LOAN AND SECURITY AGREEMENT

 

 

and (iv) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(e)           Permitted Prepayment of Equipment Advances .   So long as no Event of Default has occurred and is continuing, Borrower shall have the option to prepay all, but not less than all, the Equipment Advance advanced by Lender under this Agreement, provided Borrower (i) delivers written notice to Lender of its election to prepay the Equipment Advance at least thirty (30) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued and unpaid interest, (B) the Prepayment Fee, (C) the Final Payment and (D) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

2.2           Payment of Interest on the Credit Extension.

 

(a)           Interest Rate .   Subject to Section 2.2(b), the principal amount outstanding under the Equipment Advance shall accrue interest at a fixed per annum rate equal to the Basic Rate, determined by Lender as of the Funding Date for the Equipment Advance, which interest shall be payable monthly in accordance with Section 2.2.(d).

 

(b)           Default Rate .   Immediately upon the occurrence and during the continuance of an Event of Default, the Obligations shall bear interest at a rate per annum which is five percentage points above the rate that is otherwise applicable thereto (the “ Default Rate ”). Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Lender.

 

(c)           360-Day Year .   Interest shall be computed on the basis of a 360-day year comprising twelve (12) months consisting of thirty (30) days.

 

(d)           Payments .   Unless otherwise provided, interest is payable monthly on the Payment Date of each month. Payments of principal and/or interest received after 12:00 noon Eastern 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, as applicable, shall continue to accrue.

 

2.3          Secured Promissory Note.    The Equipment Advance shall be evidenced by a Secured Promissory Note in the form attached as Exhibit D hereto (each a “ Secured Promissory Note ”), and shall be repayable as set forth therein. The Borrower irrevocably authorizes Lender to make or cause to be made, on or about the Funding Date, or at the time of receipt of any payment of principal on Lender’s Secured Promissory Note, an appropriate notation on Lender’s Secured Promissory Note Record reflecting the making of the Equipment Advance or (as the case may be) the receipt of such payment. The outstanding amount of the Equipment Advance set forth on Lender’s Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to Lender, but the failure to record, or any error in so recording, any such amount on Lender’s Secured Promissory Note Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Secured Promissory Note to make payments of principal of or interest on any Secured Promissory Note when due. Upon receipt of an affidavit of an officer of a Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, the Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.

 

2.4          Fees.    Borrower shall pay to Lender:

 

(a)           Commitment Fee .   A fully earned, non-refundable commitment fee of $15,000 which Lender has received in total;

 

(b)           Prepayment Fee .   The Prepayment Fee, when due hereunder;

 

(c)           Lender’s Expenses .   All Lender’s Expenses (including reasonable attorneys’ fees and expenses, plus expenses, for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due; and

 

 

(d)           Final Payment .   The Final Payment, when due hereunder.

 

3             CONDITIONS OF LOAN

 

3.1          Conditions Precedent to Credit Extension.    Lender’s obligation to make the Credit Extension is subject to the condition precedent that Lender shall have received, in form and substance satisfactory to Lender, such documents, and completion of such other matters, as Lender may reasonably deem necessary or appropriate, including, without limitation:

 

(a)           duly executed original signatures to the Loan Documents to which Borrower is a party;

 

(b)           duly executed original signatures to the Warrant;

 

(c)           duly executed original Secured Promissory Note in favor of Lender in an amount not to exceed the Equipment Line;

 

(d)           Operating Documents and a good standing certificate of Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(e)           duly executed original signatures to the completed Borrowing Resolutions for Borrower;

 

(f)            Lender shall have received certified copies, dated as of a recent date, of financing statement searches, as Lender shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

(g)           a landlord’s consent with respect to Borrower’s leased property located at 6300 Dumbarton Circle Fremont, CA 94555 executed in favor of Lender;

 

(h)           evidence satisfactory to Lender that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Lender;

 

(i)            Estoppel letter from Lighthouse Capital Partners releasing any interest in the Collateral: and

 

(j)            payment of the fees and Lender’s Expenses then due as specified in Section 2.4 hereof.

 

The obligation of Lender to make the Credit Extension is also subject to the following:

 

(a)           except as otherwise provided in Section 3.3, timely receipt of an executed Payment/Advance Form and a UCC financing statement covering the Financed Equipment;

 

(b)           the representations and warranties in Section 5 shall be true, accurate and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. The Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;

 

 

(c)           Lender shall have the opportunity to confirm that upon filing of the UCC financing statement covering the Financed Equipment, that Lender shall have a perfected first priority security interest in such Financed Equipment; and

 

(d)           in Lender’s sole discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, nor has there been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Lender.

