan, all
accrued and unpaid interest thereon and all other Obligations relating thereto
shall be repaid in full. Borrower may prepay any outstanding principal amount of
the Term Loan at any time without notice or payment of premium, fee or penalty
other than for the payment of the Prepayment Fee as calculated for such
prepayment. Further, no repaid portion of the Term Loan is permitted to be
reborrowed.
(c) To obtain the Term Loan, Borrower must supply documentary
evidence of the Eligible Equipment to Bank at least two Business Days prior the
proposed making thereof, which evidence shall be deemed to be acceptable to
Bank, and Borrower shall also complete and deliver to Bank a notice of advance
request therewith in form of Exhibit B hereto that is to be signed by a
Responsible Officer or a designee of any such Responsible Officer.
2.3 INTEREST RATE, PAYMENTS; ETC.
(a) Interest Rate. The Term Loan accrues interest at a per annum
fixed rate of two and one-half percentage points (2.50%) above the Prime Rate
determined and fixed as of the date
<PAGE>
of the making of the Term Loan, with the understanding that under all
circumstances the minimum interest rate hereunder shall be deemed to be six and
one-half percentage points (6.50%) per annum. After the occurrence and
continuance of an Event of Default, Obligations accrue interest at five (5)
percentage points above the rate effective immediately before the Event of
Default. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. The Term Loan shall be repaid in accordance with
Section 2.2(b) above. Borrower hereby authorizes Bank to debit any of Borrower's
deposit accounts for principal and interest payments owing and for any other
amounts Borrower owes Bank. Bank will promptly notify Borrower when it debits
Borrower's accounts. These debits are not set-offs. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
(c) Prepayment. In the event Borrower prepays the Term Loan or any
portion thereof prior to the scheduled repayment dates therefor as set forth in
Section 2.2(b) above, Borrower shall pay Bank the applicable Prepayment Fee on
the amount so prepaid, provided that if Bank accelerates the Obligations
hereunder upon the occurrence of an Event of Default and Borrower thereupon
repays the Term Loan, a Prepayment Fee shall not be applicable.
2.4 FEES.
(a) Facility Fee. Borrower shall pay to Bank a fee of $30,000
concurrently herewith, which shall be in addition to interest and to all other
amounts payable hereunder and which shall not be refundable. The parties
understand that Borrower has paid to Bank a deposit of $25,000 which Borrower
hereby authorizes Bank to apply to the payment of the above referenced fee and
Borrower shall pay to Bank the remaining $5,000 portion of such fee concurrently
herewith.
(b) Bank Expenses. Borrower shall pay to the Bank all Bank
Expenses (including reasonable attorneys' fees and expenses) incurred through
and after the Closing Date when due.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Loan Payment/Advance Request Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Loan Payment/Advance Request Form and on the
effective date of each Credit Extension and no Event of Default may have
occurred and be continuing, or result from the Credit Extension. Each Credit
Extension is Borrower's representation and warranty on that date that the
representations and warranties of Section 5 remain true.
-2-
<PAGE>
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all Collateral
to secure all Obligations and performance of each of Borrower's duties under the
Loan Documents. Except for Permitted Liens, any security interest will be a
first priority security interest in the Collateral. If this Agreement is
terminated, Bank's lien and security interest in the Collateral will continue
until Borrower fully satisfies its Obligations.
4.2 AUTHORIZATION TO FILE.
Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank's interest in the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Except as set forth in the Schedule to Loan and Security Agreement
hereto (the "Schedule"), Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good standing in,
any state in which the conduct of its business or its ownership of property
requires that it be qualified, except where the failure to do so would not
likely be expected to cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound and pursuant to which such default would likely be expected to cause a
Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral and its other assets, free of
Liens except Permitted Liens or Borrower has Rights to each of its assets. The
Collateral is not in the possession of any third party bailee (such as at a
warehouse). In the event that Borrower, after the date hereof, intends to store
or otherwise deliver the Collateral to such a bailee, then Borrower will receive
the prior written consent of Bank and such bailee must acknowledge in writing
that the bailee is holding such Collateral for the benefit of Bank.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision would
likely be expected to cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and
-3-
<PAGE>
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower has timely filed all required tax returns and paid,
or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP. Borrower and each
Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No material written representation, material warranty or other material
statement of Borrower in all material written documents that the Borrower has
given to Bank and on which Bank relied for purposes of entering into this
Agreement or any such representation, warranty or statement that is otherwise
contained in this Agreement or in any Schedule hereto, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading, with
it being recognized by Bank that any projections and forecasts provided by
Borrower in good faith and based upon reasonable assumptions are not viewed as
facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected and forecasted results.
