TABLE OF CONTENTS

 

		Page
1.	DEFINITIONS	1
2.	LOANS TO BORROWER; ISSUANCE OF WARRANTS	7
	2.1. Advances	7
	2.2. Use of Proceeds	7
	2.3. Interest	8
	2.4. Renewal Fee	8
	2.5. Payments	8
	2.6. Manner of Payment	8
	2.7. Prepayments	8
	2.8. Issuance of Warrants	9
3.	CLOSING; DELIVERIES; CONDITIONS TO ADVANCE	9
	3.1. Closing Date	9
	3.2. Closing Deliveries and Actions	9
	3.3. Conditions to Advance	10
4.	REPRESENTATIONS AND WARRANTIES OF BORROWER	11
	4.1. Organization and Qualification	11
	4.2. Power and Authority	11
	4.3. Subsidiaries and Affiliates	11
	4.4. Capitalization	11
	4.5. Authorization	12
	4.6. No Violations or Conflicts	12
	4.7. Consents and Approvals	12
	4.8. Financial Statements; Disclosure	13
	4.9. Absence of Changes	13
	4.10. Litigation	14
	4.11. Intellectual Property	14
	4.12. Title to Assets, Properties and Rights	14
	4.13. Compliance with Laws; Legal Requirements	15
	4.14. Employees and Labor Matters	15
	4.15. Brokers and Finders	16
	4.16. Tax Matters	16
	4.17. Books and Records	16
	4.18. Offering Valid	16
5.	COVENANTS	17
	5.1. Negative Covenants	17
	5.2. Affirmative Covenants	18

 

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	5.3. Right of First Offer and Refusal	19
	5.4. No Third-Party Rights	19
	5.5. Security Interests	19
6.	SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC	20
7.	EVENTS OF DEFAULT; REMEDIES	20
	7.1. Events of Default	20
	7.2. Remedies	21
8.	MISCELLANEOUS	21
	8.1. Governing Law; Submission to Jurisdiction.	21
	8.2. Assignments; Successors; Third Party Rights	21
	8.3. Entire Agreement; Amendment	22
	8.4. Notices	22
	8.5. Failure or Indulgence Not Waiver; Remedies Cumulative	23
	8.6. Severability	23
	8.7. Section Headings; Construction	23
	8.8. Counterparts	23
	8.9. Fees and Expenses	23
	8.10. Reinstatement	24
	8.11. Payment on Non-Business Days	24
	8.12. Time of Day	24
	8.13. Waiver of Jury Trial	24
9.	LENDER REPRESENTATIONS	24
	9.1. Lender Representations	24

 

Exhibits
Exhibit A          -	Form of Note
Exhibit B          -	Form of Warrant
Exhibit C          -	Form of Borrowing Request
Exhibit D          -	Form of Amended and Restated Registration Rights Agreement
Exhibit E          -	Form of Cash Projection Schedule

 

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THIS INSTRUMENT AND THE RIGHTS EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF (A) THAT CERTAIN SUBORDINATION AGREEMENT, MADE AS OF MARCH 7, 2007, BY AND BETWEEN  SAFEGUARD DELAWARE, INC., AND COMERICA BANK, AND ACKNOWLEDGED BY CLARIENT, INC., AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME AND (B) THAT CERTAIN AMENDED AND RESTATED SUBORDINATION AGREEMENT DATED FEBRUARY 27, 2009 BY AND BETWEEN GEMINO HEALTHCARE FINANCE, LLC AND SAFEGUARD DELAWARE, AMONG OTHERS, AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, AND ANY TRANSFEREE BY ACCEPTANCE OF SUCH TRANSFER AGREES TO BE BOUND BY THE TERMS OF BOTH FOREGOING AGREEMENTS.

 

SECOND AMENDED AND RESTATED

 

SENIOR SUBORDINATED REVOLVING CREDIT AGREEMENT

 

THIS SECOND AMENDED AND RESTATED SENIOR SUBORDINATED REVOLVING CREDIT AGREEMENT (this “ Agreement ”) is made and entered into February 27, 2009, by and among CLARIENT, INC, a Delaware corporation (“ Borrower ”), and SAFEGUARD DELAWARE, INC., a Delaware corporation (the “ Lender ”).

