10-Q
BIOLIFE SOLUTIONS INC (BLFS)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36362
BioLife Solutions, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3076866 |
|---|---|
| (State or other jurisdiction of<br> <br>incorporation or organization) | (IRS Employer<br> <br>Identification No.) |
3303 Monte Villa Parkway, Suite 310, Bothell, Washington, 98021
(Address of registrant’s principal executive offices, Zip Code)
(425) 402-1400
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of exchange on which registered |
|---|---|---|
| BioLife Solutions, Inc. Common Stock | BLFS | NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (S232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit said files). Yes ☑ No ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of November 7, 2022, 42,765,994 shares of the registrant’s common stock were outstanding.
Table of Contents
BIOLIFE SOLUTIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 4 | |
|---|---|---|
| Item 1. | Unaudited Condensed Consolidated Financial Statements | 4 |
| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | 4 | |
| Unaudited Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2022 and 2021 | 5 | |
| Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine month periods ended September 30, 2022 and 2021 | 6 | |
| Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine month periods ended September 30, 2022 and 2021 | 7 | |
| Unaudited Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2022 and 2021 | 9 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 10 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 39 |
| Item 4. | Controls and Procedures | 39 |
| PART II. | OTHER INFORMATION | 40 |
| Item 1. | Legal Proceedings | 40 |
| Item 1A. | Risk Factors | 40 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41 |
| Item 3. | Defaults Upon Senior Securities | 41 |
| Item 4. | Mine Safety Disclosures | 41 |
| Item 5. | Other Information | 41 |
| Item 6. | Exhibits | 42 |
| Signatures | 43 |
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BioLife Solutions, Inc.
Unaudited Condensed Consolidated Balance Sheets
| December 31, | |||||
|---|---|---|---|---|---|
| (In thousands, except per share and share data) | 2021 | ||||
| Assets | **** | **** | **** | **** | **** |
| Current assets: | |||||
| Cash and cash equivalents | 27,036 | $ | 69,860 | ||
| Restricted cash | 31 | 10 | |||
| Available-for-sale securities, current portion | 34,583 | - | |||
| Accounts receivable, trade, net of allowance for doubtful accounts of 496 and 275 as of September 30, 2022 and December 31, 2021, respectively | 32,436 | 23,217 | |||
| Inventories | 33,747 | 28,345 | |||
| Prepaid expenses and other current assets | 8,041 | 4,427 | |||
| Total current assets | 135,874 | 125,859 | |||
| Assets held for rent, net | 9,357 | 9,809 | |||
| Property and equipment, net | 21,737 | 17,657 | |||
| Operating lease right-of-use assets, net | 15,832 | 18,705 | |||
| Financing lease right-of-use assets, net | 310 | 440 | |||
| Long-term deposits and other assets | 256 | 325 | |||
| Available-for-sale securities, long-term | 490 | - | |||
| Equity investments | 5,069 | 4,372 | |||
| Intangible assets, net | 74,013 | 152,149 | |||
| Goodwill | 224,741 | 224,741 | |||
| Total assets | 487,679 | $ | 554,057 | ||
| Liabilities and Shareholders’ Equity | **** | **** | **** | **** | **** |
| Current liabilities: | |||||
| Accounts payable | 13,140 | $ | 14,945 | ||
| Accrued expenses and other current liabilities | 7,778 | 7,142 | |||
| Warranty liability | 8,367 | 9,398 | |||
| Lease liabilities, operating, current portion | 2,769 | 2,758 | |||
| Lease liabilities, financing, current portion | 156 | 149 | |||
| Debt, current portion | 2,067 | 862 | |||
| Contingent consideration, current portion | 2,671 | 5,127 | |||
| Total current liabilities | 36,948 | 40,381 | |||
| Contingent consideration, long-term | 3,191 | 4,900 | |||
| Lease liabilities, operating, long-term | 14,474 | 16,466 | |||
| Lease liabilities, financing, long-term | 166 | 291 | |||
| Debt, long-term | 24,207 | 6,353 | |||
| Deferred tax liabilities | 389 | 5,487 | |||
| Other long-term liabilities | 55 | 42 | |||
| Total liabilities | 79,430 | 73,920 | |||
| Commitments and contingencies (Note 18) | |||||
| Shareholders’ equity: | |||||
| Preferred stock, 0.001 par value; 1,000,000 shares authorized, Series A, 4,250 shares designated, and 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | - | - | |||
| Common stock, 0.001 par value; 150,000,000 shares authorized, 42,706,044 and 41,817,503 shares issued and outstanding, respectively, as of September 30, 2022 and December 31, 2021 | 43 | 42 | |||
| Additional paid-in capital | 604,060 | 585,397 | |||
| Accumulated other comprehensive loss, net of taxes | (1,257 | ) | (282 | ) | |
| Accumulated deficit | (194,597 | ) | (105,020 | ) | |
| Total shareholders’ equity | 408,249 | 480,137 | |||
| Total liabilities and shareholders’ equity | 487,679 | $ | 554,057 |
All values are in US Dollars.
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
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BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Operations
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||
| (In thousands, except per share and share data) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Product revenue | $ | 33,668 | $ | 29,201 | $ | 98,227 | $ | 70,445 | ||||
| Service revenue | 4,330 | 2,250 | 11,117 | 6,417 | ||||||||
| Rental revenue | 2,749 | 2,349 | 8,156 | 4,989 | ||||||||
| Total product, rental, and service revenue | 40,747 | 33,800 | 117,500 | 81,851 | ||||||||
| Costs and operating expenses: | ||||||||||||
| Cost of product revenue (exclusive of intangible assets amortization) | 21,876 | 21,672 | 63,377 | 43,280 | ||||||||
| Cost of service revenue (exclusive of intangible assets amortization) | 3,253 | 1,768 | 8,810 | 4,548 | ||||||||
| Cost of rental revenue (exclusive of intangible assets amortization) | 1,880 | 1,424 | 5,462 | 3,140 | ||||||||
| General and administrative | 11,581 | 10,081 | 34,128 | 22,058 | ||||||||
| Sales and marketing | 5,277 | 4,065 | 15,583 | 9,228 | ||||||||
| Research and development | 3,425 | 3,219 | 10,634 | 8,250 | ||||||||
| Intangible asset impairment charges | - | - | 69,900 | - | ||||||||
| Intangible asset amortization | 2,513 | 2,525 | 8,236 | 5,340 | ||||||||
| Acquisition costs | 1 | 345 | 18 | 1,616 | ||||||||
| Change in fair value of contingent consideration | 2,346 | (140 | ) | (3,348 | ) | 1,086 | ||||||
| Total operating expenses | 52,152 | 44,959 | 212,800 | 98,546 | ||||||||
| Operating loss | (11,405 | ) | (11,159 | ) | (95,300 | ) | (16,695 | ) | ||||
| Other income: | ||||||||||||
| Change in fair value of investments | 697 | - | 697 | - | ||||||||
| Interest income (expense), net | 10 | (194 | ) | (181 | ) | (331 | ) | |||||
| Other income (expense), net | 142 | (7 | ) | 270 | (7 | ) | ||||||
| Change in fair value of warrant liability | - | - | - | (121 | ) | |||||||
| Gain on acquisition of Sexton Biotechnologies, Inc. | - | 6,451 | - | 6,451 | ||||||||
| Total other income, net | 849 | 6,250 | 786 | 5,992 | ||||||||
| Loss before income tax benefit | (10,556 | ) | (4,909 | ) | (94,514 | ) | (10,703 | ) | ||||
| Income tax benefit | 599 | 4,988 | 4,937 | 17,540 | ||||||||
| Net (loss) income | $ | (9,957 | ) | $ | 79 | $ | (89,577 | ) | $ | 6,837 | ||
| Net (loss) income attributable to common shareholders: | ||||||||||||
| Basic | $ | (9,957 | ) | $ | 77 | $ | (89,577 | ) | $ | 6,621 | ||
| Diluted | (9,957 | ) | 77 | (89,577 | ) | 6,628 | ||||||
| Net (loss) income per share attributable to common shareholders: | ||||||||||||
| Basic | $ | (0.23 | ) | $ | 0.00 | $ | (2.11 | ) | $ | 0.18 | ||
| Diluted | $ | (0.23 | ) | $ | 0.00 | $ | (2.11 | ) | $ | 0.17 | ||
| Weighted average shares used to compute (loss) earnings per share attributable to common shareholders: | ||||||||||||
| Basic | 42,647,967 | 40,911,801 | 42,376,392 | 37,435,224 | ||||||||
| Diluted | 42,647,967 | 43,296,470 | 42,376,392 | 39,984,923 |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
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BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||
| (In thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Net (loss) income | $ | (9,957 | ) | $ | 79 | $ | (89,577 | ) | $ | 6,837 | ||
| Other comprehensive loss: | ||||||||||||
| Foreign currency translation adjustment, net of tax | (321 | ) | (166 | ) | (900 | ) | (163 | ) | ||||
| Unrealized loss on available-for-sale securities, net of tax | (36 | ) | - | (75 | ) | - | ||||||
| Comprehensive (loss) income | $ | (10,314 | ) | $ | (87 | ) | $ | (90,552 | ) | $ | 6,674 |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
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BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Series A | Series A | **** | **** | **** | **** | **** | **** | **** | Accumulated | **** | **** | **** | **** | **** | **** | |||||
| Preferred | Preferred | Common | Common | Additional | Other | **** | **** | **** | Total | |||||||||||
| Stock | Stock | Stock | Stock | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||||
| (In thousands, except share data) | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||
| Balance, December 31, 2021 | - | $ | - | 41,817,503 | $ | 42 | $ | 585,397 | $ | (282 | ) | $ | (105,020 | ) | $ | 480,137 | ||||
| Fees incurred for registration filings | - | - | - | - | (130 | ) | - | - | (130 | ) | ||||||||||
| Stock-based compensation | - | - | - | - | 17,671 | - | - | 17,671 | ||||||||||||
| Stock option exercises | - | - | 158,075 | - | 307 | - | - | 307 | ||||||||||||
| Stock issued – on vested RSAs | - | - | 666,336 | 1 | (1 | ) | - | - | - | |||||||||||
| Contingent consideration shares issued | - | - | 64,130 | - | 816 | - | - | 816 | ||||||||||||
| Foreign currency translation | - | - | - | - | - | (900 | ) | - | (900 | ) | ||||||||||
| Unrealized loss on available-for-sale securities | - | - | - | - | - | (75 | ) | - | (75 | ) | ||||||||||
| Net loss | - | - | - | - | - | - | (89,577 | ) | (89,577 | ) | ||||||||||
| Balance, September 30, 2022 | - | $ | - | 42,706,044 | $ | 43 | $ | 604,060 | $ | (1,257 | ) | $ | (194,597 | ) | $ | 408,249 | ||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Series A | Series A | **** | **** | **** | **** | **** | **** | **** | Accumulated | **** | **** | **** | **** | **** | **** | |||||
| Preferred | Preferred | Common | Common | Additional | Other | **** | **** | **** | Total | |||||||||||
| Stock | Stock | Stock | Stock | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||||
| (In thousands, except share data) | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||
| Balance, June 30, 2022 | - | $ | - | 42,536,734 | $ | 43 | $ | 597,810 | $ | (900 | ) | $ | (184,640 | ) | $ | 412,313 | ||||
| Fees incurred for registration filings | - | - | - | - | (55 | ) | - | - | (55 | ) | ||||||||||
| Stock based compensation | - | - | - | - | 6,299 | - | - | 6,299 | ||||||||||||
| Stock option exercises | - | - | 3,571 | - | 6 | - | - | 6 | ||||||||||||
| Stock issued – on vested RSAs | - | - | 165,739 | - | - | - | - | - | ||||||||||||
| Foreign currency translation | - | - | - | - | - | (321 | ) | - | (321 | ) | ||||||||||
| Unrealized loss on available-for-sale securities | - | - | - | - | - | (36 | ) | - | (36 | ) | ||||||||||
| Net loss | - | - | - | - | - | - | (9,957 | ) | (9,957 | ) | ||||||||||
| Balance, September 30, 2022 | - | $ | - | 42,706,044 | $ | 43 | $ | 604,060 | $ | (1,257 | ) | $ | (194,597 | ) | $ | 408,249 |
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| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Series A | Series A | **** | **** | **** | **** | **** | **** | **** | Accumulated | **** | **** | **** | **** | **** | **** | |||||
| Preferred | Preferred | Common | Common | Additional | Other | **** | **** | **** | Total | |||||||||||
| Stock | Stock | Stock | Stock | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||||
| (In thousands, except share data) | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||
| Balance, December 31, 2020 | - | $ | - | 33,039,146 | $ | 33 | $ | 302,598 | $ | - | $ | (97,385 | ) | $ | 205,246 | |||||
| Stock issued as consideration in GCI acquisition | - | - | 6,636,470 | 7 | 232,734 | - | - | 232,741 | ||||||||||||
| Stock issued as consideration in Sexton acquisition | - | - | 530,502 | - | 31,977 | - | - | 31,977 | ||||||||||||
| Fees incurred for registration filings | - | - | - | - | (188 | ) | - | - | (188 | ) | ||||||||||
| Stock-based compensation | - | - | - | - | 8,891 | - | - | 8,891 | ||||||||||||
| Stock option exercises | - | - | 632,665 | 1 | 1,016 | - | - | 1,017 | ||||||||||||
| Stock issued – on vested RSAs | - | - | 535,378 | - | - | - | - | - | ||||||||||||
| Cashless exercises of 79,100 warrants | - | - | 70,030 | - | 2,901 | - | - | 2,901 | ||||||||||||
| Foreign currency translation | - | - | - | - | - | (163 | ) | - | (163 | ) | ||||||||||
| Net income | - | - | - | - | - | - | 6,837 | 6,837 | ||||||||||||
| Balance, September 30, 2021 | - | $ | - | 41,444,191 | $ | 41 | $ | 579,929 | $ | (163 | ) | $ | (90,548 | ) | $ | 489,259 | ||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Series A | Series A | **** | **** | **** | **** | **** | **** | **** | Accumulated | **** | **** | **** | **** | **** | **** | |||||
| Preferred | Preferred | Common | Common | Additional | Other | **** | **** | **** | Total | |||||||||||
| Stock | Stock | Stock | Stock | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||||
| (In thousands, except share data) | Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Equity | ||||||||||||
| Balance, June 30, 2021 | - | $ | - | 40,560,720 | $ | 41 | $ | 542,864 | $ | 3 | $ | (90,627 | ) | $ | 452,281 | |||||
| Stock issued as consideration in Sexton acquisition | - | - | 530,502 | - | 31,977 | - | - | 31,977 | ||||||||||||
| Fees incurred for registration filings | - | - | - | - | (188 | ) | - | - | (188 | ) | ||||||||||
| Stock based compensation | - | - | - | - | 4,868 | - | - | 4,868 | ||||||||||||
| Stock option exercises | - | - | 244,906 | - | 408 | - | - | 408 | ||||||||||||
| Stock issued – on vested RSAs | - | - | 108,063 | - | - | - | - | - | ||||||||||||
| Foreign currency translation | - | - | - | - | - | (166 | ) | - | (166 | ) | ||||||||||
| Net income | - | - | - | - | - | - | 79 | 79 | ||||||||||||
| Balance, September 30, 2021 | - | $ | - | 41,444,191 | $ | 41 | $ | 579,929 | $ | (163 | ) | $ | (90,548 | ) | $ | 489,259 |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
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BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine Months Ended | ||||||
|---|---|---|---|---|---|---|
| September 30, | ||||||
| (In thousands) | 2022 | 2021 | ||||
| Cash flows from operating activities | **** | **** | **** | **** | **** | **** |
| Net (loss) income | $ | (89,577 | ) | $ | 6,837 | |
| Adjustments to reconcile net (loss) income to net cash used in operating activities | ||||||
| Intangible asset impairment charges | 69,900 | - | ||||
| Stock-based compensation | 17,671 | 8,891 | ||||
| Amortization of intangible assets | 8,236 | 5,340 | ||||
| Depreciation | 5,056 | 3,035 | ||||
| Non-cash lease expense | 1,025 | 1,795 | ||||
| Loss on disposal of property and equipment, net | 54 | - | ||||
| (Gain) loss on disposal of assets held for rent, net | 369 | 333 | ||||
| Change in fair value of warrant liability | - | 121 | ||||
| Change in fair value of equity investments | (697 | ) | - | |||
| Change in fair value of contingent consideration | (3,348 | ) | 1,086 | |||
| Deferred income tax benefit | (4,937 | ) | (17,540 | ) | ||
| Gain on acquisition of Sexton Biotechnologies, Inc. | - | (6,451 | ) | |||
| Other | 302 | 504 | ||||
| Change in operating assets and liabilities, net of effects of acquisitions | ||||||
| Accounts receivable, trade, net | (9,438 | ) | (7,140 | ) | ||
| Inventories | (5,403 | ) | (1,237 | ) | ||
| Prepaid expenses and other assets | (1,356 | ) | 1,769 | |||
| Accounts payable | (3,615 | ) | 1,368 | |||
| Accrued expenses and other current liabilities | 444 | (2,530 | ) | |||
| Warranty liability | (1,031 | ) | - | |||
| Net cash used in operating activities | (16,345 | ) | (3,819 | ) | ||
| Cash flows from investing activities | **** | **** | **** | **** | **** | **** |
| Cash acquired in acquisition of Global Cooling, Inc. | - | 1,559 | ||||
| Maturities of available-for-sale securities | 750 | |||||
| Proceeds from sale of equipment | - | 22 | ||||
| Purchases of assets held for rent | (2,269 | ) | (5,412 | ) | ||
| Purchases of property and equipment | (5,937 | ) | (6,819 | ) | ||
| Investment in available-for-sale securities | (35,767 | ) | - | |||
| Net cash used in investing activities | (43,223 | ) | (10,650 | ) | ||
| Cash flows from financing activities | **** | **** | **** | **** | **** | **** |
| Proceeds from term loans | 20,000 | - | ||||
| Payments on term loans | (1,750 | ) | - | |||
| Proceeds from equipment loans | - | 1,640 | ||||
| Payments on equipment loans | (370 | ) | - | |||
| Proceeds from line of credit | - | 26,450 | ||||
| Payments on line of credit | - | (28,657 | ) | |||
| Proceeds from exercise of common stock options | 307 | 1,017 | ||||
| Fees paid related to issuance of common stock | (130 | ) | (145 | ) | ||
| Payments on financed insurance premium | (814 | ) | (698 | ) | ||
| Other | (302 | ) | (280 | ) | ||
| Net cash provided by (used in) financing activities | 16,941 | (673 | ) | |||
| Net decrease in cash, cash equivalents, and restricted cash | (42,627 | ) | (15,142 | ) | ||
| Cash, cash equivalents, and restricted cash – beginning of period | 69,870 | 90,456 | ||||
| Effects of currency translation on cash, cash equivalents, and restricted cash | (176 | ) | (163 | ) | ||
| Cash, cash equivalents, and restricted cash – end of period | $ | 27,067 | $ | 75,151 | ||
| Non-cash investing and financing activities | ||||||
| Purchase of property and equipment not yet paid | $ | 1,661 | $ | 305 | ||
| Cashless issuance of SciSafe earnout shares | $ | 817 | $ | - | ||
| Equipment acquired under operating leases | $ | 243 | $ | 6,971 | ||
| Unrealized gains and losses on available-for-sale securities | $ | 75 | $ | - | ||
| Stock issued as consideration to acquire Global Cooling, Inc. and Sexton Biotechnologies, Inc. | $ | - | $ | 264,718 | ||
| Cashless exercise of warrants reclassified from warrant liability to common stock | $ | - | $ | 2,901 | ||
| Equipment acquired under finance leases | $ | - | $ | 440 | ||
| Cash interest paid | $ | 230 | $ | - |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
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BioLife Solutions, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and significant accounting policies
Business
BioLife Solutions, Inc. (“BioLife”, “us”, “we”, “our”, or the “Company”) is a developer, manufacturer, and supplier of a portfolio of bioproduction tools and services including proprietary biopreservation media, automated cell processing fill machines, closed system cryogenic vials, human platelet lysate (“hPL”) growth media, automated thawing devices, cloud-connected shipping containers, ultra-low temperature mechanical freezers, cryogenic and controlled rate freezers and biological and pharmaceutical materials storage. Our CryoStor® freeze media and HypoThermosol® hypothermic storage media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our Sexton cell processing product line includes hPL media, for cell expansion reducing risk and improving downstream performance inherent with the use of fetal bovine serum and human serum, and CellSeal® cryogenic vials, which are purpose-built rigid containers used as a primary final package for cells used in research and clinical applications. These vials can be filled manually or with high throughput systems and automated cell processing machines that bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination. Our ThawSTAR® product line is comprised of a family of automated thawing devices for frozen biologic material packaged in cryovials and cryobags. These products help to reduce thawing related damage to temperature-sensitive biologic materials by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths. Our cryogenic freezer technology provides for controlled rate freezing and cryogenic storage of biologic materials. Our ultra-low temperature mechanical freezers allow biological materials to be stored at temperatures which range from negative 20℃ to negative 86℃. Our evo® shipping containers provide cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our biological and pharmaceutical materials storage services provide facilities that allow for real-time tracking of biologic materials that can be stored at a wide range of temperatures.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates and assumptions by management affect the Company’s net realizable value of inventory, fair value of warrant liability, valuation of market based awards, valuations and purchase price allocations related to investments and business combinations, fair value of marketable debt securities, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, share-based compensation, contingent consideration from business combinations, and the recoverability of the Company’s deferred tax assets and the related valuation allowance.