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following as long as there remain any
outstanding Obligations:
-4-
<PAGE>
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its legal existence and good standing in its
jurisdiction of formation and maintain qualification in each applicable
jurisdiction in which the failure to so qualify would likely result in a
Material Adverse Change. Borrower will comply with all laws, ordinances and
regulations to which such party is subject to the extent that noncompliance
therewith would likely result in a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) with respect to the end of
each of the first three fiscal quarters of Borrower, as soon as available, but
in any event no later than 5 days after the required due date for filing of
Borrower's Form 10-Q with the Securities and Exchange Commission, such Form 10-Q
report including all financial statements of Borrower filed therewith; and (ii)
with respect to the end of each fiscal year of Borrower, as soon as available,
but no later than 5 days after the required due date for the filing of
Borrower's Form 10-K with the Securities and Exchange Commission, such 10-K
report including all financial statements of Borrower filed therewith.
(b) Together with and at the time of the delivery of each set of
financial statements by Borrower to Bank under clause (a) above, Borrower will
deliver to Bank (i) a completed compliance certificate in the form of Exhibit C
attached hereto.
(c) Within 15 days of the end of each month, Borrower shall
deliver to Bank a statement regarding the aggregate amount of cash of Borrower
and a specific listing, on an account by account basis, of the maturity of all
banking and investment accounts of Borrower that are at institutions other than
the Bank together with the name and address of each of such institutions, with
such listing in form and containing such information as is acceptable to Bank in
its good faith business judgment, all certified to be true and correct by a
Responsible Officer of the Borrower.
(d) Borrower is to allow Bank to inspect the Collateral during
normal business hours and upon reasonable notice to the Borrower relating
thereto.
(e) Without limitation of any of the foregoing provisions,
Borrower shall provide to Bank its annual projections at the end of January of
each year during the term hereof for such year, which projections shall be
acceptable to Bank.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts standard for Borrower's industry, and as Bank may reasonably
request. Insurance policies will
-5-
<PAGE>
be in a form, with companies, and in amounts that are satisfactory to Bank in
Bank's reasonable discretion. All property policies will have a lender's loss
payable endorsement showing Bank as an additional loss payee and all liability
policies will show the Bank as an additional insured, in each case to the extent
of the Bank's insurable interest, and provide that the insurer must give Bank at
least 10 days notice before canceling its policy. At Bank's request, Borrower
will deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy will, to the extent of the Bank's insurable
interest and at Bank's option, be payable to Bank on account of the Obligations.
6.6 BANK ACCOUNTS.
Borrower will maintain its primary banking account relationships with
Bank, which relationships shall include Borrower maintaining account balances in
accounts at or through Bank representing at least the minimum amount required
for Borrower to satisfy the minimum liquidity financial covenant set forth in
Section 6.7 hereof, provided that because Borrower currently has accounts at
other institutions with investments that carry a rate of return that Borrower
has determined is favorable and that have a current maturity beyond the date
hereof, all of which are set forth on Schedule 6.6 hereto and which listing
shall include the specific investment and its related current maturity date
(with such investments being referred to herein as the "Interim Investments" and
the length of the current maturity for each such investment as set forth on such
schedule is referred to herein as "Applicable Remaining Term"). Borrower shall
be required to move the funds out of each investment to the Bank upon the
expiration of the Applicable Remaining Term (the "Applicable Transfer
Condition") relating thereto in a prompt manner and only up to an aggregate
amount in order to satisfy the financial covenant in Section 6.7 hereof. Bank
and Borrower agree that no default of the minimum liquidity financial covenant
shall occur solely due to the location of funds in the Interim Investments as
long as the funds in each of the Interim Investments are moved to Bank when the
Applicable Transfer Condition relating thereto has occurred. At this time, the
Bank does not have a security interest in the accounts of Borrower at Bank and
therefore the Bank has imposed no usage restrictions on the Borrower's accounts
at Bank, subject, however, to the obligation to pledge an account to Bank as set
forth in Section 6.7 hereof, and subject, further, to the rights of Bank upon
the occurrence and continuance of an Event of Default.