 

RECITALS:

 

WHEREAS, Lender provided to Borrower a subordinated revolving credit facility in the maximum aggregate principal amount of $21,000,000, on the terms and conditions set forth in that certain Amended and Restated Senior Subordinated Revolving Credit Agreement dated as of March 14, 2008, as amended by that certain First Amendment and Consent of Amended and Restated Senior Subordinated Revolving Credit Agreement dated as of July 31, 2008 (the “ Prior Mezzanine Facility ”); and

 

WHEREAS, Borrower has requested, and Lender has agreed, to amend and restate the terms of the Prior Mezzanine Facility, to (among other things) increase the maximum aggregate principal amount of the Commitment to $30,000,000), as set forth herein.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants and obligations hereafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.                                       DEFINITIONS.

 

For purposes of this Agreement, the following terms shall have the following meanings:

 

“ A/R and Asset Security Interests ” has the meaning set forth in Section 5.5.

 

“ Advance ” and “ Advances ” have the respective meanings set forth in Section 2.1(a) hereof.

 

“ Agreement ” has the meaning set forth in the Preamble.

 

“ Available Amount ” means, at any time of determination, the Commitment less all Outstanding Amounts.

 

“ Balance Sheet Date ” has the meaning set forth in Section 4.8 hereof.

 

“ Balance Sheet ” has the meaning set forth in Section 4.8 hereof.

 

 

“ Bankruptcy Law ” has the meaning set forth in Section 7.1(b) hereof.

 

“ Borrower ” has the meaning set forth in the Preamble.

 

“ Borrowing Request ” means the form to be provided by Borrower to Lender in connection with each requested Advance, which shall be in the form of Exhibit C attached hereto.

 

“ Business Day ” means any day other than a Saturday, Sunday or legal holiday in the State of Delaware or the State of California.

 

“ Capital Transaction ” means the issuance by Borrower of (x) debt from a single source (or affiliated sources) or in a single syndicated facility,  (y) equity (including debt convertible to equity) or (z) both (x) and (y) if the debt and equity are from a single source or affiliated sources, whether in a single transaction or series of directly related transactions, which results in net proceeds to Borrower not less than $1,000,000.

 

“ Capitalized Lease ” means, with respect to any Person, any lease of such Person as lessee that, in accordance with GAAP, is required to be classified and accounted for as a capital lease on a balance sheet of that Person.

 

“ Capitalized Lease Obligation ” means, with respect to any Capitalized Lease of any Person, the amount of the obligation of the lessee of such Capitalized Lease that , in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capitalized Lease.

 

“ Closing ” has the meaning set forth in Section 3.1 hereof.

 

“ Closing Date ” has the meaning set forth in Section 3.1 hereof.

 

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.

 

“ Comerica Agreement ” means that certain Amended and Restated Loan Agreement by and between Borrower and Comerica Bank dated as of February 28, 2008, as amended through the date hereof, and all documents, instruments and agreements executed and delivered in connection therewith and amended through the date hereof, as the same may be further amended from time to time, with the prior written consent of Lender, which consent shall not be unreasonably withheld or delayed.

 

“ Commitment ” means the maximum aggregate principal amount which may be borrowed hereunder (inclusive of those amounts borrowed under the Prior Mezzanine Facility), being, as of the date hereof, $30,000,000.

 

“ Commitment Warrant ” has the meaning set forth in Section 2.8(a) hereof.

 

“ Common Stock ” means the common stock, par value $0.01, of Borrower.

 

“ Continuance Warrant ” has the meaning set forth in Section 2.8(b) hereof.

 

“ Default ” means an event, condition, or circumstance the occurrence of which would, with the passage of time, the giving of notice, or both, constitute an Event of Default.

 

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“ Encumbrances ” means all claims, liens, charges, security interests, pledges, mortgages, or other restrictions or encumbrances.

 

“ Environmental Laws ” means any and all applicable federal, state, local, and foreign laws and regulations relating to the protection of human health and safety or emissions, discharge, releases, threatened releases, removal, remediation, or abatement of pollutants, contaminants, chemicals, or industrial, hazardous, or toxic substances or wastes into or in the environment (including, without limitation, air, surface water, ground water, or land) or otherwise used in connection with the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, hazardous or toxic substances or wastes, as defined under such applicable laws.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

“ Event of Default ” means an event described in Section 7.1 hereof.

 

“ Financial Statements ” has the meaning set forth in Section 4.8 hereof.