The Company regularly assesses these estimates; however, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.
Basis of presentation
The Unaudited Condensed Consolidated Financial Statements included herein have been prepared by BioLife in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnote disclosures required by U.S. GAAP. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2021.
The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, SAVSU Technologies, Inc. (“SAVSU” acquired on August 8, 2019), Arctic Solutions, Inc. doing business as Custom Biogenic Systems (“CBS” acquired on November 12, 2019), SciSafe Holdings, Inc. (“SciSafe” acquired on October 1, 2020), BioLife Solutions B.V. (formed on April 1, 2021), Global Cooling, Inc. doing business as Stirling Ultracold (“Global Cooling” or “GCI” acquired on May 3, 2021), and Sexton Biotechnologies, Inc. (“Sexton” acquired on September 1, 2021). All intercompany accounts and transactions have been eliminated in consolidation.
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In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.
Foreign currency translation
The Company translates items presented on its Unaudited Condensed Consolidated Balance Sheet, Unaudited Condensed Consolidated Statements of Operations, Unaudited Condensed Consolidated Statements of Shareholders’ Equity, and Unaudited Condensed Consolidated Statements of Cash Flows into U.S. dollars. For the Company’s subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into U.S. dollars using current exchange rates at the balance sheet date; revenue and expenses are translated using average exchange rates in effect during each period. Resulting translation adjustments are reported as a separate component of Accumulated Other Comprehensive Loss in the Unaudited Condensed Consolidated Statements of Shareholders' Equity.
Segment reporting
The Company views its operations and makes decisions regarding how to allocate resources and manages its business as one reportable segment and one reporting unit. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Significant accounting policies
The following describes an update to the Company’s accounting policies for investments. For a full discussion of significant accounting policies, including additional information regarding the Company’s accounting policies for investments, refer to the Notes to the Consolidated Financial Statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The Company classifies its investment in marketable debt securities as “available-for-sale.” Available-for-sale securities are carried at fair value with unrealized holding gains or losses recorded in other comprehensive income, net of tax. Gains or losses are included in earnings in the period in which they are realized. The cost of securities sold is determined based on the specific identification method. The cost of available-for-sale debt securities is adjusted for premiums and discounts, with the accretion or amortization of such amounts included as a portion of interest. Available-for-sale debt securities with an original maturity date less than one year are classified as current investments. Available-for-sale debt securities with an original maturity date exceeding one year are classified as long-term.
Liquidity and capital resources
On September 30, 2022 and December 31, 2021, we had $62.1 million and $69.9 million in cash, cash equivalents, and available-for-sale securities, respectively. We have the ability to borrow up to $30 million under our 2022 term loan 3. See Note 11 – “Long-term debt” for additional details on borrowing requirements under 2022 term loan 3. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Form 10-Q. However, the Company may choose to raise additional capital through a debt or equity financing in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.
Risks and uncertainties
COVID-19 pandemic
Our domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S. and international markets. Many businesses and countries, including the U.S., continue to apply preventative and precautionary measures to mitigate the spread of the virus including government orders and other restrictions on the conduct of business operations.
In the nine months ended September 30, 2022 and year ended December 31, 2021, we experienced supply chain disruptions due to the effects of COVID-19 on our suppliers of sheet metal and electronic components that incorporate semiconductor chips. These supply chain disruptions decreased our profitability as a result of increased supplier pricing and production stoppages. We cannot be assured that a continued or prolonged global pandemic will not have other negative impacts on our manufacturing and shipping processes or our product costs. The extent to which the COVID-19 pandemic affects our future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including the recurrence, severity and/or duration of the ongoing pandemic, and current or future domestic and international actions to contain and treat COVID-19.
The Company may also experience other negative impacts of the COVID-19 outbreak such as the lack of availability of the Company’s key personnel, additional temporary closures of the Company’s office or the facilities of the Company’s business partners, customers, third party service providers or other vendors, the inability to travel to market and sell our products, and the interruption of the Company’s supply chain, distribution channels, liquidity and capital or financial markets.
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Any disruption and volatility in the global capital markets as a result of the pandemic may increase the Company’s cost of capital and adversely affect the Company’s ability to access financing when and on terms that the Company desires. In addition, a potential recession resulting from the spread of COVID-19 could materially affect the Company’s business, especially if a recession results in higher unemployment causing potential patients to not have access to health insurance.
The ultimate extent to which the COVID-19 pandemic and its repercussions impact the Company’s business will depend on future developments, which are highly uncertain. However, the foregoing and other continued disruptions to the Company’s business as a result of COVID-19 could result in a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
Concentrations of credit risk and business risk
Significant customers are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods and as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
| Accounts Receivable | Revenue | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Customer A | 22 | % | 21 | % | * | * | * | * | ||||||||||
| Customer B | 10 | % | 11 | % | 17 | % | 19 | % | 19 | % | 14 | % |
* less than 10%
Revenue from foreign customers is denominated in United States dollars or euros.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||
| Revenue by customers’ geographic locations | 2022 | 2021 | 2022 | 2021 | ||||||||
| United States | 69 | % | 82 | % | 74 | % | 80 | % | ||||
| Europe, Middle East, Africa (EMEA) | 20 | % | 9 | % | 18 | % | 10 | % | ||||
| Canada | 8 | % | 6 | % | 5 | % | 7 | % | ||||
| Other | 3 | % | 3 | % | 3 | % | 3 | % | ||||
| Total revenue | 100 | % | 100 | % | 100 | % | 100 | % |
In the three and nine months ended September 30, 2022 and 2021, no suppliers accounted for more than 10% of purchases.
As of September 30, 2022 and December 31, 2021, one supplier accounted for 11% and 10% of our accounts payable, respectively
.
Recent accounting pronouncements
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-03, Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions (“ASC Topic 820”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted. We are evaluating when to adopt the amendments in ASU 2022-03. We do not expect a material impact as a result of adopting this amendment.
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In March 2022, the FASB issued ASU No. 2022-02 Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings and requires disclosure of current-period gross write-offs by year of loan origination. Additionally, ASU 2022-02 updates the accounting for credit losses under ASC 326 and adds enhanced disclosures with respect to loan refinancings and restructurings in the form of principal forgiveness, interest rate concessions, other-than-insignificant payment delays, or term extensions when the borrower is experiencing financial difficulties. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. We are currently evaluating the impact ASU 2022-02 will have on our consolidated financial statements.
2. Fair value measurement
In accordance with FASB ASC Topic 820, the Company measures its financial instruments at fair value on a recurring basis. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying value of our marketable debt securities, which are accounted for as available-for-sale, are classified within either Level 1 or Level 2 in the fair value hierarchy because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The carrying values of our long-term debt, which is classified within Level 2 in the fair value hierarchy, approximates fair value as our borrowings with lenders are at interest rates that approximate market rates for comparable loans. The fair values of investments and contingent consideration classified as Level 3 were derived from management assumptions (see Note 1 – “Organization and Significant Accounting Policies.”). The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The fair value of the CBS Contingent Consideration Liability was initially valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 26.0%, a risk-free rate of approximately 1.74% and revenue volatility of 70%. Significant changes in any of those inputs in isolation would result in a significant change in the fair value measurement of the liability. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts. Subsequent to the acquisition date, at each reporting period, the Contingent Consideration Liability is re-measured to fair value with changes recorded in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. During the most recent re-measurement of the Contingent Consideration Liability as of December 31, 2021, the Company used a discount rate of 21.0%, a risk-free rate of 0.23% and revenue volatility of 63%. This Contingent Consideration Liability is included in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 in the amount of $140,000.
The fair value of the SciSafe Contingent Consideration Liability was initially valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 4.5%, a risk-free rate of approximately 0.20%, asset volatility of 60%, and revenue volatility of 15%. Significant changes in any of those inputs in isolation would result in a significant change in the fair value measurement of the liability. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts. At the acquisition date, the contingent consideration was determined to have a fair value of $3.7 million. Subsequent to the acquisition date, the Contingent Consideration Liability was re-measured to fair value with changes recorded in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. During the most recent re-measurement of the Contingent Consideration Liability as of September 30, 2022, the Company used a discount rate of 12.5%, a risk-free rate of approximately 4.1%, asset volatility of 66%, and revenue volatility of 30%. This Contingent Consideration Liability is included in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 in the amounts of $5.7 million and $9.9 million, respectively. The changes in fair value of contingent consideration associated with this liability are included within the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. These changes were $2.3 million of expense and $3.3 million of benefit for the three and nine months ended September 30, 2022, respectively, and $141,000 of benefit and $1.2 million of expense for the three and nine month periods ended September 30, 2021, respectively. During the second quarter of 2022, the first hurdle associated with this liability was satisfied and 64,130 shares were issued as payment.
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For the warrant liability, the significant Level 3 inputs included the contractual remaining term of the warrants and the volatility of the Company’s common stock. For the estimated term of the warrants, we used the actual terms of the warrants, which expired March 25, 2021. On that date, all remaining warrants were exercised via a “cashless” exercise and the warrant liability was revalued to its intrinsic value, as the Company’s stock price was observable as of that date.
There were no remeasurements to fair value during the three and nine months ended September 30, 2022 of financial assets and liabilities that are not measured at fair value on a recurring basis.
The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, based on the three-tier fair value hierarchy:
(In thousands)
| As of September 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Assets: | **** | **** | **** | **** | **** | **** | **** | **** |
| Cash equivalents: | ||||||||
| Money market accounts | $ | 22,868 | $ | - | $ | - | $ | 22,868 |
| Available-for-sale securities: | ||||||||
| U.S. government securities | 13,054 | - | - | 13,054 | ||||
| Corporate debt securities | - | 20,094 | - | 20,094 | ||||
| Other debt securities | - | 1,925 | - | 1,925 | ||||
| Total | 35,922 | 22,019 | - | 57,941 | ||||
| Liabilities: | **** | **** | **** | **** | **** | **** | **** | **** |
| Contingent consideration - business combinations | - | - | 5,862 | 5,862 | ||||
| Debt | - | 26,274 | - | 26,274 | ||||
| Total | $ | - | $ | 26,274 | $ | 5,862 | $ | 32,136 |
| As of December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Assets: | **** | **** | **** | **** | **** | **** | **** | **** |
| Money market accounts | $ | 63,873 | $ | - | $ | - | $ | 63,873 |
| Total | 63,873 | - | - | 63,873 | ||||
| Liabilities: | **** | **** | **** | **** | **** | **** | **** | **** |
| Contingent consideration - business combinations | - | - | 10,027 | 10,027 | ||||
| Debt | - | 7,215 | - | 7,215 | ||||
| Total | $ | - | $ | 7,215 | $ | 10,027 | $ | 17,242 |
There have been no transfers of assets or liabilities between the fair value measurement levels.
The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:
| Nine Months Ended | |||||
|---|---|---|---|---|---|
| September 30, | |||||
| (In thousands) | 2022 | 2021 | |||
| Beginning balance as of December 31, 2021 and 2020 | $ | 10,027 | $ | 7,152 | |
| Change in fair value recognized in net (loss) income | (3,348 | ) | 1,086 | ||
| Payment of contingent consideration earned | (817 | ) | - | ||
| Ending balance | $ | 5,862 | $ | 8,238 |
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The following table presents the changes in fair value of warrant liabilities which are measured using Level 3 inputs:
| Nine Months Ended | |||||
|---|---|---|---|---|---|
| September 30, | |||||
| (In thousands) | 2022 | 2021 | |||
| Beginning balance as of December 31, 2021 and 2020 | $ | - | $ | 2,780 | |
| Exercised warrants | - | (2,901 | ) | ||
| Change in fair value recognized in net (loss) income | - | 121 | |||
| Ending balance | $ | - | $ | - |
3. Investments
Available-for-sale securities
The Company’s portfolio of available-for-sale marketable securities consists of the following:
| September 30, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Amortized | Gross unrealized | Estimated | ||||||
| (In thousands) | Cost | Gains | Losses | Fair Value | ||||
| Available-for-sale securities, current portion | **** | **** | **** | **** | **** | **** | **** | **** |
| U.S. government securities | $ | 13,102 | $ | - | $ | 48 | $ | 13,054 |
| Corporate debt securities | 20,112 | - | 18 | 20,094 | ||||
| Other debt securities | 1,444 | - | 9 | 1,435 | ||||
| Total short-term | 34,658 | - | 75 | 34,583 | ||||
| Available-for-sale securities, long-term | **** | **** | **** | **** | **** | **** | **** | **** |
| Other debt securities | 490 | - | - | 490 | ||||
| Total marketable securities | $ | 35,148 | $ | - | $ | 75 | $ | 35,073 |
| Amortized | Estimated | |||||||
| --- | --- | --- | --- | --- | ||||
| (In thousands) | Cost | Fair Value | ||||||
| Due in one year or less | $ | 34,658 | $ | 34,583 | ||||
| Due after one year through five years | 490 | 490 | ||||||
| Total | $ | 35,148 | $ | 35,073 |
There were no outstanding available-for-sale marketable securities as of December 31, 2021.
Equity investments
The Company periodically invests in non-marketable equity securities of private companies without a readily determinable fair value to promote business and strategic objectives. These securities included Series A-1 and A-2 Preferred Stock in iVexSol, Inc. with a fair value of $4.1 million and $3.4 million as of September 30, 2022 and December 31, 2021, respectively, and Series E Preferred Stock in PanTHERA CryoSolutions, Inc. with a fair value of $995,000 as of September 30, 2022 and December 31, 2021.
4. Inventory
Inventory consists of the following as of September 30, 2022 and December 31, 2021:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Raw materials | $ | 18,241 | $ | 17,252 |
| Work in progress | 5,454 | 5,015 | ||
| Finished goods | 10,052 | 6,078 | ||
| Total | $ | 33,747 | $ | 28,345 |
5. Leases
The Company has various operating lease agreements for office space, warehouses, manufacturing, and production locations as well as vehicles and other equipment. Our real estate leases have remaining lease terms of one to ten years. We exclude options that are not reasonably certain to be exercised from our lease terms, ranging from one to five years. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. For certain leases, we receive incentives from our landlords, such as rent abatements, which effectively reduce the total lease payments owed for these leases. Vehicle and other equipment operating leases have terms between one and five years.
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Our financing leases relate to research equipment, machinery, and other equipment.