6.7 LIQUIDITY COVENANT; PLEDGE UPON VIOLATION.
Subject to the Interim Investment and Applicable Transfer Condition
qualifications set forth in the Section 6.6 above, Borrower on its own (and not
on a consolidated basis) will maintain in its accounts at or through Bank at all
times and certified by Borrower to Bank as of the last day of each quarter an
aggregate minimum amount equal to the greater of (A) 150% multiplied by the Term
Loan balance outstanding from time to time and (B) an aggregate Cash Burn (as
defined below) amount for the sum of the Cash Burn for month end period
corresponding to such quarter end plus the sum of the Cash Burn amounts for each
of the then preceding five month end periods.
If Borrower fails to comply at any time with the foregoing covenant at
any time, and without limitation of Bank's rights and remedies hereunder,
Borrower shall immediately thereupon pledge to Bank a certificate of deposit
account maintained at Bank in an aggregate minimum amount of 100% of the Term
Loan balance then outstanding and in connection therewith Borrower shall execute
and deliver to Bank such security agreement and related documentation as Bank
determines is necessary or advisable in order to establish and maintain a
perfected first priority security interest therein. If Borrower thereafter
complies with the above liquidity covenant, Bank agrees to release such pledged
account, subject, however, to a reinstatement of such pledge if Borrower
thereafter again violates the above liquidity covenant.
-6-
<PAGE>
"Cash Burn" shall mean, with respect to Borrower as of each month end
date, earnings before depreciation, amortization and other non-cash charges, all
in accordance with GAAP for such month.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend or there are any outstanding Obligations:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer") all or any part of its business or property, except for Transfers
(i) of Inventory in the ordinary course of business; (ii) of licenses and
similar arrangements for the use of the property of Borrower in the ordinary
course of business, including, without limitation, licenses of its intellectual
property assets in connection with joint ventures and corporate collaborations,
in each case entered into in the ordinary course of Borrower's business; or
(iii) of worn-out or obsolete Equipment but not including any Collateral.
7.2 CHANGES IN MANAGEMENT OR BUSINESS LOCATIONS.
Engage in any business other than the businesses currently engaged in
by Borrower or reasonably related thereto or have a material change in its
management compared to the management in effect as of the date hereof. Borrower
will not, without prior written notice to the Bank, move the location of any of
the Collateral from its current location, which is at the office address listed
for the Borrower at the heading of this Agreement and 11095 Flintkote Ave., San
Diego, CA 92121.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate with any other Person, or acquire all or
substantially all of the capital stock or property of another Person, except
where: (i) no Default or Event of Default has occurred and is continuing or
would result from such action during the term of this Agreement; (ii) such
transaction would not result in a decrease of more than 25% of Tangible Net
Worth; and (iii) upon the acquisition of any other Person as otherwise permitted
pursuant to the terms of this Section, such Person becomes an appropriate
obligor relating to the Obligations hereunder, as the Bank may determine, and
shall execute such agreements, documents and instruments as are reasonably
necessary or appropriate, as the Bank may determine, in order to evidence such
debt obligations. A Subsidiary may merge or consolidate into another Subsidiary
or into Borrower as long as no Default or Event of Default is occurring prior
thereto or arises thereafter.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, other than
Permitted Indebtedness.
-7-
<PAGE>
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, except for Permitted Liens, or permit the
first priority lien status of Bank regarding the Collateral to change, subject
only to Permitted Liens, as may be applicable.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments. Pay any dividends or
make any distribution or payment or redeem, retire or purchase any capital
stock, except for acquisitions of capital stock by Borrower from any former
employee, consultant or director pursuant to agreements which permit Borrower to
repurchase such capital stock upon termination of services with Borrower,
provided that any such acquisitions shall only be permitted to occur as long as
no Default or Event of Default is then occurring or would otherwise arise upon
the making of any such acquisitions.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a nonaffiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