 

“ GAAP ” means United States generally accepted accounting principles applied on a consistent basis.

 

“ GE Capital ” means General Electric Capital Corporation, a Delaware corporation.

 

“ GE Capital Facility ” means, collectively, (a) that certain Loan and Security Agreement, dated as of September 29, 2006, by and among Borrower, Clarient Diagnostic Services, Inc., CLRT Acquisition, LLC,  and GE Capital; and (b) (i) that certain Master Lease Agreement, dated as of June 23, 2004, by and between ChromaVision Oncology Services, Inc. (predecessor to Clarient Diagnostic Services, Inc., an affiliate of Borrower) and GE Capital, and (ii) that certain Master Security Agreement, dated as of July 15, 2003, by and between Borrower and GE Capital, and, in each case, all documents, instruments and agreements executed and delivered in connection therewith and all as amended through the termination thereof.

 

“ Gemino ” means Gemino Healthcare Finance, LLC.

 

“ Gemino Capital Facility ” meant the debt facility established by that certain Credit Agreement dated July 31, 2008 between Gemino and Clarient, Inc., Clarient Diagnostic Services, Inc. and Chromavision International, Inc, as amended through the date hereof, and all documents, instruments and agreements executed and delivered in connection therewith, and as the same may be further amended from time to time.

 

“ Gemino/Safeguard Subordination Agreement ” means that certain Amended and Restated Subordination Agreement dated February 27, 2009 in favor of Gemino by Lender, Safeguard Scientifics (Delaware), Inc. and Safeguard Scientifics, Inc. as amended from time to time.

 

“ Governmental Authority ” means any court or any federal, state, municipal, or other domestic or foreign government or governmental or regulatory department, commission, board bureau, agency, authority, or instrumentality.

 

“ Guaranteed Obligations ” means as to any Person, without duplication, any obligation of such Person guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease, dividend, or other obligation (“ primary obligation ”) of any other Person in any matter; provided that the term

 

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Guaranteed Obligations shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Guaranteed Obligation at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect to which such Guaranteed Obligation is incurred and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Obligation, or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof.

 

“ Intangible Assets ” means all assets of Borrower which would be classified in accordance with GAAP as intangible assets, including without limitation, all franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade-names, goodwill, experimental or organization expenses and other like intangibles, the cash surrender value and other like intangibles of any life insurance policy, treasury stock and unamortized debt discount.

 

“ Indebtedness ” of a Person means at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person to pay the deferred purchase price of property or services incurred in the ordinary course of business if the purchase price is due more than six (6) months from the date the obligation in incurred, (d) all Capitalized Lease Obligations of such Person, (e) the principal balance outstanding under any synthetic lease, tax retention, operating lease, off-balance sheet loan or similar off-balance sheet financing product, (f) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the issuance or sale of the same or substantially similar securities (or property), (g) all contingent or non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (h) all equity securities of such Person subject to repurchase or redemption otherwise than at the sole option of such Person, (i) all “ earnouts ” and similar payment obligations of such Person, (j) all Indebtedness secured by a Lien on any asset of such Person, whether or not such Indebtedness if otherwise an obligation of such Person, (k) all obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (l) all Guaranteed Obligations of such Person; and (m) all obligations of such Person to trade creditors incurred in the ordinary course of business and more than ninety (90) days past due.

 

“ Intellectual Property ” has the meaning set forth in Section 4.11(a) hereof.

 

“ Laws ” has the meaning set forth in Section 4.13 hereof.

 

“ Lender ” has the meaning set forth in the Preamble hereto.

 

“ Licenses and Permits ” has the meaning set forth in Section 4.13(b) hereof.

 

“ Liquidity Event ” means (a) the liquidation, dissolution or winding up of Borrower, whether voluntary or involuntary, (b) a sale of all or substantially all of the assets of Borrower, or (c) a merger or acquisition of Borrower by another Person by means of any transaction or series of related transactions (including any reorganization, merger or consolidation) where following such transaction or series of transactions Lender and/or its affiliated entities will own a minority of the voting securities of Borrower or the surviving entity in such transaction or series of transactions.  Notwithstanding the foregoing, a Liquidity Event shall not be deemed to have occurred in the event that Lender and/or its affiliates negotiate a stand-alone transfer of their respective equity interests (or a portion thereof) in the Borrower to a third party without the involvement of Borrower’s stockholders generally.