The table below presents certain information related to the weighted average discount rate and weighted average remaining lease term for the Company’s leases as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| (In thousands) | 2022 | 2021 | ||||
| Weighted average discount rate - operating leases | 3.8 | % | 3.8 | % | ||
| Weighted average discount rate - finance leases | 6.1 | % | 6.1 | % | ||
| Weighted average remaining lease term in years - operating leases | 7.3 | 7.8 | ||||
| Weighted average remaining lease term in years - finance leases | 2.3 | 3.0 |
The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows:
| Three Months Ended | Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||
| (In thousands) | 2022 | 2021 | 2022 | 2021 | ||||
| Operating lease costs | $ | 909 | $ | 805 | $ | 2,745 | $ | 1,998 |
| Short-term lease costs | 534 | 498 | 1,627 | 1,158 | ||||
| Total operating lease costs | 1,443 | 1,303 | 4,372 | 3,156 | ||||
| Variable lease costs | 250 | 193 | 809 | 477 | ||||
| Total lease costs | $ | 1,693 | $ | 1,496 | $ | 5,181 | $ | 3,633 |
Maturities of our lease liabilities as of September 30, 2022 are as follows:
| (In thousands) | Operating<br> <br>Leases | Financing<br> <br>Leases | ||||
|---|---|---|---|---|---|---|
| 2022 (3 months remaining) | $ | 1,014 | $ | 43 | ||
| 2023 | 3,158 | 171 | ||||
| 2024 | 2,882 | 101 | ||||
| 2025 | 2,428 | 28 | ||||
| 2026 | 1,997 | 2 | ||||
| Thereafter | 8,278 | - | ||||
| Total lease payments | 19,757 | 345 | ||||
| Less: interest | (2,514 | ) | (23 | ) | ||
| Total present value of lease liabilities | $ | 17,243 | $ | 322 |
6. Assets held for rent
Assets held for rent consist of the following as of September 30, 2022 and December 31, 2021:
| (In thousands) | 2022 | 2021 | ||||
|---|---|---|---|---|---|---|
| Shippers placed in service | $ | 7,375 | $ | 5,645 | ||
| Fixed assets held for rent | 4,686 | 4,040 | ||||
| Accumulated depreciation | (4,571 | ) | (2,272 | ) | ||
| Net | 7,490 | 7,413 | ||||
| Shippers and related components in production | 1,867 | 2,396 | ||||
| Total | $ | 9,357 | $ | 9,809 |
Shippers and related components in production include shippers complete and ready to be deployed and placed in service upon a customer order, shippers in the process of being assembled, and components available to build shippers. We recognized $921,000 and $2.7 million in depreciation expense related to assets held for rent during the three and nine months ended September 30, 2022, respectively, and $410,000 and $873,000 during the three and nine months ended September 30, 2021, respectively.
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7. Property and equipment
Property and equipment consist of the following as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| (In thousands) | 2022 | 2021 | ||||
| Property and equipment | ||||||
| Leasehold improvements | $ | 5,069 | $ | 3,840 | ||
| Furniture and computer equipment | 1,874 | 1,861 | ||||
| Manufacturing and other equipment | 19,715 | 16,675 | ||||
| Construction in-progress | 3,767 | 2,022 | ||||
| Subtotal | 30,425 | 24,398 | ||||
| Less: Accumulated depreciation | (8,688 | ) | (6,741 | ) | ||
| Property and equipment, net | $ | 21,737 | $ | 17,657 |
Depreciation expense for property and equipment was $865,000 and $2.4 million for the three and nine months ended September 30, 2022, respectively, and $691,000 and $2.1 million during the three and nine months ended September 30, 2021, respectively.
8. Goodwill and intangible assets
Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination is determined to have an indefinite useful life and is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350.
Intangible assets
Intangible assets, net consisted of the following as of September 30, 2022 and December 31, 2021:
| (In thousands, except weighted average useful life) | September 30, 2022 | **** | **** | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Intangible assets: | Gross Carrying<br> <br>Value | Accumulated<br> <br>Amortization | Net Carrying<br> <br>Value | Weighted<br> <br>Average Useful<br> <br>Life (in years) | |||||
| Customer Relationships | $ | 15,984 | $ | (3,539 | ) | $ | 12,445 | 9.6 | |
| Tradenames | 29,635 | (4,091 | ) | 25,544 | 13.1 | ||||
| Technology - acquired | 38,410 | (12,063 | ) | 26,347 | 5.1 | ||||
| Non-compete agreements | 1,986 | (856 | ) | 1,130 | 2.3 | ||||
| In-process research and development^(1)^ | 8,547 | - | 8,547 | N/A | |||||
| Total intangible assets | $ | 94,562 | $ | (20,549 | ) | $ | 74,013 | 9.0 | |
| (In thousands, except weighted average useful life) | December 31, 2021 | **** | **** | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Intangible assets: | Gross Carrying<br> <br>Value | Accumulated<br> <br>Amortization | Net Carrying<br> <br>Value | Weighted<br> <br>Average Useful<br> <br>Life (in years) | |||||
| Customer Relationships | $ | 17,516 | $ | (1,776 | ) | $ | 15,740 | 10.3 | |
| Tradenames | 35,574 | (2,306 | ) | 33,268 | 13.8 | ||||
| Technology - acquired | 41,942 | (7,789 | ) | 34,153 | 5.9 | ||||
| Non-compete agreements | 1,990 | (442 | ) | 1,548 | 3.0 | ||||
| In-process research and development^(1)^ | 67,440 | - | 67,440 | N/A | |||||
| Total intangible assets | $ | 164,462 | $ | (12,313 | ) | $ | 152,149 | 9.8 |
(1) In-process R&D represents the fair value of incomplete research and development. We will begin to amortize the asset upon completion of development.
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Amortization expense for definite-lived intangible assets was $2.5 million and $8.2 million for the three and nine months ended September 30, 2022, respectively, and $2.5 million and $5.3 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, the Company expects to record the following amortization expense for definite-lived intangible assets:
| (In thousands) | Amortization | |
|---|---|---|
| For the Years Ending December 31, | Expense | |
| 2022 (3 months remaining) | $ | 2,494 |
| 2023 | 9,570 | |
| 2024 | 8,745 | |
| 2025 | 8,398 | |
| 2026 | 7,975 | |
| Thereafter | 28,284 | |
| Total | $ | 65,466 |
Interim impairment testing
In the six months ended June 30, 2022, the Company experienced a significant decline in its market capitalization. In July 2022, the Company abandoned an in-process research and development project within the asset group acquired in the acquisition of Global Cooling and revised its forecasts for net income and net cash flows to be generated by that asset group. The Company determined that these three events constituted interim triggering events that required further analysis with respect to potential impairment to goodwill, indefinite-lived intangibles, and definite-lived intangibles. The Company performed an interim quantitative impairment test as of the June 30, 2022 balance sheet date.
To assess any potential impairment of goodwill, the Company compared the carrying value of its single reporting unit against its market capitalization, noting that the market capitalization exceeded the carrying value. As such, goodwill was not impaired as of June 30, 2022.
The abandonment of the aforementioned in-process research and development project resulted in a $8.0 million non-cash impairment charge during the three months ended June 30, 2022 in the line item intangible asset impairment charges in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the entirety of the asset’s carrying value.
In order to determine the fair value of our in-process research and development intangible assets not related to the abandoned project, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the estimated fair value include projected future revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, the terminal growth rate, and the discount rate. As a result of the changes in these assumptions, we recognized a $50.9 million non-cash impairment charge during the three months ended June 30, 2022 in the line item intangible asset impairment charges in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the difference between the estimated fair value of the Company’s in-process research and development intangible assets and their carrying value. The carrying value of these assets prior to the impairment charge was $59.4 million.
In order to determine the fair value of the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets, the Company utilized the excess earnings approach, distributor method, relief from royalty method, and with and without approach, respectively. The key assumptions associated with determining the estimated fair value include (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. As a result of the analysis, we recognized non-cash impairment charges of $3.5 million, $1.5 million, $5.9 million, and $4,000 during the period ended June 30, 2022 for the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets, respectively, in the line item intangible asset impairment charges in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the difference between the estimated fair value of the Company’s definite-lived intangible assets and their carrying values. The carrying value of the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets were $31.2 million, $14.5 million, $32.0 million, and $1.3 million respectively prior to the impairment charges.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected future revenue growth rates, EBITDA margins, terminal growth rates, discount rates, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of the Company’s indefinite-lived and definite-lived intangible assets were impaired as of June 30, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
The Company performed a qualitative impairment assessment as of September 30, 2022. Based on the results of the assessment, it was determined the fair value of the Company’s indefinite-lived intangible assets was greater than the carrying value and therefore noted no impairment indicators existed as of September 30, 2022.
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9. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||
|---|---|---|---|---|
| (In thousands) | 2022 | 2021 | ||
| Accrued compensation | $ | 4,706 | $ | 4,351 |
| Accrued expenses | 1,470 | 1,656 | ||
| Deferred revenue, current | 429 | 814 | ||
| Accrued taxes | 1,151 | 27 | ||
| Other | 22 | 294 | ||
| Total accrued expenses and other current liabilities | $ | 7,778 | $ | 7,142 |
10. Warranty reserve liability
The Company reserves estimated exposures on known claims, as well as anticipated claims, for product warranty and rework cost, based on historical product liability claims. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product costs, changes in product mix and any significant changes in sales volume.
A rollforward of our warranty liability is as follows:
| Nine Months Ended | ||||||
|---|---|---|---|---|---|---|
| September 30, | ||||||
| (In thousands) | 2022 | 2021 | ||||
| Beginning balance as of December 31, 2021 and 2020 | $ | 9,398 | $ | 212 | ||
| Warranty reserve acquired in the acquisition of Global Cooling | - | 3,353 | ||||
| Provision for warranties | 1,770 | 4,446 | ||||
| Settlements of warranty claims | (2,801 | ) | (2,459 | ) | ||
| Ending Balance | $ | 8,367 | $ | 5,552 |
11. Long-term debt
2022 term loan 3
On September 20, 2022, the Company, and certain of its subsidiaries, entered into a term loan agreement, which provided for up to $50 million in aggregate principal to be drawn. The term loan matures on June 1, 2026. The agreement provides for borrowings of up to $30 million upon closing and options to borrow up to $10 million between closing and June 30, 2023, up to $10 million upon the achievement of certain revenue milestones, and an additional $10 million at the discretion of the lender. The Company borrowed $20 million upon closing. Payments on the borrowing are interest-only through June 2024, with additional criteria allowing for interest-only payments to continue through June 2025. Tranches borrowed under the term loan agreement bear interest at the Wall Street Journal prime rate plus 0.5%. The interest rate is subject to a ceiling that restricts the interest rate for each tranche from exceeding 1.0% above the overall rate applicable to each tranche at their respective funding dates. The term loan agreement contains customary representations and warranties as well as customary affirmative and negative covenants. As of the date of this filing, the Company is in compliance with the covenants set forth in the 2022 term loan 3 agreement. In the event that borrowings under 2022 term loan 3 exceed $20 million, the Company will become subject to financial covenants.
Long-term debt consisted of the following as of September 30, 2022 and December 31, 2021:
| **** | **** | **** | September 30, | December 31, | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | Maturity Date | Interest Rate | 2022 | 2021 | ||||||
| 2022 term loan 1 | (1) | 4.0 | % | $ | - | $ | 1,750 | |||
| 2022 term loan 2 | Various | 4.0 | % | 2,896 | 2,813 | |||||
| 2022 term loan 3 | Jun-26 | 6.8 | % | 20,000 | - | |||||
| Insurance premium financing | Apr-23 | 5.0 | % | 1,635 | 373 | |||||
| Freezer equipment loan | Dec-25 | 5.7 | % | 502 | 612 | |||||
| Manufacturing equipment loans | Oct-25 | 5.7 | % | 288 | 355 | |||||
| Freezer installation loan | Various | 6.3 | % | 1,143 | 1,334 | |||||
| Other loans | Various | Various | 8 | 9 | ||||||
| Total debt, excluding unamortized debt issuance costs | 26,472 | 7,246 | ||||||||
| Less: unamortized debt issuance costs | (198 | ) | (31 | ) | ||||||
| Total debt | 26,274 | 7,215 | ||||||||
| Less: current portion | (2,067 | ) | (862 | ) | ||||||
| Total long-term debt | $ | 24,207 | $ | 6,353 |
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(1) 2022 term loan 1 carried a maturity date of September 2024 as of the year ended December 31, 2021. As of September 30, 2022, the entirety of the outstanding principal and accrued interest was repaid.
2022 term loan 3 is secured by substantially all assets of BioLife, SAVSU, CBS, SciSafe, Global Cooling and Sexton, other than intellectual property. 2022 term loan 2 is secured by substantially all assets of Global Cooling and is effectively subordinated to the security interest established by the lenders of 2022 term loan 3. Equipment loans are secured by the financed equipment.
As of September 30, 2022, the scheduled maturities of loans payable for each of the next five years and thereafter were as follows:
| (In thousands) | Amount | ||
|---|---|---|---|
| 2022 (3 months remaining) | $ | 679 | |
| 2023 | 1,888 | ||
| 2024 | 5,544 | ||
| 2025 | 10,543 | ||
| 2026 | 5,222 | ||
| Thereafter | 2,596 | ||
| Total debt, excluding unamortized debt issuance costs | 26,472 | ||
| Less: unamortized debt issuance costs | (198 | ) | |
| Total debt | $ | 26,274 |
12. Warrants
In March 2014, pursuant to a registered public offering and note conversion agreement with certain note holders, the Company issued warrants to purchase 6,910,283 shares of common stock at $4.75 per share. The warrants had an original expiration date of March 2021.
In May 2016, in connection with a credit facility, the Company issued a warrant to purchase 550,000 shares of common stock at $1.75 per share. The warrant was immediately exercisable and had an original expiration date of May 2021.
In May 2020, the Company entered into separate warrant exercise agreements with WAVI Holding AG and Taurus4757 GmbH pursuant to which the warrant holders immediately exercised their respective warrants via a “cashless” exercise as agreed to by the Company. As a result of the cashless exercise, the Company issued an aggregate of 2,747,970 shares of Company common stock upon cashless exercise of an aggregate of 3,871,405 warrants.
In March 2021, all remaining outstanding warrants were exercised via a “cashless” exercise. As a result of the cashless exercise, the Company issued an aggregate of 70,030 shares of Company common stock upon cashless exercise of an aggregate of 79,100 warrants.
The following table summarizes warrant activity for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | ||||||||
| Shares | Wtd. Avg.<br> <br>Exercise Price | Shares | Wtd. Avg.<br> <br>Exercise Price | ||||||
| Beginning balance | - | $ | - | 79,100 | $ | 4.75 | |||
| Exercised | - | - | (79,100 | ) | 4.75 | ||||
| Ending balance | - | $ | - | - | $ | - |
13. Revenue
To determine revenue recognition for contractual arrangements that we determine are within the scope of Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days. During the three and nine months ended September 30, 2022, the Company recognized approximately $26,000 and $482,000, respectively, of revenue that was included in the deferred revenue balance at the beginning of the year.
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The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of cell processing tools, freezers, thawing devices, and cold chain products. We recognize product revenue, including shipping and handling charges billed to customers, at a point in time when we transfer control of our products to our customers, which is upon shipment for substantially all transactions. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statements of Operations. Service revenue is generated from the storage of biological and pharmaceutical materials. We recognize service revenue over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC Topic 606, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of and during the three and nine months ended September 30, 2022.
The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems within its storage and storage services product line to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.
The Company enters into various customer service agreements (collectively, “Service Contracts”) with customers to provide biological and pharmaceutical storage services. In certain of these Service Contracts, the property, plant, and equipment or operating right-of-use assets used to store the customer product are used only for the benefit of one customer. This is primarily driven by the customer’s desire to ensure that sufficient storage capacity is available in a specific geographic location for a set period of time. These agreements may include extension and termination clauses. These Service Contracts do not allow for customers to purchase the underlying assets.
The Company has assessed its Service Contracts and concluded that certain of the contracts for the storage of customer products met the criteria to be considered a leasing arrangement (“Embedded Leases”), with the Company as the lessor. The specific Service Contracts that met the criteria were those that provided a single customer with the ability to substantially direct the use of the Company’s property, plant, and equipment or operating right-of-use assets.
Applying the practical expedient from ASC Topic 842, consistent with the previous guidance, the Company will continue to recognize operating right-of-use asset embedded lessor arrangements on its Unaudited Condensed Consolidated Balance Sheets in operating right-of-use assets.
None of the Embedded Leases identified by the Company qualify as a sales-type or direct finance lease. None of the operating leases for which the Company is the lessor include options for the lessee to purchase the underlying asset at the end of the lease term or residual value guarantees, nor are any such operating leases with related parties.
Embedded Leases may contain both lease and non-lease components. We have elected to utilize the practical expedient from ASC Topic 842 to account for lease and non-lease components together as a single combined lease component as the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. Non-lease components of the Company’s rental arrangements include reimbursements of lessor costs.
Total bioproduction tools and services revenue for the three and nine months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended | Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||
| (In thousands, except percentages) | 2022 | 2021 | 2022 | 2021 | ||||
| Product revenue | ||||||||
| Freezer and thaw | $ | 15,326 | $ | 17,610 | $ | 49,331 | $ | 40,021 |
| Cell processing | 18,082 | 11,505 | 48,336 | 30,131 | ||||
| Storage and storage services | 260 | 86 | 560 | 293 | ||||
| Service revenue | ||||||||
| Storage and storage services | 4,312 | 2,250 | 11,099 | 6,417 | ||||
| Cell processing | 18 | - | 18 | - | ||||
| Rental revenue | ||||||||
| Storage and storage services | 2,749 | 2,349 | 8,156 | 4,989 | ||||
| Total revenue | $ | 40,747 | $ | 33,800 | $ | 117,500 | $ | 81,851 |
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The following table includes estimated rental revenue expected to be recognized in the future related to embedded leases as well as estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting periods. The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, Revenue from Contracts with Customers. The estimated revenue in the following table does not include contracts with the original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of September 30, 2022.
The balances in the table below are partially based on judgments involved in estimating future orders from customers pursuant to their respective contracts:
| Year Ending December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2022 (3 months<br> <br>remaining) | 2023 | 2024 | Total | ||||
| Rental revenue | $ | 1,809 | $ | 3,735 | $ | 900 | $ | 6,444 |
| Service revenue | $ | 69 | $ | 191 | $ | 10 | $ | 270 |
14. Share-based compensation
Service vesting-based stock options
The following is a summary of service vesting-based stock option activity for the September 30, 2022, and the status of service vesting-based stock options outstanding as of September 30, 2022:
| Nine Months Ended | |||||
|---|---|---|---|---|---|
| September 30, 2022 | |||||
| Shares | Wtd. Avg. Exercise Price | ||||
| Outstanding as of beginning of year | 624,531 | $ | 2.13 | ||
| Exercised | (158,075 | ) | 1.94 | ||
| Forfeited | (10,000 | ) | 1.82 | ||
| Outstanding as of September 30, 2022 | 456,456 | $ | 2.20 | ||
| Stock options exercisable as of September 30, 2022 | 456,456 | $ | 2.20 |
We recognized stock compensation expense related to service-based options of zero during the three and nine months ended September 30, 2022 and $6,000 and $21,000 during the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was $9.4 million of aggregate intrinsic value of outstanding and exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the reporting period and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on September 30, 2022. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of service vesting-based awards exercised was $60,000 and $4.0 million during the three and nine months ended September 30, 2022, respectively, and $1.4 million and $5.2 million during the three and nine months ended September 30, 2021, respectively. There were no service based-vesting options granted during the three and nine months ended September 30, 2022. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable as of September 30, 2022 is 3.0 years. There were no unrecognized compensation costs for service vesting-based stock options as of September 30, 2022.