 

3.2          Covenant to Deliver. Borrower agrees to deliver to Lender each item required to be delivered to Lender under this Agreement as a condition to the Credit Extension. Borrower expressly agrees that the extension of the Credit Extension prior to the receipt by Lender of any such item shall not constitute a waiver by Lender of Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in Lender’s sole discretion.

 

3.3          Procedures for Borrowing.    Subject to the prior satisfaction of all other applicable conditions to the making of the Equipment Advance set forth in this Agreement, to obtain the Equipment Advance, Borrower shall notify Lender (which notice shall be irrevocable) by electronic mail, facsimile, or telephone not later than 12:00 noon Eastern time two (2) Business Days prior to the date the Equipment Advance is to be made. Together with any such electronic or facsimile notification, Borrower shall deliver to Lender by electronic mail or facsimile (i) a completed Pay Proceeds Letter executed by a Responsible Officer, (ii) a copy of the invoice for the Equipment being financed, together with a UCC Financing Statement authorization covering the Financed Equipment described on Exhibit A, and (iii) such additional information as Lender may reasonably request. Lender may rely on any telephone notice given by a person whom Lender believes is a Responsible Officer. On the Funding Date, Lender shall credit and/or transfer (as applicable) to Borrower’s Designated Deposit Account, an amount equal to the amount of the Equipment Advance.

 

4             CREATION OF SECURITY INTEREST

 

4.1          Grant of Security Interest.    Borrower hereby grants Lender, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Lender, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof, excluding any intellectual property or proceeds from intellectual property resulting from use of the Collateral. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Lender’s lien under this Agreement).

 

If this Agreement is terminated, Lender’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations and Obligations relating to the Warrant) are repaid in full in cash. Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations and Obligations relating to the Warrant) and at such time as the Lender’s obligation to make the Credit Extension has terminated, Lender shall, at Borrower’s sole cost and expense, release its Lien in the Collateral and all rights therein shall revert to Borrower.

 

4.2          Authorization to File Financing Statements.    Borrower hereby authorizes Lender to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Lender’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Lender under the Code.

 

5             REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1          Due Organization, Authorization: Power and Authority.    Borrower and each of its Subsidiaries, if any, are duly existing and in good standing, as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In

 

 

connection with this Agreement, Borrower has delivered to Lender a completed perfection certificate signed by Borrower (the “ Perfection Certificate ”). Borrower represents and warrants to Lender that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction except that Borrower reincorporated in Delaware (formerly a California corporation) in 2007; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete. If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Lender of such occurrence and provide Lender with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or are being obtained pursuant to Section 6.1(b) and except for filings, recordings or registrations that are required to perfect Lender’s security interests in the Collateral, or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.2          Collateral.    Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.

 

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as Borrower has given Lender notice pursuant to Section 7.2. Borrower shall give the Secured Party 30 days prior written notice of any relocation of any Collateral. Notwithstanding the foregoing, Borrower shall not relocate any Collateral to its wholly-owned subsidiary, ARYx Therapeutics, Ltd. In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first receive the written consent of Lender and such bailee must execute and deliver a bailee agreement in form and substance satisfactory to Lender in its sole discretion. Notwithstanding the foregoing, the Borrower shall not transfer any of the Collateral to any Subsidiary without the prior written consent of Lender.

 

5.3          Litigation.    There are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than One Hundred Thousand Dollars ($100,000.00).

 

5.4          No Material Deviation in Financial Statements.    All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Lender fairly present, in conformity with GAAP, in all material respects Borrower’s consolidated financial condition and 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 Lender.

 

5.5          Solvency.    The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; 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” or a “subsidiary” of an “investment company” under the Investment Company Act of 1940. Borrower is not engaged 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. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ 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 and each of its Subsidiaries 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 to continue their respective businesses as currently conducted.

 

5.7          Subsidiaries; Investments.    Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

 

5.8          Tax Returns and Payments; Pension Contributions.    Borrower has timely filed all required tax returns and reports, and Borrower and its Subsidiaries have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Lender in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.9          Use of Proceeds.    Borrower shall use the proceeds of the Credit Extension solely to purchase Eligible Equipment and not for personal, family, household or agricultural purposes.

 

5.10        Full Disclosure.    No written representation, warranty or other statement of Borrower in any certificate or written statement given to Lender, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Lender, 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 (it being recognized that the 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 or forecasted results).

 

6             AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1          Government Compliance.

 

(a)           Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, the noncompliance with which could have a material adverse effect on Borrower’s business.

 

 

(b)           Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Lender in all of its property. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Lender.