 

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“ Loan ” means, collectively, the aggregate amount of all Advances from time to time outstanding hereunder.

 

“ Loan Documents ” means this Agreement, the Note, the Warrants, the Subordination Agreements, and any other agreements, documents, instruments and writings now or hereafter existing, creating, evidencing, guarantying, securing or relating to any of the liabilities of Borrower to Lender pursuant to and in connection with this Agreement, together with all amendments, modifications, renewals or extensions thereof.

 

“ Material Adverse Effect ” means a material adverse change in, or a material adverse effect on, the business, operations, properties, assets, liabilities, financial condition or results of operations of Borrower and/or its Subsidiaries, taken as a whole, or Borrower’s ability to perform its obligations under this Agreement, the Note or the Warrants.

 

“ Maturity Date ” means the earliest of (a) April 1, 2010 or (b) the occurrence of a Liquidity Event.

 

“ Monthly Warrant ” has the meaning set forth in Section 2.8(c).

 

“ New Warrants ” means, collectively, the Commitment Warrants, the Continuance Warrants and the Monthly Warrants.

 

“ Note ” means that certain subordinated Second Amended and Restated Revolving Credit Note issued by Borrower in favor of Lender pursuant to this Agreement, in the form of Exhibit A hereto.

 

“ Order ” means any order, execution, writ, injunction, judgment, decree, ruling, assessment, or arbitration award.

 

“ Outstanding Amounts ” means the aggregate principal amount of Indebtedness, plus interest thereon, outstanding hereunder and under the Note on any date of determination.

 

“ Permitted Liens ” means (a) deposits or pledges to secure obligations under workmen’s compensation, social security or similar laws, or under unemployment insurance, (b) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, (c) mechanic’s, workmen’s materialmen’s or other like Encumbrances attaching only to equipment and real property arising in the ordinary course of business with respect to obligations which are not due, or which are being contested in good faith by appropriate proceedings which suspend the collection thereof and in respect of which adequate reserves have been made in accordance with GAAP (provided that such proceedings, do not in Lender’s reasonable discretion, involve any substantial risk of the sale, loss or forfeiture of such property or assets or any interest therein), (d) Liens set forth in Schedule 4.12(a), (e) Encumbrances being contested in good faith, (f) Liens created or assumed in connection with the financing or acquisition of capital assets in the ordinary course of business in an aggregate principal amount outstanding not greater than five hundred thousand dollars ($500,000) at any time; provided that such liens secure only such assets acquired and do not exceed the purchase price of the subject assets; (g) attachment or judgment Encumbrances which individually or when aggregated with all other attachments and judgments exceed by more than $50,000 any insurance coverage applicable thereto (and as to which the insurance company has acknowledged coverage in writing), subject to customary deductibles and continue unsatisfied or unstayed for a period of ten days, and (h) liens arising under the Gemino Capital Facility.

 

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“ Registration Rights Agreement ” has the meaning set forth in Section 2.8(e) hereof.

 

“ Renewal Fee ” has the meaning set forth in Section 2.4.

 

“ Person ” means any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity or any department, agency, or political subdivision thereof.

 

“ Prior Facility Warrants ” has the meaning set forth in Section 2.8(d) hereof.

 

“ Required Consents ” has the meaning set forth in Section 4.7 hereof.

 

“ Returns ” has the meaning set forth in Section 4.16 hereof.

 

“ SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

 

“ Securities ” has the meaning set forth in Section 9.1(a) hereof.

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Securities Laws ” means the Securities Act, the Securities Exchange Act of 1934, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the Public Company Accounting Oversight Board, as each of the foregoing may be amended and in effect on any applicable date hereunder.

 

“ Subordination Agreements ” means, collectively, (a) that certain Subordination  Agreement dated as of March 7, 2007, by and among Borrower, Comerica Bank, and Lender (as such may be amended from time to time) (the “Comerica/Safeguard Subordination Agreement” ); and (b) the Gemino/Safeguard Subordination Agreement.

 

“ Subsidiary ” means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the 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 another Subsidiary.