Performance-based stock options
No stock compensation expense was recognized during the three and nine months ended September 30, 2022 and 2021 related to performance-based options. There were no performance-based stock options exercised in the three and nine months ended September 30, 2022. The intrinsic value of performance-based awards exercised was $9.7 million and $19.5 million during the three and nine months ended 2021, respectively. There were no performance-based stock options granted to employees and non-employee directors in the three and nine months ended September 30, 2022 and 2021.
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Restricted stock
Service vesting-based restricted stock
The following is a summary of service vesting-based restricted stock activity for the nine months ended September 30, 2022, and the status of unvested service vesting-based restricted stock outstanding as of September 30, 2022:
| Nine Months Ended | |||||
|---|---|---|---|---|---|
| September 30, 2022 | |||||
| Shares | Wtd. Avg.<br> <br>Grant Date<br> <br>Fair Value | ||||
| Outstanding as of beginning of year | 1,212,783 | $ | 37.48 | ||
| Granted | 1,255,449 | 25.55 | |||
| Vested | (448,056 | ) | 35.60 | ||
| Forfeited | (83,922 | ) | 46.29 | ||
| Non-vested as of September 30, 2022 | 1,936,254 | $ | 29.79 |
The aggregate fair value of the service vesting-based awards granted was $23.3 million and $32.1 million during the three and nine months ended September 30, 2022, respectively, and $31.1 million and $35.7 million during the three and nine months ended September 30, 2021, respectively. The aggregate fair value of the service vesting-based awards that vested was $3.1 million and $10.2 million during the three and nine months ended September 30, 2022, respectively, and $5.1 million and $10.3 million during the three and nine months ended September 30, 2021, respectively.
We recognized stock compensation expense related to service vesting-based awards of $5.1 million and $14.6 million during the three and nine months ended September 30, 2022, respectively, and $4.4 million and $8.0 million during the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was $52.4 million in unrecognized compensation costs related to service vesting-based awards. We expect to recognize those costs over 3.0 years.
Market-based restricted stock
The following is a summary of market-based restricted stock activity under our stock option plan for the nine months ended September 30, 2022 and the status of market-based restricted stock outstanding as of September 30, 2022:
| Nine Months Ended | |||||
|---|---|---|---|---|---|
| September 30, 2022 | |||||
| Shares | Wtd. Avg.<br> <br>Grant Date<br> <br>Fair Value | ||||
| Outstanding as of beginning of year | 139,756 | $ | 19.86 | ||
| Granted | 349,568 | 21.26 | |||
| Vested | (218,280 | ) | 10.95 | ||
| Non-vested as of September 30, 2022 | 271,044 | $ | 30.64 |
On March 25, 2020, the Company granted 109,140 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on Total Shareholder Return (“TSR”). The TSR market condition measures the Company’s performance against a peer group. On February 24, 2022, the Company’s Compensation Committee determined the TSR attainment was 200% of the targeted shares and 218,280 shares were granted and immediately vested to the executives of the Company based on our total shareholder return during the period beginning on January 1, 2020 through December 31, 2021 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined at the grant date using a Monte Carlo simulation with the following assumptions: a historical volatility of 78%, 0% dividend yield and a risk-free interest rate of 0.3%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $1.2 million was expensed on a straight-line basis over the grant date to the vesting date of December 31, 2021.
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On February 8, 2021, the Company granted 30,616 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2021 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 68%, 0% dividend yield and a risk-free interest rate of 0.1%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $1.3 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2022.
On February 24, 2022, the Company granted 240,428 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2022 through December 31, 2023 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 63%, 0% dividend yield and a risk-free interest rate of 1.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $6.7 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2023.
We recognized stock compensation expense of $1.2 million and $3.1 million related to market-based restricted stock awards for the three and nine months ended September 30, 2022, respectively, and $413,000 and $1.1 million during the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was $4.5 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.2 years.
The aggregate fair value of the market-based awards granted was zero and $6.7 million during the three and nine months ended September 30, 2022, respectively, and zero and $1.8 million during the three and nine months ended September 30, 2021, respectively. The aggregate fair value of the market-based awards that vested was zero and $5.0 million during the three and nine months ended September 30, 2022, respectively, and zero and $10.2 million during the three and nine months ended September 30, 2021, respectively.
Total stock compensation expense
We recorded total stock compensation expense for the three and nine months ended September 30, 2022 and 2021, as follows:
| Three Months Ended | Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Cost of revenue | $ | 809 | $ | 742 | $ | 2,619 | $ | 1,047 |
| General and administrative costs | 3,959 | 3,015 | 10,687 | 5,662 | ||||
| Sales and marketing costs | 829 | 560 | 2,272 | 1,012 | ||||
| Research and development costs | 702 | 551 | 2,093 | 1,171 | ||||
| Total | $ | 6,299 | $ | 4,868 | $ | 17,671 | $ | 8,892 |
15. Acquisitions
Sexton acquisition
General terms and effects
On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton, a Delaware corporation. The acquisition strengthens BioLife’s offerings in the cell and gene therapy and broader biopharma markets.
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On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly-owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), are entitled to receive an aggregate of 530,502 newly issued shares of the Company’s common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any, plus or minus changes resulting from observable process changes in orderly transactions for identical or similar investments of the same issuer. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company’s existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of $6.5 million. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition.
Total consideration transferred (in thousands, except number of shares and stock price):
| Merger consideration shares | 530,502 | ||
|---|---|---|---|
| BioLife stock price (as of September 1, 2021) | $ | 60.50 | |
| Value of issued shares | $ | 32,095 | |
| Plus: Fair value of BioLife’s existing investment in Sexton | $ | 7,951 | |
| Less: Net working capital adjustment | $ | (118 | ) |
| Merger Consideration | $ | 39,928 |
Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.
Fair value of net assets acquired
Under the acquisition method of accounting, the assets acquired and liabilities assumed from Sexton were calculated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The gross contractual accounts receivable acquired in the acquisition was $509,000. Of the acquired accounts receivable, $17,000 is estimated to be uncollectable. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.
The table below represents the fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).
| Cash | $ | 1,516 | |
|---|---|---|---|
| Accounts receivable, net | 492 | ||
| Inventories | 1,310 | ||
| Prepaid expenses and other current assets | 670 | ||
| Property, plant and equipment, net | 737 | ||
| Operating lease right-of-use assets, net | 470 | ||
| Developed technology | 4,132 | ||
| Customer relationships | 2,276 | ||
| Tradenames | 2,324 | ||
| Non-compete agreements | 90 | ||
| Goodwill | 28,470 | ||
| Accounts payable | (291 | ) | |
| Lease liabilities, operating | (470 | ) | |
| Deferred tax liability | (1,482 | ) | |
| Other liabilities | (316 | ) | |
| Fair value of net assets acquired | $ | 39,928 |
We recorded a measurement period adjustment in the fourth quarter of the year ended December 31, 2021 of $198,000 to the fair value of goodwill and the deferred tax liability. This adjustment related to the tax attributes of the business combination.
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The fair value of Sexton’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):
| Fair Value | Useful<br> <br>Life (Years) | |||||
|---|---|---|---|---|---|---|
| Developed technology | $ | 4,132 | 5 | - | 9 | |
| Customer relationships | 2,276 | 2 | ||||
| Tradenames | 2,324 | 11 | ||||
| Non-compete agreements | 90 | 1 | ||||
| Total identifiable intangible assets | $ | 8,822 | **** | **** |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The estimated fair values of developed technology were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships and non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the customer relationships and non-compete agreements were and were not in place. The estimated fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.
Acquired goodwill
The goodwill of $28.5 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. The goodwill recorded is not deductible for income tax purposes.
Global Cooling acquisition
General terms and effects
On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”). The acquisition strengthens BioLife’s offerings in the cell and gene therapy and broader biopharma markets.
On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly-owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).
Merger consideration
The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments.
Total consideration transferred (in thousands, except number of shares, stock price, and consideration percentage):
| BioLife shares outstanding (as of March 19, 2021) | 33,401,359 | ||
|---|---|---|---|
| Merger consideration percentage | 19.9 | % | |
| Merger consideration shares | 6,646,870 | ||
| less: Merger consideration shares withheld to satisfy outstanding GCI stockholder obligations to GCI | 10,400 | ||
| Subtotal | 6,636,470 | ||
| BioLife stock price (as of May 3, 2021) | $ | 35.07 | |
| Value of issued shares | $ | 232,741 | |
| plus: Settlement of BioLife prepaid deposits | $ | 2,152 | |
| plus: Net settlement of BioLife accounts receivable | $ | 16 | |
| Merger Consideration | $ | 234,909 |
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Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.
Escrow shares
At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement to be entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”).
The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement.
Fair value of net assets acquired
Under the acquisition method of accounting, the assets acquired and liabilities assumed from Global Cooling were calculated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The gross contractual accounts receivable acquired in the acquisition was $7.1 million. Of the acquired accounts receivable, $53,000 was estimated to be uncollectable. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.
The table below represents the fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).
| Cash | $ | 43 | |
|---|---|---|---|
| Accounts receivable, net | 7,076 | ||
| Inventories | 15,547 | ||
| Prepaid expenses and other current assets | 639 | ||
| Property, plant and equipment, net | 3,512 | ||
| Operating lease right-of-use assets, net | 1,741 | ||
| Financing lease right-of-use assets, net | 114 | ||
| Long-term deposits and other assets | 4 | ||
| Developed technology | 18,140 | ||
| Customer relationships | 7,020 | ||
| Tradenames | 26,640 | ||
| Non-compete agreements | 1,240 | ||
| In-process research and development | 67,440 | ||
| Goodwill | 137,822 | ||
| Accounts payable | (9,837 | ) | |
| Line of credit | (4,231 | ) | |
| Lease liabilities, operating | (1,880 | ) | |
| Lease liabilities, financing | (114 | ) | |
| Long-term debt | (4,410 | ) | |
| Deferred tax liability | (24,133 | ) | |
| Other liabilities | (7,464 | ) | |
| Fair value of net assets acquired | $ | 234,909 |
We recorded a measurement period adjustment in the fourth quarter of the year ended December 31, 2021 of $607,000 to the fair value of goodwill and the deferred tax liability. This adjustment related to the tax attributes of the business combination.
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The fair value of Global Cooling’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):
| Fair Value | Useful<br> <br>Life (Years) | |||
|---|---|---|---|---|
| Developed technology | $ | 18,140 | 6 | |
| Customer relationships | 7,020 | 12 | ||
| Tradenames | 26,640 | 15 | ||
| Non-compete agreements | 1,240 | 4 | ||
| In-process research and development | 67,440 | N/A | ||
| Total identifiable intangible assets | $ | 120,480 | **** | **** |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The fair values of developed technology and in-process research and development were estimated using a multi-period excess earnings approach. The fair values of customer relationships were estimated using the “distributor method”. The fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of inventory and property, plant and equipment were determined using the “market approach”.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.
In July 2022, the Company abandoned an in-process research and development project within the asset group acquired in the acquisition of Global Cooling and revised its forecasts for net income and net cash flows to be generated by that asset group. The Company determined that these events constituted interim triggering events that required further analysis with respect to potential impairment to indefinite-lived intangibles and definite-lived intangibles. The Company performed an interim quantitative impairment test as of the June 30, 2022 balance sheet date, noting that the values of indefinite-lived intangibles and definite-lived intangibles were impaired by $58.9 million and $11.0 million, respectively. See Note 8 – “Goodwill and intangible assets” for details.
Acquired goodwill
The goodwill of $137.8 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. The goodwill recorded is not deductible for income tax purposes.
Pro forma presentation
The following unaudited pro forma financial information presents the combined results of operations of Sexton as if the acquisition had occurred on January 1, 2021 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||
|---|---|---|---|---|---|
| 2021 | 2021 | ||||
| (In thousands) | (unaudited) | (unaudited) | |||
| Total revenue | $ | 34,524 | $ | 85,189 | |
| Net (loss) income | $ | (685 | ) | $ | 4,612 |
The following unaudited pro forma financial information presents the combined results of operations of Global Cooling as if the acquisition had occurred on January 1, 2021 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, amortization of increased inventory basis, depreciation expense, lease expense, transaction costs, interest expense, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||
|---|---|---|---|---|---|
| 2021 | 2021 | ||||
| (In thousands) | (unaudited) | (unaudited) | |||
| Total revenue | $ | 33,800 | $ | 106,427 | |
| Net (loss) income | $ | 79 | $ | (1,939 | ) |
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16. Income taxes
The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company’s tax provision for interim periods is determined using an estimate of the annual effective income tax rate, adjusted for discrete items, if any, that occur in the relevant period. The income tax benefit of $4.9 million for the nine months ended September 30, 2022 resulted in an effective income tax rate of 5%. Included in the $4.9 million were discrete tax expenses of $510,000 related to stock compensation shortfall tax expenses and a discrete tax benefit of $397,000 related to an adjustment for Research and Development tax credits, both of which were offset by a decrease in the valuation allowance.
The Company’s US projected effective income tax rate without discrete items was 5%, which is lower than the US federal statutory rate of 21% primarily due to the impact of a projected partial valuation allowance on net operating loss carryforwards and non-deductible executive compensation offset by state tax benefits and research tax credits.
Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. In determining the need for a valuation allowance, the Company’s management evaluates both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. After reviewing the evidence available, the Company’s management believes there is uncertainty regarding the future realizability of the U.S. net operating loss carryforward and is projecting a full valuation allowance of $20.5 million by year end. If operating results improve and projections indicate future utilization of the tax attributes, all or a portion of the valuation allowance would be released, resulting in a corresponding non-cash income tax benefit.
17. Net (loss) income per common share
The Company considers its unexercised warrants and unvested restricted shares, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and warrants) is calculated by dividing net loss by the weighted average number of shares of common stock and warrants outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two-class method and the treasury stock method, whichever is more dilutive. In periods when we have a net loss, common stock equivalents are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.
The following table presents computations of basic and diluted earnings per share under the two-class method:
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||
| (In thousands, except share and earnings per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Basic earnings (loss) per common share | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Numerator: | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Net (loss) income | $ | (9,957 | ) | $ | 79 | $ | (89,577 | ) | $ | 6,837 | ||
| Amount attributable to unvested restricted shares | - | (2 | ) | - | (212 | ) | ||||||
| Amount attributable to warrants outstanding | - | - | - | (4 | ) | |||||||
| Net (loss) income allocated to common shareholders | (9,957 | ) | 77 | (89,577 | ) | 6,621 | ||||||
| Denominator: | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Weighted-average common shares issued and outstanding | 42,647,967 | 40,911,801 | 42,376,392 | 37,435,224 | ||||||||
| Basic (loss) earnings per common share | $ | (0.23 | ) | $ | 0.00 | $ | (2.11 | ) | $ | 0.18 | ||
| Diluted earnings (loss) per common share | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Numerator: | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Net (loss) income | $ | (9,957 | ) | $ | 79 | $ | (89,577 | ) | $ | 6,837 | ||
| Amount attributable to unvested restricted shares | - | (2 | ) | - | (205 | ) | ||||||
| Amount attributable to warrants | - | - | - | (4 | ) | |||||||
| Diluted (loss) earnings per common share | (9,957 | ) | 77 | (89,577 | ) | 6,628 | ||||||
| Denominator: | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Weighted-average common shares issued and outstanding | 42,647,967 | 40,911,801 | 42,376,392 | 37,435,224 | ||||||||
| Dilutive potential common shares from: | ||||||||||||
| Stock options | - | 1,069,207 | - | 1,330,207 | ||||||||
| Restricted shares | - | 1,315,462 | - | 1,195,154 | ||||||||
| Warrants | - | - | - | 24,338 | ||||||||
| Diluted weighted average shares issued and outstanding | 42,647,967 | 43,296,470 | 42,376,392 | 39,984,923 | ||||||||
| Diluted (loss) earnings per common share | $ | (0.23 | ) | $ | 0.00 | $ | (2.11 | ) | $ | 0.17 |
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The following table sets forth the number of weighted-average common shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
| Three Months Ended | Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Stock options and restricted stock awards | 2,022,405 | - | 2,678,601 | - | ||||
| Total | 2,022,405 | - | 2,678,601 | - |
18. Commitments and contingencies
Employment agreements
We have employment agreements with certain key employees. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the employee or upon the employee resigning for good reason.
Litigation
From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, none of which are currently material to the Company’s business. The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property. As a result, the Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. Management is not aware of any significant pending or threatened litigation that is anticipated to result in unfavorable judgments against the Company.
Indemnification
As permitted under Delaware law and in accordance with the Company’s bylaws, the Company is required to indemnify its officers and directors for certain errors and occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of September 30, 2022.
19. Employee benefit plan
The Company sponsors 401(k) defined contribution plans for its employees. These plans provide for pre-tax and post-tax contributions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to these plans, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company matches employee contributions in amounts to be determined at the Company’s sole discretion. The Company made $266,000 and $792,000 in contributions to the plan for the three and nine months ended September 30, 2022, respectively, and $237,000 and $587,000 for the three and nine months ended September 30, 2021, respectively.
20. Subsequent events
On September 28, 2022, we entered into an operating lease agreement for approximately 13,578 square feet in Woodinville, WA. The term of our lease began on October 1, 2022 and continues until January 31, 2030. In accordance with the lease agreement, we recorded an operating lease obligation of $1.5 million, with base rent of $19,338 at commencement and inclusive of provisions for rent increases annually.