7.10 NEGATIVE PLEDGE AGREEMENT.
Except as otherwise permitted hereunder, including, without limitation,
under Section 7.1(ii) hereof, Borrower shall not sell, transfer, assign,
mortgage, pledge, lease, grant a security interest in, or encumber any of
Borrower's intellectual property, including, without limitation, the following:
a. 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;
-8-
<PAGE>
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. All patents, patent applications and like protections
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications;
e. 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, including without limitation;
f. Any and all claims for damages by way of past, present and
future infringements 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;
g. All licenses or other rights to use any of the foregoing
copyrights, patents or trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights; and
h. All amendments, extensions, renewals and extensions of any of
the foregoing copyrights, trademarks or patents; and
i. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
7.11 NO FURTHER NEGATIVE PLEDGE AGREEMENTS.
Without limitation of any other term or condition set forth herein or
in any other Loan Document, Borrower shall not enter into any agreements (other
than in favor of Bank) or transactions in which, or otherwise with respect to
which, Borrower agrees not to encumber or create a Lien regarding its
intellectual property assets.
8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after
their due date. During such additional 3 day period the failure to cure such
payment default is not an Event of Default hereunder;
8.2 COVENANT DEFAULT.
(A) If Borrower does not perform any obligation in Section 6.2(a),
Section 6.2(b), Section 6.2(d) or Section 6.2(e) within 2 days of its required
date;
-9-
<PAGE>
(B) If Borrower does not perform any obligation in Sections
6.2(c), 6.6 or 6.7, or Borrower violates any covenant in Section 7; or
(C) If Borrower does not perform or observe any other material
term, condition or covenant in this Agreement (other than those arising in
Section 8.1, Section 8.2(A) and Section 8.2(B) hereof), any Loan Documents, or
in any agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default;
8.3 MATERIAL ADVERSE CHANGE.
If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral (any of the foregoing is referred to herein
as a "Material Adverse Change").
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower;
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 45 days;
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $250,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $150,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days;
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or
8.9 CHANGE IN CONTROL.
-10-
<PAGE>
A Change in Control occurs.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) [intentionally omitted];
(c) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(d) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
(e) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, intellectual property rights and rights of use of any name,
trade secrets, trade names, and all other similar property as it pertains to the
Collateral, in advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
(f) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to transfer the Collateral into
the name of Bank or a third party as the Code permits. Bank may exercise the
power of attorney to sign Borrower's name on any documents necessary to perfect
or continue the perfection of any security interest regardless of whether an
Event of Default has occurred. Bank's appointment as Borrower's attorney in
fact, and all of Bank's rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
9.3 [INTENTIONALLY OMITTED.]
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in
-11-
<PAGE>
Section 6.5, and take any action under the policies Bank deems prudent in
connection therewith. Any amounts paid by Bank are Bank Expenses and immediately
due and payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices and the Code, it is
not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to
the Collateral; (c) any diminution in the value of the Collateral; or (d) any
act or default of any carrier, warehouseman, bailee, or other person. Borrower
bears all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10. NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in San Diego County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
-12-
<PAGE>
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has 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
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge 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, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to
-13-
<PAGE>
prospective transferees or purchasers of any interest in the loans (provided,
however, Bank shall use commercially reasonable efforts in obtaining such
prospective transferee or purchasers agreement of the terms of this provision),
(iii) as required by law, regulation, subpoena, or other order, (iv) as required
in connection with Bank's examination or audit and (v) as Bank considers
appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.
13. DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CHANGE IN CONTROL" is 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, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended), directly or indirectly,
of greater than 35% of the shares of all classes of stock then outstanding of
Borrower ordinarily entitled to vote in the election of directors.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Uniform Commercial Code as enacted in California, as in
effect and otherwise amended from time to time.
"COLLATERAL" is the property described on Exhibit A.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar
-14-
<PAGE>
agreement, or other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or commodity
prices; but "Contingent Obligation" does not include endorsements in the
ordinary course of business. The amount of a Contingent Obligation is the stated
or determined amount of the primary obligation for which the Contingent
Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not
exceed the maximum of the obligations under the guarantee or other support
arrangement.
"CREDIT EXTENSION" is the Term Loan and any other extension of credit
by Bank for Borrower's benefit.