 

“ Tax ” as used in this Agreement, the term “Tax” means any of the Taxes and the term “Taxes” means, with respect to any Person, (i) all applicable domestic and foreign income taxes (including any tax on or based upon net income, or gross income, or income as specially defined, or earnings, or profits, or selected items of income, earnings or profits) and all applicable domestic and foreign gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, environmental, property or windfall profits taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) on such Person and (ii) any liability for the payment of any amount of the type described in the immediately preceding clause (i) as a result of being a “transferee” (within the meaning of Section 6901 of the Code or any other applicable law) of another Person or a member of an affiliated, consolidated or combined group.

 

“ Warrants ” means, collectively, the Prior Facility Warrants and the New Warrants.

 

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2.                                       LOANS TO BORROWER; ISSUANCE OF WARRANTS.

 

2.1.  Advances.

 

(a)           Generally .  Subject to the terms and conditions of this Agreement and the Subordination Agreements, including without limitation receipt of the deliveries specified in Section 3.2 and the other conditions specified in Section 3.3, Lender shall advance funds to Borrower (each such advance, individually, an “ Advance ”, and all such advances, the “ Advances ”) by wire transfer of immediately available funds via Federal Reserve System to:

 

Recipient Bank:	Comerica Bank
	75 E Trimble Road
	MC 4711
	San Jose, CA 95131
	Contact:	Kelly Rojas
		(408) 556-5785
		krojas@comerica.com
ABA#:	121137522
Account Name:	Clarient, Inc.
Account #:	1892035203

 

(b)           Advance Procedures .

 

(i)            Subject to and upon the terms and conditions of this Agreement, including without limitation the conditions specified in Section 3.3, Borrower may request an Advance, in a minimum principal amount of $1,000,000 (or the Available Amount, if less) but no Advance may be in an amount exceeding the Available Amount.  Subject to the terms and conditions of this Agreement, Outstanding Amounts may be repaid and reborrowed at any time prior to the Maturity Date, at which time all Outstanding Amounts shall be immediately due and payable.

 

(ii)           Whenever Borrower desires an Advance, Borrower will notify Lender by email no later than 2:00 p.m., not less than ten Business Days prior to the Business Day on which the Advance is to be funded.  Each such notification shall be in the form of a Borrowing Request in substantially the form of Exhibit C hereto.  Borrower shall promptly provide such information supporting the need for a such Advance as Lender reasonably requests.  Lender shall wire the amount of Advances made under this Section 2.1(b) to the wire address set forth in Section 2.1(a), or to such other wire address as Borrower has advised Lender in writing in connection with such Borrowing Request.

 

(c)           Advances Under Prior Mezzanine Facility; Other Debts .  Outstanding Amounts owed pursuant to (and as defined under) the Prior Mezzanine Facility on the date hereof shall be and continue as Outstanding Amounts under (and as defined under) the terms of this Agreement.  In addition, any other indebtedness of Borrower (or its affiliates) to Lender (or its affiliates) which is not repaid in connection with the Closing shall be treated as an Advance and become an Outstanding Amount hereunder.

 

2.2.  Use of Proceeds .  The proceeds from the Note shall be used by Borrower for general working capital and budgeted capital expenditures and budgeted business purposes as approved by Borrower’s Board of Directors from time to time.

 

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2.3.  Interest .  Interest shall accrue daily on the unpaid balance of all Advances at the rate of 14% per annum, compounded monthly, on the basis of a year of 365 or 366 days, for the actual number of days elapsed.

 

2.4.  Renewal Fee .  Borrower shall pay Lender a “ Renewal Fee ” equal to 1.0% of the Commitment, which amount shall be, at Borrower’s election, (i) paid in cash at Closing, or (ii) be treated as an Advance and become an Outstanding Amount hereunder.

 

2.5.  Payments .

 

(a)           Principal Generally .  Subject to the terms and conditions of the Subordination Agreements and to Section 7 and Section 2.7(b) hereof, the Outstanding Amounts shall be due and payable on the Maturity Date.

 

(b)           Interest .  Subject to the terms and conditions of the Subordination Agreements, payments of accrued interest on the principal balance outstanding hereunder from time to time, shall be made (i) on the Maturity Date, and (ii) if earlier, immediately upon receipt by the Borrower of any proceeds of any Capital Transaction, together with accrued and unpaid fees and costs incurred by Lender in connection with this Agreement and the transactions contemplated hereby.