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Item 2. Management’s discussion and analysis of financial condition and results of operations
Forward looking statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about our products, including our newly acquired products, customers, regulatory approvals, the potential utility of and market for our products and services, our ability to implement our business strategy and anticipated business and operations, in particular following our 2021, 2020, and 2019 acquisitions, future financial and operational performance, our anticipated future growth strategy, including the acquisition of synergistic cell and gene therapy manufacturing tools and services or technologies or other companies or technologies, capital requirements, intellectual property, suppliers, joint venture partners, future financial and operating results, the impact of the COVID-19 pandemic, plans, objectives, expectations and intentions, revenues, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, regulatory filings and requirements, the estimated potential size of markets, capital requirements, the terms of any capital financing agreements, cost savings, objectives of management and other statements that are not historical facts. You can find many of these statements by looking for words like “believes”, “expects”, “anticipates”, “estimates”, “may”, “should”, “will”, “could”, “plan”, “intend”, or similar expressions in this Quarterly Report on Form 10-Q. We intend that such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-K as of and for the fiscal year ended December 31, 2021 filed with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents referred to or incorporated by reference, the date of those documents.
All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Overview
Management’s discussion and analysis provides additional insight into the Company and is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2021 filed with the SEC.
We are a life sciences company that develops, manufactures, and markets bioproduction tools and services to the cell and gene therapy (“CGT”) industry and broader biopharma market, which are designed to improve quality and de-risk biologic manufacturing, storage, distribution, and transportation. Our products are used in basic and applied research and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution.
Our current portfolio of bioproduction tools and services are comprised of three revenue lines that contain seven main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions), (ii) freezers and thaw systems (including a full line of mechanical ultra-low temperature (“ULT”), isothermal, and liquid nitrogen freezers and accessories, automated thaw devices which provide controlled, consistent thawing of frozen biologics in vials and cryobags), and (iii) storage and storage services (including biological and pharmaceutical storage services, and “smart”, cloud connected devices for transporting biologic payloads).
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We currently operate as one bioproduction tools and services business which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focus on biopreservation, cell processing, frozen biologic storage products and services, cold-chain transportation, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.
Our products
Our bioproduction tools and services are comprised of three revenue lines that contain seven main offerings:
| ● | Cell processing | |
|---|---|---|
| ○ | Biopreservation media | |
| ○ | Human platelet lysate media (“hPL”), cryogenic vials, and automated cell-processing fill machines | |
| ● | Freezers and thaw systems | |
| ○ | Ultra-low temperature freezers | |
| ○ | Cryogenic freezers and accessories | |
| ○ | Automated thawing devices | |
| ● | Storage and storage services | |
| ○ | Biological and pharmaceutical material storage | |
| ○ | Cloud connected “smart” shipping containers |
Biopreservation media
Our proprietary biopreservation media products, HypoThermosol® FRS and CryoStor®, are formulated to mitigate preservation-induced, delayed-onset cell damage and death, which result when cells and tissues are subjected to reduced temperatures. Our technology can provide our customers with significant shelf-life extension of biologic source material and final cell products, and can also greatly improve post-preservation cell and tissue viability and function. Our biopreservation media is serum-free, protein-free, fully defined, and manufactured under current Good Manufacturing Practices (cGMP). We strive to source wherever possible, the highest available grade, multi-compendium raw materials. We estimate our media products have been incorporated in more than 570 customer clinical applications, including numerous chimeric antigen receptor (CAR) T cell and other cell types.
Stability (i.e. shelf-life) and functional recovery are crucial aspects of academic research and clinical practice in the biopreservation of biologic-based source material, intermediate derivatives, and isolated/derived/expanded cellular products and therapies. Limited stability is especially critical in the CGT field, where harvested cells and tissues will lose viability over time, if not maintained appropriately at normothermic body temperature (37ºC) or stored in a hypothermic state in an effective preservation medium. Chilling (hypothermia) is used to reduce metabolism and delay degradation of harvested cells and tissues. However, subjecting biologic material to hypothermic environments induces damaging molecular stress and structural changes. Although cooling successfully reduces metabolism (i.e., lowers demand for energy), various levels of cellular damage and death occur when using suboptimal methods. Traditional biopreservation media range from simple “balanced salt” (electrolyte) formulations to complex mixtures of electrolytes, energy substrates such as sugars, osmotic buffering agents and antibiotics. The limited stability, which results from the use of these traditional biopreservation media formulations, is a significant shortcoming that our optimized proprietary products address with great success.
Our scientific research activities over the last 30+ years enabled a detailed understanding of the molecular basis for the hypothermic and cryogenic (low-temperature induced) damage/destruction of cells through apoptosis and necrosis. This research led directly to the development of our HypoThermosol® FRS and CryoStor® technologies. Our proprietary biopreservation media products are specifically formulated to:
| ● | Minimize cell and tissue swelling |
|---|---|
| ● | Reduce free radical levels upon formation |
| ● | Maintain appropriate low temperature ionic balances |
| ● | Provide regenerative, high energy substrates to stimulate recovery upon warming |
| ● | Avoid the creation of an acidic state (acidosis) |
| ● | Inhibit the onset of apoptosis and necrosis |
A key feature of our biopreservation media products is their “fully-defined” profile. All of our cGMP products are serum-free, protein-free and are formulated and filled using aseptic processing. We strive to use USP/Multicompendial grade or the highest quality available synthetic components. All of these features benefit prospective customers by facilitating the qualification process required to incorporate our products into their regulatory filings.
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The results of independent testing demonstrate that our biopreservation media products significantly extend shelf-life and improve cell and tissue post-thaw viability and function. Our products have demonstrated improved biopreservation outcomes, including greatly extended shelf-life and post-thaw viability, across a broad array of cell and tissue types.
Competing biopreservation media products are often formulated with simple isotonic media cocktails, animal serum, potentially a single sugar or human protein. A key differentiator of our proprietary HypoThermosol FRS formulation is the engineered optimization of the key ionic component concentrations for low temperature environments, as opposed to normothermic body temperature around 37°C, as found in culture media or saline-based isotonic formulas. Competing cryopreservation freeze media is often comprised of a single permeating cryoprotectant such as dimethyl sulfoxide (“DMSO”). Our CryoStor formulations incorporate multiple permeating and non-permeating cryoprotectant agents which allow for multiple mechanisms of protection and reduces the dependence on a single cryoprotectant. We believe that our products offer significant advantages over in-house formulations, or commercial “generic” preservation media, including, time saving, improved quality of components, more rigorous quality control release testing, more cost effective and improved preservation efficacy.
We estimate that annual revenue from each customer commercial application in which our products are used could range from $500,000 to $2.0 million, if such application is approved and our customer commences large scale commercial manufacturing of the biologic based therapy.
Human platelet lysate media, cryogenic vials and automated cell-processing fill machines
In September 2021, we acquired Sexton Biotechnologies, Inc., a producer of bioproduction tools. Sexton's bioproduction tools portfolio includes hPL for cell expansion reducing risk and improving downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal® closed system vials that are purpose-built rigid containers used in CGT that can be filled manually or with high throughput systems, and automated cell processing machines bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination.
Compressor-free ULT freezers
In May 2021, we acquired Global Cooling, Inc. (“Global Cooling”), a manufacturer of class defining ultra-low temperature freezers. Global Cooling carries a portfolio of freezers that range in size from portable units to stationary upright freezers to accommodate a wide variety of use cases. Users can configure these freezers to achieve temperatures between -20°C and -86°C. The portfolio was designed to be environmentally friendly and energy efficient, using as little as 2.8 kWh/day at temperatures of -80°C. The freezers do not use compressor-based or cascade refrigeration systems. Instead, they use patented free-piston Stirling engine technology that uses fewer moving parts, resulting in maintenance cost savings for end users.
Liquid nitrogen freezers and storage devices
In November 2019, we acquired Custom Biogenic Systems, Inc. (“CBS”) a global leader in the design and manufacture of state-of-the-art liquid nitrogen laboratory freezers, cryogenic equipment and accessories.
Included in CBS’s product line of liquid nitrogen freezers are controlled-rate freezers and Isothermal LN2 freezers, constructed with a patented system which stores liquid nitrogen in a jacketed space in the walls of the freezer. This dry storage method eliminates liquid nitrogen contact with stored specimens, reduces the risk of cross-contamination and provides increased user safety in a laboratory setting. To accommodate customer requirements, we offer customizable features including wide bodied and extended height.
To accompany the offerings of cryogenic freezer equipment, we supply equipment for storing critically important biological materials. This storage equipment includes upright freezer racks, chest freezer racks, liquid nitrogen freezer racks, canisters/cassettes and frames as well as laboratory boxes and dividers. Due to our onsite design and manufacturing capability, racks and canisters can be customized to address customers’ varying requirements.
In order to provide customers with a proactive approach to safety and monitoring of equipment containing liquefied gas, CBS offers Versalert, a patented wireless remote asset monitoring system that can monitor and record temperatures. Versalert has an intelligent mesh network system that enables customers to view current equipment conditions and receive alarm notification on smartphones, tablets or personal computers and maintain permanent electronic records for regulatory compliance and legal verification.
Automated, water-free thawing products
In April 2019, we acquired Astero Bio Corporation (“Astero”). The Astero ThawSTAR® line includes automated vial and cryobag thawing products that control the heat and timing of the thawing process of biologic material. Our customizable, automated, water-free thawing products uses algorithmic programmed, heating plates to consistently bring biologic material from a frozen state to a liquid state in a controlled and consistent manner. This helps reduce cell structure damage during the temperature transition. The ThawSTAR® products can reduce risks of contamination versus using a traditional water bath.
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Biological and pharmaceutical storage
In October 2020, we acquired SciSafe Holdings, Inc. (“SciSafe”), a premier provider of biological and pharmaceutical storage. In addition to providing storage services, SciSafe provides cold chain logistics that ensures materials are kept at target temperatures from the moment that the materials leave the customer’s premises to their ultimate return. State-of-the-art monitoring systems employed by SciSafe allow for customers to monitor the storage temperatures of their materials throughout the entire logistics chain.
We operate six storage facilities in the USA and one facility in the Netherlands.
evo® cloud connected shipping containers
In August 2019, we acquired the remaining shares of SAVSU Technologies, Inc. (“SAVSU”) we did not previously own. SAVSU is a leading developer and supplier of next generation cold chain management tools for cell and gene therapies. The evo.is cloud app allows biologic products to be traced and tracked in real time. Our evo platform consists of rentable cloud-connected shippers and include technologies that enable tracking software provides real-time information on geolocation, payload temperature, ambient temperature, tilt of shipper, humidity, altitude, and real-time alerts when a shipper has been opened. Our internally developed evo.is software allows customers to customize alert notifications both in data measurements and user requirements. The evo Dry Vapor Shipper (“DVS”) has an improved form factor and ergonomics over traditional dewars, including extended thermal performance, reduced liquid nitrogen recharge time, improved payload extractors and ability to maintain temperature for longer periods during transit or otherwise in a non-upright orientation.
We utilize couriers who already have established logistic channels and distribution centers. Our strategy greatly reduces the cash need to build out specialized facilities around the world. Our partnerships with several white glove couriers allow us to scale our sales and marketing effort by utilizing their salesforce. Our courier partnerships market our evo platform to their existing cell and gene therapy customers as a cost effective and innovative solution. We also market directly to our existing and prospective customers who can utilize the evo platform through our courier partnerships.
Critical accounting policies and estimates
A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on form 10-Q.
Results of operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the related footnotes thereto.
Revenues
Total bioproduction tools and services revenue for three and nine months ended September 30, 2022 and 2021 was comprised of the following:
| Three Months Ended | **** | **** | **** | **** | |||||
|---|---|---|---|---|---|---|---|---|---|
| September 30, | **** | **** | **** | **** | |||||
| (In thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||
| Product revenue | |||||||||
| Freezer and thaw | $ | 15,326 | $ | 17,610 | ) | (13 | )% | ||
| Cell processing | 18,082 | 11,505 | 57 | % | |||||
| Storage and storage services | 260 | 86 | 202 | % | |||||
| Service revenue | |||||||||
| Storage and storage services | 4,312 | 2,250 | 92 | % | |||||
| Cell processing | 18 | - | NM | ||||||
| Rental revenue | |||||||||
| Storage and storage services | 2,749 | 2,349 | 17 | % | |||||
| Total revenue | $ | 40,747 | $ | 33,800 | 21 | % |
All values are in US Dollars.
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| Nine Months Ended | **** | **** | **** | |||||
|---|---|---|---|---|---|---|---|---|
| September 30, | **** | **** | **** | |||||
| (In thousands, except percentages) | 2022 | 2021 | Change | % Change | ||||
| Product revenue | ||||||||
| Freezer and thaw | $ | 49,331 | $ | 40,021 | 23 | % | ||
| Cell processing | 48,336 | 30,131 | 60 | % | ||||
| Storage and storage services | 560 | 293 | 91 | % | ||||
| Service revenue | ||||||||
| Storage and storage services | 11,099 | 6,417 | 73 | % | ||||
| Cell processing | 18 | - | NM | |||||
| Rental revenue | ||||||||
| Storage and storage services | 8,156 | 4,989 | 63 | % | ||||
| Total revenue | $ | 117,500 | $ | 81,851 | 44 | % |
All values are in US Dollars.
Product revenue
Product revenue was $33.7 million for the three months ended September 30, 2022, representing an increase of $4.5 million, or 15%, compared with the same period in 2021, and was $98.2 million for the nine months ended September 30, 2022, representing an increase of $27.8 million, or 39%, compared with the same period in 2021. Organic revenue grew 38% in the nine months ended September 30, 2022 due to the continued adoption of our cell processing products by customers in the CGT market.
Product revenue from our freezer and thaw products decreased by $2.3 million and increased by $9.3 million, or 13% and 23%, in the three and nine months ended September 30, 2022, respectively, compared with the same period in 2021. Of the increase noted in the nine months ended September 30, 2022, $7.3 million is attributable to revenue generated by our ULT freezer products, which were acquired in May 2021. Organic freezer and thaw revenue increased by 10% in the nine months ended September 30, 2022 due to strong cryogenic freezer sales.
Product revenue from our cell processing products increased by $6.6 million and $18.2 million, or 57% and 60%, in the three and nine months ended September 30, 2022, respectively, compared with the same period in 2021. Of the increase noted in the three and nine months ended September 30, 2022, $1.1 million and $3.5 million of the increases are respectively attributable to revenue generated by our hPL, cryogenic vial, and automated fill machine products, which were acquired on September 1, 2021. Organic cell processing revenue increased 49% in the nine months ended September 30, 2022, as our cell processing products continue to be adopted by customers in the CGT market.
Product revenue from our storage and storage services increased by $174,000 and increased by $267,000, or a 202% increase and a 91% increase, in the three and nine months ended September 30, 2022, respectively, compared with the same periods in 2021.
Service revenue
Service revenue was $4.3 million and $11.1 million for the three and nine months ended September 30, 2022, respectively, representing increases of $2.1 million and $4.7 million, or 92% and 74%, compared with the same period in 2021. The entirety of these increases were generated organically. The increase relates primarily to $2.7 million of revenue generated by our Netherlands biorepository storage expansion which became operational in the fourth quarter of 2021.
Rental revenue
Rental revenue was $2.7 million and $8.2 million for the three and nine months ended September 30, 2022, respectively, representing an increase of $400,000 and $3.2 million, or 17% and 63%, compared with 2021. The entirety of these increases were generated organically. Increases in rental revenues are attributable to increased rental volumes to existing customers and the leasing of dedicated storage spaces and other assets through our biological and pharmaceutical services product line.
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Costs and operating expenses
Total costs and operating expenses for three and nine months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended | **** | **** | **** | **** | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | **** | **** | **** | **** | ||||||
| (In thousands, except percentages) | 2022 | 2021 | Change | % Change | ||||||
| Cost of product, rental, and service revenue | $ | 27,009 | $ | 24,864 | 9 | % | ||||
| General and administrative | 11,581 | 10,081 | 15 | % | ||||||
| Sales and marketing | 5,277 | 4,065 | 30 | % | ||||||
| Research and development | 3,425 | 3,219 | 6 | % | ||||||
| Intangible asset amortization | 2,513 | 2,525 | ) | - | ||||||
| Acquisition costs | 1 | 345 | ) | (100 | )% | |||||
| Change in fair value of contingent consideration | 2,346 | (140 | ) | NM | ||||||
| Total operating expenses | $ | 52,152 | $ | 44,959 | 16 | % |
All values are in US Dollars.
| Nine Months Ended | **** | **** | **** | **** | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | **** | **** | **** | **** | ||||||
| (In thousands, except percentages) | 2022 | 2021 | Change | % Change | ||||||
| Cost of product, rental, and service revenue | $ | 77,649 | $ | 50,968 | 52 | % | ||||
| General and administrative | 34,128 | 22,058 | 55 | % | ||||||
| Sales and marketing | 15,583 | 9,228 | 69 | % | ||||||
| Research and development | 10,634 | 8,250 | 29 | % | ||||||
| Intangible asset impairment charges | 69,900 | - | NM | |||||||
| Intangible asset amortization | 8,236 | 5,340 | 54 | % | ||||||
| Acquisition costs | 18 | 1,616 | ) | (99 | )% | |||||
| Change in fair value of contingent consideration | (3,348 | ) | 1,086 | ) | NM | |||||
| Total operating expenses | $ | 212,800 | $ | 98,546 | 116 | % |
All values are in US Dollars.
Cost of product, rental, and service revenue
Cost of revenue increased $2.1 million and $26.7 million for the three and nine months ended September 30, 2022, or 9% and 52%, respectively, compared to the same period in 2021, due primarily to the acquisitions of Global Cooling and Sexton. Warranty expense recognized in cost of revenue decreased $3.6 million and $2.7 million for the three and nine months ended September 30, 2022, or 94% and 61%, respectively, compared to the same period in 2021 due to the Company’s progress in addressing quality issues that were identified within the ULT freezer product line in the third and fourth quarters of 2021. We expect that cost of product revenue may fluctuate in future quarters based on production volumes, raw material and transportation costs, customer mix, and product mix.
Cost of revenue net of intangible amortization related to acquired technology was 69% as a percentage of revenue for both the three and nine months ended September 30, 2022, and 78% and 66% as a percentage of revenue for the three and nine months ended September 30, 2021, respectively. In the three months ended September 30, 2021, the Company revised estimates for warranty expense based on quality issues identified within the ULT freezer product line, resulting in $3.8 million of warranty expense being recognized in that quarter.