 

6.2          Financial Statements, Reports, Certificates.

 

(a)           Deliver to Lender: (i) as soon as available, but no later than thirty (30) days after the last day of each quarter, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Lender; (ii) as soon as available, but no later than one hundred twenty (120) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an opinion on the financial statements from an independent certified public accounting firm acceptable to Lender in its reasonable discretion; (iii) as soon as available, but no later than ten (10) days after the last day of Borrower’s fiscal year, Borrower’s financial projections for current fiscal year as approved by Borrower’s Board of Directors; (iv) within five (5) days of delivery, copies of all statements, reports and notices made available to all of Borrower’s security holders or to any holders of Subordinated Debt; (v) in the event that Borrower becomes subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on Borrower’s or another website on the Internet; (vi) a prompt report of any legal actions pending or threatened against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of One Hundred Thousand Dollars ($100,000) or more; and (vii) other financial information reasonably requested by Lender.

 

(b)           Within forty five days (45) days after the last day of each quarter, deliver to Lender with the quarterly financial statements, a duly completed Compliance Certificate signed by a Responsible Officer.

 

6.3          Taxes; Pensions.    Make, and cause each of its Subsidiaries to make, timely payment of all foreign, federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting pursuant to the terms of Section 5.8 hereof) and shall deliver to Lender, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.4          Insurance.    Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Lender may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Lender. All property policies shall have a lender’s loss payable endorsement showing Lender as lender loss payee and waive subrogation against Lender, and all liability policies shall show, or have endorsements showing, Lender, as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the Lender shall receive at least twenty (20) days notice before canceling, amending, or declining to renew its policy. At Lender’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Lender’s option, be payable to Lender on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to $50,000 with respect to any loss, but not exceeding $100,000, in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Lender has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Lender, be payable to Lender on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Lender, Lender may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Lender deems prudent.

 

6.5          Litigation Cooperation.    From the date hereof and continuing through the termination of this Agreement, make available to Lender, without expense to Lender, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Lender may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Lender with respect to any Collateral or relating to Borrower.

 

 

6.6          Further Assurances.    Execute any further instruments and take further action as Lender reasonably requests to perfect or continue Lender’s Lien in the Collateral or to effect the purposes of this Agreement.

 

6.7          Notices of Litigation and Default.    Borrower will give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which would reasonably be expected to have a material adverse effect with respect to Borrower. Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon Borrower becoming aware of the existence of any Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default, Borrower shall give written notice to Lender of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default.

 

7             NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Lender’s prior written consent (not to be unreasonably withheld or delayed):

 

7.1          Dispositions.    Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of the Collateral except in connection with Permitted Liens.

 

7.2          Changes in Business, Management, Ownership, or Business Locations.    (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) enter into any transaction or series of related transactions in which the stockholders of Borrower immediately prior to the first such transaction own less than 51% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Lender the venture capital investors prior to the closing of the transaction). Borrower shall not, without at least thirty (30) days prior written notice to Lender: (1) add any new offices or business locations, including warehouses which would contain any of the Collateral (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.

 

7.3          Mergers or Acquisitions.    Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person unless (i) the cumulative cash consideration for all such transactions is less than $3,000,000 in any fiscal year of Borrower, (ii) no Event of Default has occurred and is continuing or would exist after giving effect to such transactions, and (iii) Borrower is the surviving entity. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

7.4          Encumbrance.    Create, incur, allow, or suffer any Lien on any of the Collateral, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein.

 

7.5          Subordinated Debt.    (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to the Lender.

 

7.6          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 (as defined in Regulation U of the Board of Governors of the Federal Reserve System), 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 permit any of its Subsidiaries to

 

 

do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8             EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “ Event of Default ”) under this Agreement:

 

8.1          Payment Default.    Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments due on the Equipment Maturity Date

 

8.2          Covenant Default.

 

(a)           Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3, or 6.4, or violates any covenant in Section 7; or

 

(b)           Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional 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 cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this Section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;

 

8.3          Material Adverse Change.    A Material Adverse Change occurs;

 

8.4          Attachment.    (a) 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 ten (10) days; (b) the service of process seeking to attach, by trustee or similar process, any funds of Borrower, or of any entity under control of Borrower (including a Subsidiary), on deposit with Lender or an Affiliate; (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of One Hundred Thousand Dollars ($100,000.00) becomes a Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions shall be made during the cure period);

 

8.5          Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6          Other Agreements.    There is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or that could have a material adverse effect on Borrower’s business.

 

8.7          Judgments.    A judgment or judgments, for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance) shall be rend