 

2.6.  Manner of Payment .  All payments and prepayments of principal and interest shall be made by wire of immediately available funds as directed by Lender pursuant to written instructions provided to Borrower from time to time.  If any payment of principal or interest required hereunder is due on a day that is not a Business Day, such payment shall be due on the next succeeding Business Day, and such extension of time shall be taken into account in calculating the amount of interest payable hereunder.  All payments and prepayments shall be credited first to accrued and unpaid interest, and then to the outstanding principal amount of Advances

 

2.7.  Prepayments .

 

(a)           Optional Prepayments .  Subject to the terms and conditions of the Subordination Agreements, Borrower may prepay all or any portion of the outstanding principal balance due under the Note and any interest accrued thereon, at any time and from time to time, without premium or penalty, provided that Borrower shall have given Lender not less than five Business Days prior written notice of its intent to so prepay, and the amount of such prepayment.  Any such prepayment shall not reduce the Commitment unless so requested in writing by Borrower.

 

(b)           Mandatory Prepayments .  Subject to the terms and conditions of the Subordination Agreements:

 

(i)            [reserved]

 

(ii)           Immediately when Outstanding Amounts exceed the Commitment, Borrower shall make prepayments of Outstanding Amounts as necessary to reduce the Outstanding Amounts to be less than the Commitment.

 

(iii)          Immediately upon the prepayment in full of amounts owed under and termination of the Comerica Agreement and the Gemino Capital Facility, all Outstanding Amounts shall be paid in full.

 

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(iv)          Immediately upon the consummation of a Liquidity Event or a Capital Transaction, all Outstanding Amounts shall be paid in full and the Commitment (and this Agreement) shall be immediately and irrevocably terminated.

 

(v)           Borrower shall at all times maximize its borrowings under the Gemino Capital Facility and Comerica Agreement.  From time to time, Borrower shall pay to Lender as a prepayment of Outstanding Amounts any amount of unrestricted cash Borrower has on hand in excess of $1,000,000; provided that Borrower shall not be obligated to make a repayment from such excess to the extent that Borrower can demonstrate, to Lender’s reasonable satisfaction, a need to maintain such excess.

 

2.8.  Issuance of Warrants .

 

(a)           Commitment Warrant .  Borrower shall issue Lender a fully vested five-year warrant (the “ Commitment Warrant ”) at the Closing in the form of Exhibit B attached hereto, to purchase 500,000 shares of Common Stock at an exercise price per share equal to the average of the Common Stock’s closing price on The Nasdaq Capital Market for the 20 trading-day period ending February 6, 2009, or $1.376 per share.

 

(b)           Continuance Warrant .  Borrower shall issue Lender a fully vested five year warrant (the “ Continuance Warrant ”) on June 1, 2009, if Borrower has not, on or before May 31, 2009, (i) repaid all Outstanding Amounts, (ii) terminated this Agreement and (iii) obtained a full release of Lender as a guarantor of Borrower’s obligations under the Comerica Agreement.  The Continuance Warrant shall be exercisable for 750,000 shares of Common Stock at an exercise price per share equal to 50% of the average of the Common Stock’s closing price on The Nasdaq Capital Market for the 20 trading-day period ending May 31, 2009, and shall otherwise be in the form of Exhibit B attached hereto.

 

(c)           Monthly Warrant .  Borrower shall issue Lender a fully vested five year warrant (each, a “ Monthly Warrant ”) on the first day of each of the nine months beginning and including July 1, 2009, if Borrower has not, prior to end of the month preceding such issuance date, (i) repaid all Outstanding Amounts, (ii) terminated this Agreement and (iii) obtained a full release of Lender as a guarantor of Borrower’s obligations under the Comerica Agreement.  Each Monthly Warrant shall be exercisable for 700,000 shares of Common Stock at an exercise price of $0.01 per share, and shall otherwise be in the form of Exhibit B attached hereto.

 

(d)           Prior Mezzanine Facility Warrants .  Pursuant to the Prior Mezzanine Facility, Borrower issued to Lender warrants (such warrants, the “ Prior Facility Warrants ”) to purchase an aggregate of 3,843,750 shares of Common Stock at an exercise price of $.01 per share.

 

(e)           Registrable Securities .  The Registration Rights Agreement between Borrower and Lender dated as of March 14, 2008 shall be amended and restated (as amended and restated, the “ Registration Rights Agreement ” ) in connection with the Closing so that all of the Common Stock issuable upon the exercise of the Warrants shall constitute Registrable Securities thereunder.