General and administrative expenses
General and administrative (“G&A”) expense consists primarily of personnel-related costs, non-cash stock-based expense for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.
G&A expenses for the three and nine months ended September 30, 2022 increased $1.5 million and $12.1 million, or 15% and 55%, respectively, compared with the same period in 2021. The increase reflects the assumption of G&A expenses related to our acquisitions of Global Cooling in Q2 2021 and Sexton in Q3 2021, increased headcount and non-cash stock-based compensation expense, accounting fees, and insurance expense.
We expect G&A expense to increase reflecting the infrastructure and costs related to supporting the larger expected enterprise created as a result of our growth strategy.
Sales and marketing expenses
Sales and marketing expense (“S&M”) consists primarily of salaries and other personnel-related costs, non-cash stock-based expense, consulting, trade shows, travel, sales commissions, and advertising.
S&M expense for the three and nine months ended September 30, 2022 increased $1.2 million and $6.4 million, or 30% and 69%, respectively, compared with the same period in 2021. The increase is primarily due to our acquisitions of Global Cooling in Q2 2021 and Sexton in Q3 2021, increased non-cash stock-based expense and increased expenses related to travel and tradeshows.
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We expect S&M expense to increase, as we expand our direct selling efforts to support the broader product line offerings resulting from our acquisitions in 2019, 2020, and 2021.
Research and development expenses
Research and development (“R&D”) expense consist primarily of salaries and other personnel-related costs, non-cash stock-based expense, consulting, and external product development services.
R&D expense for the three and nine months ended September 30, 2022 increased $206,000 and $2.4 million, or 6% and 29%, respectively, compared with the same period in 2021. The increase is primarily due to our acquisitions of Global Cooling in Q2 2021 and Sexton in Q3 2021.
We expect our R&D expense to increase as we continue to expand, develop, and refine the product lines we acquired in 2019, 2020, and 2021.
Intangible asset impairment charges
Relates to the non-cash write-down of both indefinite-lived intangible assets and definite-lived intangible assets that resulted from a quantitative fair value assessment performed as of June 30, 2022. Macroeconomic conditions and persisting supply chain challenges have increased the cost of inputs used in the manufacture of our ULT freezer products. In the wake of these increased costs, the Company’s updated forecasts for projected net income and net cash flows were lowered, resulting in a lower future expected value of the asset group containing our ULT freezer products. In addition, the Company has opted to focus our ULT research and development group towards launching the next generation of ULT freezers, which involved suspending the development of an early-stage product.
Intangible asset amortization expense
Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Astero, SAVSU, CBS, SciSafe, Global Cooling, and Sexton in which we acquired definite-lived intangible assets.
Acquisition costs
Acquisition costs consist of legal, accounting, and other due diligence costs incurred related primarily to our Global Cooling and Sexton acquisitions.
Change in fair value of contingent consideration
Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our Astero, CBS, and SciSafe acquisitions. The expense and benefit recognized in the three and nine months ended September 30, 2022, respectively, relate primarily to changes in BioLife’s share price, as certain contingent consideration arrangements are payable in BioLife’s shares.
Other income and expense
Total other income and expenses for the three and nine months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended | **** | **** | **** | **** | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | **** | **** | **** | **** | ||||||
| (In thousands, except percentages) | 2022 | 2021 | Change | % Change | ||||||
| Change in fair value of investments | $ | 697 | $ | - | NM | |||||
| Interest income (expense), net | 10 | (194 | ) | (105 | )% | |||||
| Other income (expense), net | 142 | (7 | ) | NM | ||||||
| Gain on acquisition of Sexton Biotechnologies, Inc. | - | 6,451 | ) | NM | ||||||
| Total other income, net | $ | 849 | $ | 6,250 | ) | (86 | )% |
All values are in US Dollars.
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| Nine Months Ended | **** | **** | **** | **** | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | **** | **** | **** | **** | |||||||
| (In thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||
| Interest income (expense), net | $ | (181 | ) | $ | (331 | ) | (45 | )% | |||
| Change in fair value of investments | 697 | - | NM | ||||||||
| Other income (expense), net | 270 | (7 | ) | NM | |||||||
| Change in fair value of warrant liability | - | (121 | ) | NM | |||||||
| Gain on acquisition of Sexton Biotechnologies, Inc. | - | 6,451 | ) | NM | |||||||
| Total other income, net | $ | 786 | $ | 5,992 | ) | (87 | )% |
All values are in US Dollars.
Change in fair value of investments. Reflects the change in fair value of the Company’s equity investments.
Change in fair value of warrant liability. Reflects the changes in fair value associated with the periodic “mark to market” valuation of certain warrants that were issued in 2014. All outstanding warrants were exercised via a “cashless” exercise on March 25, 2021.
Interest expense, net. We earn interest on cash held in our money market account. Interest expense in the three and nine months ended September 30, 2022 grew compared to 2021 due to debt acquired in the acquisition of Global Cooling and equipment financing.
Gain on acquisition of Sexton Biotechnologies, Inc. Reflects the markup in the carrying value of BioLife’s investment in Sexton to fair value as a result of incremental equity acquisition.
Liquidity and capital resources
On September 30, 2022 and December 31, 2021, we had $62.1 million and $69.9 million in cash, cash equivalents, and available-for-sale securities, respectively. We additionally have the ability to borrow up to $30 million under our 2022 term loan 3. See Note 11 – “Long-term debt” for additional details on borrowing requirements under 2022 term loan 3. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Form 10-Q. However, the Company may choose to raise additional capital through a debt or equity financing in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.
Cash flows
| Nine Months Ended | **** | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, | **** | |||||||
| (In thousands) | 2022 | 2021 | Change | |||||
| Operating activities | $ | (16,345 | ) | $ | (3,819 | ) | ) | |
| Investing activities | (43,223 | ) | (10,650 | ) | ) | |||
| Financing activities | 16,941 | (673 | ) | |||||
| Net decrease in cash and cash equivalents | $ | (42,627 | ) | $ | (15,142 | ) | ) |
All values are in US Dollars.
Net cash used in operating activities
Net cash used by operating activities was $16.3 million during the nine months ended September 30, 2022 compared to $3.8 million during the nine months ended September 30, 2021. The increase in cash used by operating activities was primarily the result of the timing of collection and disbursement of working capital related items in accounts receivable, inventories, and accounts payable.
Net cash used in investing activities
Net cash used by investing activities totaled $43.2 million during the nine months ended September 30, 2022 compared to $10.7 million for the nine months ended September 30, 2021. The increase in cash used by investing activities was the result of significant investments in available-for-sale marketable securities made in Q2 2022 and Q3 2022.
Net cash provided by (used in) financing activities
Net cash provided by financing activities totaled $16.9 million during the nine months ended September 30, 2022, compared to $673,000 during the nine months ended September 30, 2021. The increase in cash provided by financing activities was the result of a term loan draw of $20 million made in Q3 2022.
Off-balance sheet arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements.
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Contractual obligations
We previously disclosed certain contractual obligations and contingencies and commitments relevant to us within the financial statements and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. There have been no significant changes to these obligations in the three and nine months ended September 30, 2022.
Item 3. Quantitative and qualitative disclosures about market risk
Interest rate risk
Our exposure to market risk for changes in interest rates relates primarily to our investments in available-for-sale securities and our long-term debt. We invest our excess cash in investment grade short to intermediate-term fixed income securities. These securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses if forced to sell securities that have declined in market value due to changes in interest rates. Our long-term debt primarily bears interest at a fixed rate, with a variable component subject to an interest rate ceiling. Fluctuations in interest rates therefore do not materially impact our consolidated financial statements from long-term debt. For additional information about our long-term debt and available-for-sale securities, see Notes 3 and 11 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report.
Foreign currency exchange risk
For a discussion of market risks related to foreign currency exchange rates, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2021. During the three and nine months ended September 30, 2022, there were no material changes or developments that would materially alter the market risk assessment of our exposures to foreign currency exchange rates performed as of December 31, 2021.
Item 4. Controls and procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Form 10-Q were not effective, due to the material weaknesses in our internal controls over financial reporting. As previously reported, we identified material weaknesses in our internal controls over financial reporting as of December 31, 2021 with regard to (i) inappropriately designed entity-level controls impacting the control environment, risk assessment, and monitoring activities to prevent or detect material misstatements to the consolidated financial statements attributed to an insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls, ineffective identification and assessment or risks impacting internal control over financial reporting, and ineffective monitoring controls; (ii) information system logical access within certain key financial systems; (iii) accounting policies and procedures and related controls over complex financial statement areas; (iv) accounting policies, procedures, and related controls over assets held for lease; (v) accounting policies, procedures, and related controls over the preparation and review of projected financial information used in determining the valuation of acquired intangible assets and contingent consideration in business combinations as well as the quantitative impairment analysis of indefinite-lived intangible assets; and (vi) policies, procedures, and related controls over the presentation and disclosure of amounts presented in the consolidated financial statements in accordance with the applicable financial reporting requirements.
Changes in Internal Control Over Financial Reporting. Other than the remediation of a previously identified material weakness as described below, there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Control. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within BioLife Solutions have been detected.
Remediation
With respect to the material weaknesses described above, management plans to implement the following measures:
| ● | The Company reassigned all system administrator rights to personnel who do not perform key accounting duties; |
|---|---|
| ● | The Company plans to hire and retain additional individuals with the appropriate skills related to technical accounting and internal control over financial reporting; |
| --- | --- |
| ● | The Company will enhance its reconciliations and management review controls with the added stability of new hires and the implementation of technology solutions to automate visibility and enforcement of the independent review and documentation of journal entries, including proper segregation of duties, thus mitigating risks of both unintentional errors and fraud; and |
| --- | --- |
| ● | The Company plans to develop processes and procedures to enhance the precision of management review of financial statement information. |
| --- | --- |
As we continue to evaluate and test the remediation plan outlined above, we may also identify additional measures to address the material weaknesses or modify certain of the remediation procedures described above. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weaknesses. Management, with the oversight of the Audit Committee, will continue to take steps necessary to remedy the material weaknesses to reinforce the overall design and capability of our control environment.
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PART II: Other information
Item 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 1A. RISK FACTORS
The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances, over many of which BioLife has little or no control. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2021 and in subsequent filings, could cause our actual results to differ materially from those in the forward-looking statements. Other than the risk factor listed below, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the period ended December 31, 2021.
Our inability to protect our systems and data from continually evolving cybersecurity risks or other technological risks, including as a result of breaches of our associated third parties, could affect our ability to conduct our business.
In conducting our business, we process, transmit and store sensitive business information and personal information about our customers, vendors, and other parties. This information may include account access credentials, credit and debit card numbers, bank account numbers, social security numbers, driver’s license numbers, names and addresses and other types of sensitive business or personal information. Some of this information is also processed and stored by our third-party service providers to whom we outsource certain functions and other agents, including our customers, which we refer to collectively as our associated third parties.
We are a regular target of malicious third-party attempts, some of which have been successful, to identify and exploit system vulnerabilities, and/or penetrate or bypass our security measures, in order to gain unauthorized access to our networks and systems or those of our associated third parties. Such access has led and could lead in the future to the compromise of sensitive, business, personal or confidential information or instructions to transfer funds by us or customers to unauthorized recipients. As a result, we proactively employ multiple methods at different layers of our systems to defend our systems against intrusion and attack and to protect the data we collect. These measures have been breached in the past and we cannot be certain that they will be successful and sufficient to counter current and emerging technology threats that are designed to breach our systems in order to gain access to confidential information.
40
Our computer systems and our associated third parties’ computer systems have been, and could be in the future, subject to breach, and our data protection measures may not prevent unauthorized access. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect. Threats to our systems and our associated third parties’ systems can derive and have derived from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Computer viruses and other malware can be distributed and has and could in the future infiltrate our systems or those of our associated third parties. In addition, denial of service or other attacks could be launched against us for a variety of purposes, including to interfere with our services or create a diversion for other malicious activities. Our defensive measures in the past, have not, and in the future, may not, prevent downtime, unauthorized access or use of sensitive data. Further, while we select our third party service providers carefully, and we seek to ensure that our customers adequately protect their systems and data, we do not control their actions and are not able to oversee their processes. Any problems experienced by our associated third parties, including those resulting from breakdowns or other disruptions in the services provided by such parties or cyber-attacks and security breaches, could adversely affect our ability to conduct our business and our financial condition.
We could also be subject to liability for claims relating to misuse of personal information, such as violation of data privacy laws. We cannot provide assurance that the contractual requirements related to security and privacy that we impose on our service providers who have access to customer data will be followed or will be adequate to prevent the unauthorized use or disclosure of data. Any failure to adequately enforce or provide these protective measures could result in liability, protracted and costly litigation, governmental intervention and fines.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5. OTHER INFORMATION
None.
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Table of Contents
Item 6. Exhibits
| Exhibit No. | Description | |
|---|---|---|
| 10.1* | Loan and Security Agreement, dated September 20, 2022, between BioLife Solutions, Inc. and Silicon Valley Bank (filed herewith) | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | |
| * | Certain sensitive financial, commercial and strategic information relating to the Company has been redacted in the marked portions of the exhibit. |
42
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOLIFE SOLUTIONS, INC. | |
|---|---|
| Date: November 9, 2022 | /s/ Troy Wichterman |
| Troy Wichterman | |
| Chief Financial Officer | |
| (Duly authorized officer and principal | |
| financial and accounting officer) |
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Table of Contents
BIOLIFE SOLUTIONS, INC.
INDEX TO EXHIBITS
| Exhibit No. | Description | |
|---|---|---|
| 10.1* | Loan and Security Agreement, dated September 20, 2022, between BioLife Solutions, Inc. and Silicon Valley Bank (filed herewith) | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | |
| * | Certain sensitive financial, commercial and strategic information relating to the Company has been redacted in the marked portions of the exhibit. |
44
ex_444892.htm
Exhibit 10.1
Redactions with respect to certain portions hereof denoted with “***”
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) is dated as of the Effective Date between SILICON VALLEY BANK, a California corporation (“Bank”), and the borrower listed on Schedule I hereto (“Borrower”). The parties agree as follows:
1 LOAN AND TERMS OF PAYMENT
1.1 Term Loan.
(a) Availability. Subject to the terms and conditions of this Agreement, upon Borrower’s request, during Draw Period A, Bank shall make term loan advances in an aggregate principal amount not exceeding the Term A Loan Availability Amount (each such advance is referred to herein as a “Term A Loan Advance” and, collectively, as the “Term A Loan Advances”); provided that, Borrower shall request, and subject to the terms and conditions of this Agreement, Bank shall make, on or about the Effective Date, one (1) Term A Loan Advance in an original principal amount of at least $20,000,000.00 (the “Initial Term Loan Advance”). Subject to the terms and conditions of this Agreement, upon Borrower’s request, during Draw Period B, Bank shall make one (1) term loan advance equal to the Term B Loan Availability Amount (the “Term B Loan Advance”). Subject to the terms and conditions of this Agreement, upon Borrower’s request, during Draw Period C, Bank shall make one (1) term loan advance equal to the Term C Loan Availability Amount (the “Term C Uncommitted Loan Advance”). The Term A Loan Advances, the Term B Loan Advance, and the Term C Uncommitted Loan Advance are each referred to herein as a “Term Loan Advance” and, collectively, as the “Term Loan Advances”. Borrower may request Term Loan Advances as set forth on Schedule I hereto.
(b) Repayment. Borrower shall repay each Term Loan Advance as set forth in Schedule I hereto. All outstanding principal and accrued and unpaid interest under each Term Loan Advance, and all other outstanding Obligations with respect to such Term Loan Advance, are due and payable in full on the Term Loan Maturity Date.
(c) Permitted Prepayment. Borrower shall have the option to prepay all, but not less than all, of the Term Loan Advances, provided Borrower (i) delivers written notice to Bank of its election to prepay the Term Loan Advances at least ten (10) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) the outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advances, (B) the Prepayment Fee, (C) the Final Payment, and (D) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advances, including interest at the Default Rate with respect to any past due amounts.
(d) Mandatory Prepayment Upon an Acceleration. If the Term Loan Advances are accelerated by Bank following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advances, (ii) the Prepayment Fee, (iii) the Final Payment, and (iv) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advances, including interest at the Default Rate with respect to any past due amounts.
1.2 Payment of Interest on the Credit Extensions.
(a) Interest Payments. Interest on the principal amount of each Term Loan Advance is payable as set forth on Schedule I hereto.
(b) Interest Rate.
(i) Term Loan Advances. Subject to Section 1.2(c), the outstanding principal amount of any Term Loan Advance shall accrue interest as set forth on Schedule I hereto.
(ii) All-In Rate. Notwithstanding any terms in this Agreement to the contrary, if at any time the interest rate applicable to any Obligations is less than zero percent (0.0%), such interest rate shall be deemed to be zero percent (0.0%) for all purposes of this Agreement.
(c) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, the outstanding Obligations shall bear interest at a rate per annum which is three percent (3.0%) above the rate that is otherwise applicable thereto (the “Default Rate”). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 1.2(c) 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 Bank.
(d) Adjustment to Interest Rate. Each change in the interest rate applicable to any amounts payable under the Loan Documents based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of such change.
(e) Interest Computation. Interest shall be computed as set forth on Schedule I hereto. In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.
1.3 Fees. Borrower shall pay to Bank:
(a) Prepayment Fee. The Prepayment Fee, when due hereunder, which shall be fully earned and non-refundable as of such date;
(b) Final Payment. The Final Payment, when due hereunder, which shall be fully earned and non-refundable as of such date; and
(c) Bank Expenses. All Bank Expenses incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).
Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder. Bank may deduct amounts owing by Borrower under the clauses of this Section 1.3 pursuant to the terms of Section 1.4(c). Bank shall provide Borrower written notice of deductions made pursuant to the terms of the clauses of this Section 1.3.
1.4 Payments; Application of Payments; Debit of Accounts.
(a) All payments (including prepayments) to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff, counterclaim, or deduction, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. 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 shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.
(b) Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied. Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.
(c) Bank may debit any of Borrower’s deposit accounts maintained with Bank, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due under the Loan Documents. These debits shall not constitute a set-off.