"DEFAULT" shall mean any event or occurrence which with the passing of
time or the giving of notice or both would become an Event of Default hereunder.
"EFFECTIVE DATE" is the date Bank executes this Agreement.
"ELIGIBLE EQUIPMENT" shall mean items of personal property of Borrower
consisting of laboratory equipment, computer equipment, office equipment and
Other Equipment, all of which shall have been purchased in the interval from
January 1, 2000 through and including June 30, 2003 and all of which shall found
to be acceptable to Bank for loan purposes hereunder.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles, consistently
applied.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
-15-
<PAGE>
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties or third party suretyship obligations in favor of Bank executed by
Borrower or other Persons, as applicable, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"MATURITY DATE" shall have the meaning ascribed to such term in Section
2.2(b) hereof.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank relating to the Term Loan, and including interest
accruing after Insolvency Proceedings begin.
"OTHER EQUIPMENT" shall mean and refer to used items of equipment,
software licenses, leasehold improvements, freight, taxes and other soft cost
expenditures of a similar nature, in each case as Bank determines is acceptable.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens, provided that
Indebtedness relating to item (c) of the definition of Permitted Liens shall be
limited to the contemplated equipment financing transaction in the aggregate
principal indebtedness amount of $4,000,000 extended by General Electric Credit
Corporation.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing
Date, including Borrower's ownership interest in Novasite Pharmaceuticals, Inc.
and AME Torrey View, LLC; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue, and (iv) Investments
permitted by Borrower's investment policy, as amended from time to time, and as
provided to and approved by Bank.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule
or arising under this Agreement or other Loan Documents;
-16-
<PAGE>
(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens or Liens arising in connection with
capital leases, (i) on Equipment acquired or held by Borrower incurred for
financing the acquisition of the Equipment, or (ii) existing on equipment when
acquired, if the Lien is confined to the property and improvements and the
proceeds of the equipment;
(d) Non-exclusive licenses or sublicenses granted in the ordinary
course of Borrower's business and, with respect to any licenses where Borrower
is the licensee, any interest or title of a licensor or under any such license
or sublicense, if the licenses and sublicenses permit granting Bank a security
interest;
(e) Leases or subleases entered into in the ordinary course of
Borrower's business, including in connection with Borrower's leased premises or
leased property; and
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PREPAYMENT FEE" shall mean a fee to be paid by Borrower on any
prepayment of the principal outstanding hereunder equal to (A) three percent
(3%) of the aggregate principal amount of the Term Loan being prepaid prior to
its scheduled maturity if any such prepayment occurs on or prior to the first
anniversary of the Effective Date; (B) two percent (2%) of the aggregate
principal amount of the Term Loan being prepaid prior to its scheduled maturity
if any such prepayment occurs after the first anniversary of the Effective Date
and prior to the second anniversary of the Effective Date; and (C) one percent
(1%) of the aggregate principal amount of the aggregate principal amount of the
Term Loan being prepaid prior to its scheduled maturity if any such prepayment
occurs after the second anniversary of the Effective Date and prior to the third
anniversary of the Effective Date.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President and the Chief Financial Officer of Borrower.
"RIGHTS", as applied to the Collateral, means the Borrower's rights and
interests in, and powers with respect to, that Collateral, whatever the nature
of those rights, interests and powers and, in any event, including Borrower's
power to transfer rights in such Collateral to Bank.
"SCHEDULE" is defined in Section 5 hereof.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
-17-
<PAGE>
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, without duplication, (i) any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, Patents, trade and service marks and names, Copyrights and
research and development expenses except prepaid expenses, and (c) reserves not
already deducted from assets, and (ii) Total Liabilities.
"TERM LOAN" shall mean a credit extension by Bank to Borrower in
accordance herewith and in an aggregate principal amount not to exceed Six
Million Dollars ($6,000,000).
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
BORROWER:
APPLIED MOLECULAR EVOLUTION, INC.
By: /s/ William D. Huse
-----------------------------
Name: William D. Huse, M.D, Ph.D.
Title: CEO & President
BANK:
SILICON VALLEY BANK
By: /s/ Linda LeBeau
-----------------------------
Name: Linda LeBeau
Title: Senior Vice President
Effective Date: 9-29-03
-18-