 

3.                                       CLOSING; DELIVERIES; CONDITIONS TO ADVANCE.

 

3.1.  Closing Date .  The closing of this Agreement (the “ Closing ”) is taking place on the date hereof (“ Closing Date ”) and is being held at the offices of Safeguard Scientifics, Inc., 435 Devon Park Drive, Building 800, Wayne, Pennsylvania, contemporaneously with the execution of this Agreement.

 

3.2.  Closing Deliveries and Actions .  The parties shall make the following deliveries and take the following actions at the Closing:

 

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(a)           Borrower shall deliver or caused to be delivered to Lender (i) a counterpart of this Agreement, (ii) the Note, (iii) the New Warrants, and (iv) a counterpart to the Registration Rights Agreement, each fully executed;

 

(b)           Counsel to Borrower shall deliver to Lender a legal opinion in form and substance reasonably acceptable to Lender

 

(c)           Lender shall deliver or caused to be delivered to Borrower a fully executed counterpart to this Agreement and the Registration Rights Agreement;

 

(d)           Borrower shall deliver a certificate, executed on behalf of Borrower by the Secretary thereof, dated as of the Closing, certifying the incumbency of each of the officers of Borrower executing this Agreement, and all other documents, instruments or certificates to be executed and delivered by Borrower in connection therewith, and attaching certified copies of (i) the resolutions of a special committee of the Board of Directors of Borrower approving this Agreement, the New Warrants, and the other transactions contemplated hereby, (ii) true, complete, and accurate copies of each of (x) the Certificate of Incorporation of Borrower, certified by the Secretary of State of the State of Delaware, and (y) the Bylaws of Borrower, each of which remain in full force and effect, without modification, as of the date of the Closing, and (iii) a certificate of good standing, issued by the Secretary of State of the States of Delaware and California, certifying that Borrower is in good standing, as of a recent date prior to the Closing, in each such jurisdiction;

 

(e)           Borrower shall deliver a certificate, executed on behalf of Borrower by the Chief Financial Officer thereof, dated as of the Closing, certifying that financial statements delivered at or before Closing pursuant to this Agreement have been prepared in accordance with GAAP;

 

(f)            Borrower, Lender and Comerica shall have amended the Safeguard/Comerica Subordination Agreement to contemplate the transactions contemplated herein;

 

(g)           Borrower, Lender and Safeguard Scientifics (Delaware), Inc. shall have delivered a fully executed Third Amendment to Amended and Restated Reimbursement and Indemnity Agreement in the form previously agreed by the parties;

 

(h)           Lender and Safeguard Scientifics (Delaware), Inc. shall have delivered a fully executed Affirmation of Guaranty in the form previously agreed by the parties and Comerica Bank; and

 

(i)            Borrower, Lender and Gemino shall have amended the Safeguard/Gemino Subordination Agreement to contemplate the transactions contemplated herein.

 

3.3.  Conditions to Advance .  It shall be a condition to Lender’s funding Advances hereunder on or after the Closing Date that:

 

(a)           Borrower shall have delivered to Lender a Borrowing Request in accordance with Section 2.1(b);

 

(b)           Borrower shall have delivered to Lender a certificate, executed on behalf of Borrower by an officer thereof, dated as of the date of such proposed Advance, certifying that that no Default or Event of Default has occurred and is continuing on the date of such Advance or will be caused by such Advance (after giving effect to the application of the proceeds of such Advance); and that each of Borrower’s representations and warranties made herein and in the other Loan Documents shall be true and correct in all material respects as if remade on the date of such Advance, after giving effect to the

 

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application of the proceeds of such Advance (unless they relate to a specific date, in which case they shall be true and correct in all material respects on and as of such date).

 

(c)           All amounts (including, without limitation, fees) required to have been paid by Borrower pursuant to this Agreement, the Note and the Warrants (to the extent same are permitted to be paid pursuant to the terms and conditions of the Subordination Agreements), shall have been paid.

 

4.                                       REPRESENTATIONS AND WARRANTIES OF BORROWER.

 

Borrower represents and warrants to, and covenants with, Lender, that the following representations and warranties are true and correct in all material respects, as of the date hereof.

 

4.1.  Organization and Qualification .  Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.  Each Subsidiary has been duly formed and is validly existing under the laws of the jurisdiction of its formation.  Borrower