1.5 Change in Circumstances.
(a) Increased Costs. If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or advances, loans or other credit extended or participated in by, Bank, (ii) subject Bank to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes, and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitment, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto, or (iii) impose on Bank any other condition, cost or expense (other than Taxes) affecting this Agreement or Credit Extensions made by Bank, and the result of any of the foregoing shall be to increase the cost to Bank of making, converting to, continuing or maintaining any Credit Extension (or of maintaining its obligation to make any such Credit Extension), or to reduce the amount of any sum received or receivable by Bank hereunder (whether of principal, interest or any other amount) then, upon written request of Bank, Borrower shall promptly pay to Bank such additional amount or amounts as will compensate Bank for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If Bank determines that any Change in Law affecting Bank regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on Bank’s capital as a consequence of this Agreement, any term loan facility, or the Credit Extensions made by Bank to a level below that which Bank could have achieved but for such Change in Law (taking into consideration Bank’s policies with respect to capital adequacy and liquidity), then from time to time upon written request of Bank, Borrower shall promptly pay to Bank such additional amount or amounts as will compensate Bank for any such reduction suffered.
(c) Delay in Requests. Failure or delay on the part of Bank to demand compensation pursuant to this Section 1.5 shall not constitute a waiver of Bank’s right to demand such compensation; provided that Borrower shall not be required to compensate Bank pursuant to subsection (a) for any increased costs incurred or reductions suffered more than nine (9) months prior to the date that Bank notifies Borrower of the Change in Law giving rise to such increased costs or reductions (except that if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine (9) month period shall be extended to include the period of retroactive effect).
1.6 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any obligation of Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of Borrower) requires the deduction or withholding of any Tax from any such payment by Borrower, then (i) Borrower shall be entitled to make such deduction or withholding, (ii) Borrower shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law, and (iii) if such Tax is an Indemnified Tax, the sum payable by Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 1.6) Bank receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b) Payment of Other Taxes by Borrower. Without limiting the provisions of subsection (a) above, Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with Applicable Law.
(c) Tax Indemnification. Without limiting the provisions of subsections (a) and (b) above, Borrower shall, and does hereby, indemnify Bank, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 1.6) payable or paid by Bank or required to be withheld or deducted from a payment to Bank and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by Bank shall be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any payment of Taxes by Borrower to a Governmental Authority pursuant to this Section 1.6, Borrower shall deliver to Bank a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Bank.
(e) Status of Bank. If Bank (including any assignee or successor) is entitled to an exemption from or reduction of withholding tax with respect to payments made under any Loan Document, it shall deliver to Borrower, at the time or times reasonably requested by Borrower, such properly completed and executed documentation reasonably requested by Borrower as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, Bank, if reasonably requested by Borrower, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by Borrower as will enable Borrower to determine whether or not Bank is subject to backup withholding or information reporting requirements. Without limiting the generality of the foregoing, Bank shall deliver whichever of IRS Form W-9, IRS Form W-8BEN-E, IRS Form W-8ECI or W-8IMY is applicable, as well as any applicable supporting documentation or certifications.
1.7 Procedures for Borrowing.
(a) Subject to the prior satisfaction of all other applicable conditions to the making of a Term Loan Advance set forth in this Agreement (which must be satisfied no later than 12:00 p.m. Pacific time on the applicable Funding Date), to obtain a Term Loan Advance, Borrower shall notify Bank (which notice shall be irrevocable) by 12:00 p.m. Pacific time at least two (2) Business Days prior to the proposed Funding Date of the Term Loan Advance. Such notice shall be made by electronic mail or by telephone and, together with any such notification, Borrower shall deliver to Bank by electronic mail a completed Payment/Advance Form executed by an Authorized Signer and such other reports and information as Bank may reasonably request. Bank may rely on any telephone notice given by a person whom Bank believes is an Authorized Signer. Borrower will indemnify Bank for any loss Bank suffers due to such belief or reliance other than any loss caused by Bank’s gross negligence or willful misconduct. Bank shall have received satisfactory evidence that the Board has approved that such Authorized Signer may provide such notices and request such Term Loan Advance (which requirement may be deemed satisfied by the prior delivery of Borrowing Resolutions or a secretary’s certificate that certifies as to such Board approval).
(b) Bank shall credit proceeds of a Credit Extension to the Designated Deposit Account. Bank may make Term Loan Advances under this Agreement based on instructions from an Authorized Signer or without instructions if such Term Loan Advances are necessary to meet Obligations which have become due.
2 CONDITIONS OF CREDIT EXTENSIONS
2.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed Loan Documents;
(b) duly executed Control Agreement from SVB Asset Management and US Bank;
(c) the Operating Documents of each Borrower and long-form good standing certificates of each Borrower (other than Global Cooling) certified by the Secretary of State of the State of Delaware and the Secretary of State (or equivalent agency) of each other jurisdiction in which Borrower is qualified to conduct business, in each case as of a date no earlier than 30 days prior to the Effective Date;
(d) certificate duly executed by a Responsible Officer or secretary of each Borrower with respect to such Borrower’s (i) Operating Documents and (ii) Borrowing Resolutions;
(e) certified copies, dated as of a recent date, of searches for financing statement filed in the central filing office of the State of Delaware, 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;
(f) duly executed Perfection Certificate of each Borrower;
(g) evidence that (i) the Liens securing Indebtedness owed by Borrower to Enhanced Capital Ohio Rural Fund, LLC have or will, concurrently with the initial Credit Extension, be terminated, have or will, concurrently with the initial Credit Extension, be terminated and (ii) the documents and/or filings evidencing the perfection of such Liens, including without limitation any financing statements and/or control agreements, have or will, concurrently with the initial Credit Extension, be terminated;
(h) duly executed Subordination Agreement;
(i) a legal opinion of Borrower’s counsel dated as of the Effective Date; and
(j) payment of the fees and Bank Expenses then due as specified in Section 1.3 hereof.
2.2 Conditions Precedent to all Credit Extensions. Bank’s obligation to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:
(a) receipt of Borrower’s Credit Extension request and the related materials and documents as required by and in accordance with Section 1.7;
(b) the representations and warranties in this Agreement shall be true and correct in all material respects as of the date of any Credit Extension request and as of the Funding Date of each Credit Extension; 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 and correct 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. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true and correct 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 and correct in all material respects as of such date; and
(c) a Material Adverse Change shall not have occurred and be continuing.
2.3 Covenant to Deliver. Borrower shall deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. A Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.
3 CREATION OF SECURITY INTEREST
3.1 Grant of Security Interest.
(a) Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.
(b) Borrower acknowledges that it previously has entered, or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject to Permitted Liens).
3.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all jurisdictions deemed necessary or appropriate by Bank to perfect or protect Bank’s interest or rights hereunder. Such financing statements may indicate the Collateral as substantially the same as set forth in the definition of Collateral in Section 12.2 hereof.
3.3 Termination. If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower. In the event (a) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (b) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its sole discretion for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to at least (x) 105.0% of the face amount of all such Letters of Credit denominated in Dollars and (y) 115.0% of the Dollar Equivalent of the face amount of all such Letters of Credit denominated in a Foreign Currency, plus, in each case, all interest, fees, and costs due or estimated by Bank to become due in connection therewith, to secure all of the Obligations relating to such Letters of Credit.
4 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
4.1 Due Organization, Authorization; Power and Authority.
(a) Each Borrower and each of its Subsidiaries (other than Global Cooling until the date which is 30 days after the Effective Date) are each duly existing and in good standing as a Registered Organization in their respective jurisdiction of formation and are qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of their respective 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 such Borrower’s business or operations.
(b) All information set forth on the Perfection Certificate pertaining to such Borrower and each of its Subsidiaries is true and correct in all material respects (it being understood and agreed that such Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement and the Perfection Certificate shall be deemed to be updated to the extent such notice is provided to Bank of such permitted update).
(c) The execution, delivery and performance by Borrower and each of its Subsidiaries of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s or any such Subsidiary’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Applicable Law, (iii) contravene, conflict with 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 (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower or any of its Subsidiaries is bound. Neither Borrower nor any of its Subsidiaries are 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 or any of its Subsidiary’s business or operations.
4.2 Collateral.
(a) The security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject to Permitted Liens). Borrower has good title to, 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.
(b) Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank’s Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant, but subject to the limitations contained in, to the terms of Section 5.7(c). The Accounts are bona fide, existing obligations of the Account Debtors.
(c) The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate or as permitted pursuant to Section 6.2. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 6.2.
(d) All Inventory is in all material respects of good and marketable quality, free from material defects.
(e) Borrower owns, or possesses the right to use to the extent necessary in its business, all Intellectual Property, licenses and other intangible assets that are used in the conduct of its business as now operated, except to the extent that such failure to own or possess the right to use such asset would not reasonably be expected to have a material adverse effect on Borrower’s business or operations, and no such asset, to the best knowledge of Borrower, conflicts with the valid Intellectual Property, license, or intangible asset of any other Person to the extent that such conflict could reasonably be expected to have a material adverse effect on Borrower’s business or operations.
(f) Except as noted on the Perfection Certificate or for which notice has been given to Bank pursuant to and in accordance with Section 5.8(b), Borrower is not a party to, nor is it bound by, any Restricted License.
4.3 Litigation. Other than as set forth in the Perfection Certificate or as disclosed to Bank pursuant to Section 5.3(h), there are no actions, investigations or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, $200,000.00, not covered by independent third party insurance as to which liability has been accepted by the carrier providing such insurance.
4.4 Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank by submission to the Financial Statement Repository or otherwise submitted to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations for the periods covered thereby, subject, in the case of unaudited financial statements, to normal year-end adjustments and the absence of footnote disclosures. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to the Financial Statement Repository or otherwise submitted to Bank.
4.5 Solvency. The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower and each of its Subsidiaries are able to pay their debts (including trade debts) as they mature.
4.6 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower and each of its Subsidiaries (a) have complied in all material respects with all Applicable Law, and (b) have not violated any Applicable Law the violation of which could reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower and each of its Subsidiaries have duly complied with, and their respective facilities, business, assets, property, leaseholds, real property and Equipment are in compliance with, Environmental Laws, except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business or operations; there are no outstanding citations, notices or orders of non-compliance issued to Borrower or any of its Subsidiaries or relating to their respective facilities, businesses, assets, property, leaseholds, real property or Equipment under such Environmental Laws. 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, except where the failure to obtain or make or file the same would not reasonably be expected to have a material adverse effect on Borrower’s business or operations.
4.7 Subsidiaries; Investments. Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.
4.8 Tax Returns and Payments; Pension Contributions.
(a) Borrower and each of its Subsidiaries have timely filed, or submitted extensions for, all required tax returns and reports, and Borrower and each of its Subsidiaries have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed $200,000.00. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s or any of its Subsidiary’s prior tax years which could result in additional taxes becoming due and payable by Borrower or any of its Subsidiaries in excess of $200,000.00 in the aggregate.
(b) Borrower and each of its Subsidiaries have paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and neither Borrower nor any of its Subsidiaries has 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 or any of its Subsidiaries, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other Governmental Authority.
4.9 Full Disclosure. No written representation, warranty or other statement of Borrower or any of its Subsidiaries in any report, certificate or written statement submitted to the Financial Statement Repository or otherwise submitted to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such reports, certificates and written statements submitted to the Financial Statement Repository or otherwise submitted to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the reports, certificates or written statements not misleading in light of the circumstances under which they were made (it being recognized by Bank that the projections and forecasts provided by Borrower or any of its Subsidiaries 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).
4.10 Sanctions. Neither Borrower nor any of its Subsidiaries is: (a) in violation of any Sanctions; or (b) a Sanctioned Person. Neither Borrower nor any of its Subsidiaries, directors, officers, employees, agents or Affiliates: (i) conducts any business or engages in any transaction or dealing with any Sanctioned Person, including making or receiving any contribution of funds, goods or services to or for the benefit of any Sanctioned Person; (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to any Sanctions; (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Sanctions; or (iv) otherwise engages in any transaction that could cause Bank to violate any Sanctions.
4.11 Healthcare Permits. (a) Borrower has obtained all Healthcare Permits and other rights from, and has made all declarations and filings with, all applicable Governmental Authorities, all self-regulatory authorities and all courts and other tribunals necessary to engage in the management and/or operation of their respective business; (b) each such Healthcare Permit is valid and in full force and effect, and Borrower is in compliance with the terms and conditions of all such Healthcare Permits; and (c) Borrower has not received notice from any Governmental Authority with respect to the revocation, suspension, restriction, limitation or termination of any Healthcare Permit nor, to the knowledge of Borrower, is any such action proposed or threatened in writing.
4.12 Compliance with Healthcare Laws.
(a) Borrower is in compliance with all applicable Healthcare Laws. Without limiting the generality of the foregoing, Borrower has not received written notice by a Governmental Authority of any violation (or of any investigation, audit, or other proceeding involving allegations of any violation) of any Healthcare Laws, and no investigation, inspection, audit or other proceeding involving allegations of any violation is, to the knowledge of Borrower, threatened in writing or contemplated.
(b) To the knowledge of Borrower, Borrower is not in default or violation of any law which is applicable to Borrower or its respective assets or the conduct of its respective businesses and Borrower has not been debarred or excluded from participation under a state or federal health care program, including any state or federal workers compensation program.
(c) Borrower is not a party to any corporate integrity agreements, deferred prosecution agreements, monitoring agreements, consent decrees, settlement orders or similar agreements with or imposed by any Governmental Authority.
5 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
5.1 Use of Proceeds. Cause the proceeds of the Credit Extensions to be used solely (a) as working capital or (b) to fund its general business purposes, and not for personal, family, household or agricultural purposes.
5.2 Government Compliance.
(a) Maintain its and all of its Subsidiaries’ legal existence (except as permitted under Section 6.3 with respect to Subsidiaries only) 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, in all material respects, with all laws, ordinances and regulations to which it is subject.
(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower and each of its Subsidiaries of their obligations under the Loan Documents to which it is a party, including any grant of a security interest to Bank. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.
(c) Cause the operations and property of Borrower, each of its Subsidiaries to comply with all applicable Healthcare Laws. Without limiting the foregoing, the operations and property of Borrower and each of its Subsidiaries shall comply with HIPAA in all material respects. Borrower established and maintains a corporate compliance program that (i) addresses the material Requirements of Law, including all applicable Healthcare Laws, of Governmental Authorities having jurisdiction over its business and operations, and (ii) has been structured to account for the guidance issued by the U.S. Department of Health and Human Services regarding characteristics of effective corporate compliance programs. As of the Effective Date, Borrower has delivered to Bank an accurate and complete copy of each material report, study, survey or other document of which Borrower has knowledge that addresses or otherwise relates to the compliance by Borrower and each of its Subsidiaries, with applicable Healthcare Laws.
5.3 Financial Statements, Reports. Deliver to Bank by submitting to the Financial Statement Repository:
(a) Quarterly Financial Statements. As soon as available, and in any event within (i) 45 days after the end of each of the first three fiscal quarters of Borrower and (ii) 90 days after the last fiscal quarter of Borrower, company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such quarter in a form reasonably acceptable to Bank;
(b) Compliance Statement. Within (i) 45 days after the end of each of the first three fiscal quarters of Borrower and (ii) 90 days after the last fiscal quarter of Borrower, and together with the statements set forth in Section 5.3(a), a duly completed Compliance Statement, confirming that as of the end of such month, Borrower was in compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request;
(c) Annual Operating Budget and Financial Projections. As soon as available, and in any event no later than 60 days following the end of Borrower’s fiscal year, and contemporaneously with any updates or amendments thereto, (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the then-current fiscal year of Borrower, and (B) annual financial projections for the then-current fiscal year (on a quarterly basis), in each case as approved by the Board, together with any related business forecasts used in the preparation of such annual financial projections;
(d) Annual Audited Financial Statements. As soon as available, and in any event within 90 days following the end of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank;
(e) SEC Filings. Within five (5) days of filing, notification of the filing and copies of all periodic and other reports, proxy statements and other materials filed by Borrower and/or any of its Subsidiaries or any Guarantor with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower or any of its Subsidiaries posts such documents, or provides a link thereto, on Borrower’s or any of its Subsidiaries’ website on the internet at Borrower’s or any of its Subsidiaries’ website address; provided, however, Borrower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;
(f) Security Holder and Subordinated Debt Holder Reports. Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt (solely in their capacities as security holders or holders of Subordinated Debt and not in any other role);
(g) Beneficial Ownership Information. If applicable to Borrower, prompt written notice of any changes to the beneficial ownership information set out in Section 14 of the Perfection Certificate. Borrower understands and acknowledges that Bank relies on such true, accurate and up-to-date beneficial ownership information to meet Bank’s regulatory obligations to obtain, verify and record information about the beneficial owners of its legal entity customers;
(h) Legal Action Notice. Prompt written notice of any legal actions, investigations or proceedings pending or threatened in writing against Borrower or any of its Subsidiaries that could reasonably be expected to result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, $200,000.00 or more;
(i) Tort Claim Notice. If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank;
(j) Government Filings. Within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings by Borrower or any of its Subsidiaries with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Applicable Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the business of Borrower or any of its Subsidiaries;
(k) Registered Organization. If Borrower is not a Registered Organization as of the Effective Date but later becomes one, promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number;
(l) Default. Prompt written notice of the occurrence of a Default or Event of Default; and
(m) Other Information. Promptly, from time to time, such other information regarding Borrower or any of its Subsidiaries or compliance with the terms of any Loan Documents as reasonably requested by Bank.
Any submission by Borrower of a Compliance Statement or any other financial statement submitted to the Financial Statement Repository pursuant to this Section 5.3 or otherwise submitted to Bank shall be deemed to be a representation by Borrower that (i) as of the date of such Compliance Statement or other financial statement, the information and calculations set forth therein are true and correct (provided that, with respect to financial statements only, such financial statements are subject to the same terms and qualifications set forth in Section 4.4 of this Agreement), (ii) as of the end of the compliance period set forth in such submission, Borrower is in complete compliance with all required covenants except as noted in such Compliance Statement or other financial statement, as applicable, (iii) as of the date of such submission, no Events of Default have occurred or are continuing, (iv) all representations and warranties other than any representations or warranties that are made as of a specific date in Section 4 remain true and correct in all material respects as of the date of such submission except as noted in such Compliance Statement or other financial statement, as applicable, (v) as of the date of such submission, Borrower and each of its Subsidiaries has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 4.8, and (vi) as of the date of such submission, no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
5.4 Taxes; Pensions.
(a) Timely file, and require each of its Subsidiaries to timely file (in each case, unless subject to a valid extension), all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 4.8(a) hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay, and require each of its Subsidiaries to pay, all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
(b) To the extent Borrower or any of its Subsidiaries defers payment of any contested taxes, (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take 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.”
5.5 Insurance.
(a) Keep its business and the Collateral insured for risks and in amounts standard for companies of Borrower’s size in Borrower’s industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are reasonably satisfactory to Bank.
(b) All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee. All liability policies shall show, or have endorsements showing, Bank as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.
(c) Ensure that proceeds payable under any property policy are, at Bank’s option, payable to Bank on account of the Obligations. Notwithstanding the foregoing, (i) 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 $1,500,000.00 individually or in the aggregate for all losses under all casualty policies in any 12 month period, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (A) shall be of equal or like value as the replaced or repaired Collateral and (B) shall be deemed Collateral in which Bank has been granted a first priority security interest (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien), and (ii) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations then due.
(d) At Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments. Each provider of any such insurance required under this Section 5.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank 30 days’ prior written notice before any such policy or policies shall be canceled or altered in any material respect. If Borrower fails to obtain insurance as required under this Section 5.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 5.5, and take any action under the policies Bank deems prudent.
5.6 Access to Collateral; Books and Records. At reasonable times, on three (3) Business Days’ notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower’s Books. Such inspections and audits shall be conducted no more often than once every 12 months, unless an Event of Default has occurred and is continuing, in which case such inspections and audits shall occur as often as Bank shall determine is necessary. The foregoing inspections and audits shall be conducted at Borrower’s expense and the charge therefor shall be $1,000.00 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than eight (8) days in advance, and Borrower cancels or seeks to or reschedules the audit with less than eight (8) days written notice to Bank, then (without limiting any of Bank’s rights or remedies) Borrower shall pay Bank a fee of $2,000.00 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.
5.7 Accounts.
(a) Maintain all of Borrower’s, any of its Subsidiaries’, and any Guarantor’s operating accounts, depository accounts and excess cash with Bank or Bank’s Affiliates. Notwithstanding the foregoing, (i) during the Transition Period, Borrower may maintain (A) one (1) account with Chase Bank (the “Chase Account”), (B) one (1) account with Pacific Western Bank (the “PacWest Account”), and (C) one (1) account with PNC Bank (the “PNC Account”; together with the Chase Account and the PacWest Account, the “Permitted Temporary Accounts”), in an aggregate amount not to exceed (for all Permitted Temporary Accounts together) $3,000,000.00 at any time and (ii) Borrower and its Subsidiaries may maintain up to six (6) foreign bank accounts with HSBC in an aggregate amount not to exceed the lesser of (x) $5,000,000.00 or (y) 20.0% of Borrower’s, its Subsidiaries’ and Guarantor’s consolidated cash wherever located at any time (the “Permitted Foreign HSBC Accounts”).
(b) In addition to the foregoing, Borrower, any Subsidiary of Borrower and any Guarantor, shall obtain any letter of credit exclusively from Bank.
(c) In addition to and without limiting the restrictions in (a), Borrower shall provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to (i) the Permitted Temporary Accounts during the Transition Period, (ii) the Permitted Foreign HSCBC Accounts, or (iii) deposit accounts exclusively used for payroll, payroll taxes, and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.
5.8 Protection of Intellectual Property Rights.
(a) (i) Protect, defend and maintain the validity and enforceability of Borrower’s and each Subsidiary’s Intellectual Property, except to the extent that such failure to do so would not reasonably be expected to have a material adverse effect on Borrower’s business or operations; (ii) promptly advise Bank in writing of infringements or any other event that could reasonably be expected to materially and adversely affect the value Borrower’s and each Subsidiary’s Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s or any Subsidiary’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.
(b) Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any such Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.
5.9 Financial Covenant – ***. Upon the occurrence of the Funding Milestone, to be tested as of the last day of each calendar quarter during a ***, Borrower shall achieve, calculated on a consolidated basis with respect to Borrower and its Subsidiaries and measured on *** basis, *** for such *** period of at least the amounts set forth below; provided that, testing for such financial covenant shall commence and continue for *** on and after the date that the Funding Milestone occurs:
***
5.10 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.
5.11 Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date. Borrower shall promptly notify Bank of all returns, recoveries, disputes and claims that involve more than $500,000.00.
5.12 Further Assurances. Execute any further instruments and take such further action as Bank reasonably requests to perfect, protect, ensure the priority of or continue Bank’s Lien on the Collateral or to effect the purposes of this Agreement.
5.13 Sanctions. (a) Not, and not permit any of its Subsidiaries to, engage in any of the activities described in Section 4.10 in the future; (b) not, and not permit any of its Subsidiaries to, become a Sanctioned Person; (c) ensure that the proceeds of the Obligations are not used to violate any Sanctions; and (d) deliver to Bank any certification or other evidence requested from time to time by Bank in its sole discretion, confirming each such Person’s compliance with this Section 5.13. In addition, have implemented, and will consistently apply while this Agreement is in effect, procedures to ensure that the representations and warranties in Section 4.10 remain true and correct while this Agreement is in effect.
5.14 Post-Closing Conditions. Within 30 days after the Effective Date, Borrower shall deliver to Bank:
(a) Evidence satisfactory to Bank that the insurance policies and endorsements required by Section 5.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and additional insured clauses or endorsements in favor of Bank;
(b) Duly executed landlord’s consent in favor of Bank for each of Borrower’s leased locations at 3301 Monte Villa Pkwy Bothell, WA 98021, 3303 Monte Villa Pkwy Bothell, WA 98021, 4209 Balloon Park Rd NE Albuquerque, NM 87109, 74100 Van Dyke Rd Bruce Township, MI 48065, 74180 Van Dyke Rd Bruce Township, MI 48065, ***, 6000 Poston Rd Athens, OH 45701, and 296 South Harper St Nelsonville, OH 45764 by the respective landlord thereof, for Borrower;
(c) Duly executed bailee’s waiver in favor of Bank for Borrower’s third party location at 4715 McLeod Rd NE Albuquerque, NM 87109, by such third party;
(d) A long form Certificate of Good Standing from the Delaware Secretary of State with respect to Global Cooling (dated within 30 days of the date of delivery); and
(e) Certificates of Good Standing/Foreign Qualification from the Secretary of State from each of the following jurisdictions (each dated within 30 days of the date of delivery): (i) with respect to BioLife, Washington and (ii) with respect to Arctic, Michigan.
6 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent:
6.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (including, without limitation, pursuant to a Division) (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the issuance of any stock, partnership, membership, or other ownership interest or other equity securities of Borrower permitted under Section 6.2 of this Agreement; (e) consisting of Borrower’s or its Subsidiaries’ use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; (f) consisting of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; and (g) other immaterial assets not otherwise permitted under this Section 6.1 with a value not exceeding $500,000.00 in any fiscal year.
6.2 Changes in Business, Management, Control, 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 permit any of its Subsidiaries to liquidate or dissolve; (c) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by Borrower within 10 days after such Key Person’s departure from Borrower; (d) permit, allow or suffer to occur any Change in Control; or (e) without at least 15 days prior written notice to Bank, (i) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than $500,000.00 in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of $500,000.00 to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (ii) change its jurisdiction of organization, (iii) change its organizational structure or type, (iv) change its legal name, or (v) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to add any new offices or business locations, including warehouses, containing in excess of $500,000.00 of Borrower’s assets or property, then Borrower will cause the landlord of any such new offices or business locations, including warehouses, to execute and deliver a landlord consent in form and substance satisfactory to Bank. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of $500,000.00 to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will cause such bailee to execute and deliver a bailee agreement in form and substance satisfactory to Bank.
6.3 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 stock, partnership, membership, or other ownership interest or other equity securities or property of another Person (including, without limitation, by the formation of any Subsidiary or pursuant to a Division). A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
6.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
6.5 Encumbrance. Create, incur, allow, or suffer to exist any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 6.1 hereof and the definition of “Permitted Liens” herein.
6.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 5.7(c).
6.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any stock, partnership, membership, or other ownership interest or other equity securities; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so.
6.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
6.9 Subordinated Debt. Except as expressly permitted under the terms of the subordination, intercreditor, or other similar agreement to which any Subordinated Debt is subject: (a) make or permit any payment on such Subordinated Debt; or (b) amend any provision in any document relating to such Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.
6.10 Compliance. (a) Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, 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; (b)(i) fail to meet the minimum funding requirements of ERISA, (ii) permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, (iii) fail to comply with the Federal Fair Labor Standards Act or (iv) violate any other law or regulation, if the foregoing subclauses (i) through (iv), individually or in the aggregate, could reasonably be expected to have a material adverse effect on Borrower’s business or operations, or permit any of its Subsidiaries to do so; or (c) 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 Authority.
7 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:
7.1 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 cure period shall not apply to payments due on the Term Loan Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);
7.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Section 5 (other than Sections 5.2 (Government Compliance), 5.10 (Litigation Cooperation), 5.11 (Inventory; Returns) and 5.12 (Further Assurances)) or violates any covenant in Section 6; 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 7) 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 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). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants that are required to be satisfied, completed or tested by a date certain or any covenants set forth in clause (a) above;
7.3 Material Adverse Change. A Material Adverse Change occurs;
7.4 Attachment; Levy; Restraint on Business.
(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or any Subsidiary, or (ii) a notice of lien or levy is filed against any of Borrower’s or any of its Subsidiaries’ assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or
(b) (i) any material portion of Borrower’s or any of its Subsidiaries’ assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower or any of its Subsidiaries from conducting all or any material part of its business;
7.5 Insolvency. (a) Borrower or any of its Subsidiaries is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and is not dismissed or stayed within 45 days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist or until any Insolvency Proceeding is dismissed);
7.6 Other Agreements. There is, under any agreement to which Borrower, any of Borrower’s Subsidiaries, or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of $200,000.00; or (b) any breach or default by Borrower, any of Borrower’s Subsidiaries, or Guarantor, the result of which could have a material adverse effect on Borrower’s, any of Borrower’s Subsidiaries’, or any Guarantor’s business or operations;
7.7 Judgments; Penalties. One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least $200,000.00 (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower or any of its Subsidiaries by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, or after execution thereof, or stayed pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, or stay of such fine, penalty, judgment, order or decree);
7.8 Misrepresentations. Borrower or any of its Subsidiaries or any Person duly authorized to be acting for Borrower or any of its Subsidiaries makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made (it being agreed and acknowledged by Bank that the projections and forecasts provided by Borrower or any of its Subsidiaries 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);
7.9 Subordinated Debt. If: (a) any document, instrument, or agreement evidencing the subordination of any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, or any Person (other than Bank) shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder; (b) a default or event of default (however defined) has occurred under any document, instrument, or agreement evidencing any Subordinated Debt, which default shall not have been cured or waived within any applicable grace period; or (c) the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or any applicable subordination or intercreditor agreement;
7.10 Lien Priority. There is a material impairment in the perfection or priority of Bank’s security interest in the Collateral;
7.11 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any guaranty of the Obligations; (c) any circumstance described in Sections 7.3, 7.47.4, 7.5 , 7.6, 7.7 or 7.8 of this Agreement occurs with respect to any Guarantor, (d) the death, liquidation, winding up, or termination of existence of any Guarantor; or (e)(i) a material impairment in the perfection or priority of Bank’s Lien in the collateral provided by Guarantor or in the value of such collateral or (ii) a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations occurs with respect to any Guarantor; or
7.12 Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in a materially adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) causes, or could reasonably be expected to cause, a Material Adverse Change, or (ii) materially and adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to materially and adversely affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction.
7.13 Delisting. After an initial public offering of the Borrower’s common stock on an exchange or market, such shares are delisted from such exchange or market because of Borrower’s failure to comply with continued listing standards thereof or due to a voluntary delisting which results in such shares not being listed on such exchange or market.
8 BANK’S RIGHTS AND REMEDIES
8.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, 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 7.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;
(c) demand that Borrower (i) deposit cash with Bank in an amount equal to at least (A) 105.0% of the aggregate face amount of any Letters of Credit denominated in Dollars remaining undrawn, and (B) 115.0% of the Dollar Equivalent of the aggregate face amount of any Letters of Credit denominated in a Foreign Currency remaining undrawn (plus, in each case, all interest, fees, and costs due or estimated by Bank to become due in connection therewith), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;
(d) terminate any FX Contracts (it being understood and agreed that (i) Bank is not obligated to deliver the currency which Borrower has contracted to receive under any FX Contract, and Bank may cover its exposure for any FX Contracts by purchasing or selling currency in the interbank market as Bank deems appropriate; (ii) Borrower shall be liable for all losses, damages, costs, margin obligations and expenses incurred by Bank arising from Borrower’s failure to satisfy its obligations under any FX Contract or the execution of any FX Contract; and (iii) Bank shall not be liable to Borrower for any gain in value of a FX Contract that Bank may obtain in covering Borrower’s breach);
(e) verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Bank’s security interest in such funds;
(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests 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;
(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) amount held by Bank owing to or for the credit or the account of Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. For use solely upon the occurrence and during the continuation of an Event of Default, Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 8.1, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(i) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of Borrower’s Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code or any Applicable Law (including disposal of the Collateral pursuant to the terms thereof).
8.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its true and lawful attorney-in-fact, (a) exercisable upon the occurrence and during the continuance of an Event of Default, to: (i) endorse Borrower’s name on any checks, payment instruments, or other forms of payment or security; (ii) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (iii) demand, collect, sue, and give releases to any Account Debtor for monies due, settle and adjust disputes and claims about the Accounts directly with Account Debtors, and compromise, prosecute, or defend any action, claim, case, or proceeding about any Collateral (including filing a claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as Bank chooses); (iv) make, settle, and adjust all claims under Borrower’s insurance policies; (v) pay, contest or settle any Lien, charge, encumbrance, security interest, or other claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (vi) transfer the Collateral into the name of Bank or a third party as the Code permits; and (b) regardless of whether an Event of Default has occurred, to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral. Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until such time as all Obligations (other than inchoate indemnity obligations) have been satisfied in full, Bank is under no further obligation to make Credit Extensions and the Loan Documents have been terminated. Bank shall not incur any liability in connection with or arising from the exercise of such power of attorney and shall have no obligation to exercise any of the foregoing rights and remedies.
8.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 5.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.
8.4 Application of Payments and Proceeds. Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its commercially reasonable discretion, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
8.5 Bank’s Liability for Collateral. Bank’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession or under its control, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as Bank deals with its own property consisting of similar instruments or interests. Borrower bears all risk of loss, damage or destruction of the Collateral.
8.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents 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 shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.
8.7 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.
8.8 Borrower Liability. Any Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower hereby appoints each other as agent for the other for all purposes hereunder, including with respect to requesting Credit Extensions hereunder. Each Borrower hereunder shall be liable for the Credit Extensions and Obligations as set forth on Schedule I hereto. Each Borrower waives (a) any suretyship defenses available to it under the Code or any other Applicable Law, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section Error! Reference source not found. shall be null and void. If any payment is made to a Borrower in contravention of this Section Error! Reference source not found., such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.
9 NOTICES
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or email address indicated below; provided that, for clause (b), if such notice, consent, request, approval, demand or other communication is not sent during the normal business hours of the recipient, it shall be deemed to have been sent at the opening of business on the next Business Day of the recipient. Bank or Borrower may change its mailing or electronic mail address by giving the other party written notice thereof in accordance with the terms of this Section 9.
| If to Borrower: | BioLife Solutions, Inc. |
|---|---|
| SAVSU Technologies, Inc. | |
| Arctic Solutions, Inc. | |
| SciSafe Holdings, Inc. | |
| Global Cooling, Inc. | |
| Sexton Biotechnologies, Inc. | |
| 3303 Monte Villa Pkwy, STE 310, Bothell, WA 98021 | |
| Attn: Troy Wichterman | |
| Email: twichterman@biolifesolutions.com | |
| If to Bank: | Silicon Valley Bank |
| 505 Howard Street, 3^rd^ Floor | |
| San Francisco, California 94105 | |
| Attn: Shawn Parry | |
| Email: SParry@svb.com | |
| with a copy to (which shall not | Morrison & Foerster LLP |
| constitute notice): | 200 Clarendon Street |
| Boston, Massachusetts 02116 | |
| Attn: David A. Ephraim, Esquire | |
| Email: DEphraim@mofo.com |
10 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Except as otherwise expressly provided in any of the Loan Documents, New York law governs the Loan Documents without regard to principles of conflicts of law that would require the application of the laws of another jurisdiction. Borrower and Bank each irrevocably and unconditionally submit to the exclusive jurisdiction of the State and Federal courts in New York, New York; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction with respect to the Loan Documents or to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly, irrevocably and unconditionally submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby irrevocably and unconditionally consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 9 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT. EACH PARTY HERETO HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
This Section 10 shall survive the termination of this Agreement and the repayment of all Obligations.
11 GENERAL PROVISIONS
11.1 Termination Prior to Maturity Date; Survival. All covenants, representations and warranties made in this Agreement shall continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations) have been satisfied. So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, and any other obligations which, by their terms, are to survive the termination of this Agreement and the repayment of all Obligations, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 3.3 of this Agreement), this Agreement may be terminated prior to the Term Loan Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank. Those obligations that are expressly specified in this Agreement as surviving this Agreement’s termination and the repayment of all Obligations shall continue to survive notwithstanding this Agreement’s termination and the repayment of all Obligations.
11.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign or transfer this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s sole discretion) and any other attempted assignment or transfer by Borrower shall be null and void. Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.
11.3 Indemnification.
(a) General Indemnification. Borrower shall indemnify, defend and hold Bank and its Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of Bank and its Affiliates (each, an “Indemnified Person”) harmless against: all losses, claims, damages, liabilities and related expenses (including Bank Expenses and the reasonable fees, charges and disbursements of any counsel for any Indemnified Person) (collectively, “Claims”) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Credit Extension or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of hazardous materials on or from any property owned or operated by Borrower or any of its Subsidiaries, or any environmental liability related in any way to Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by Borrower, and regardless of whether any Indemnified Person is a party thereto; provided that such indemnity shall not, as to any Indemnified Person, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnified Person. All amounts due under this Section 11.3 shall be payable promptly after demand therefor.
(b) Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, Borrower shall not assert, and hereby waives, any claim against any Indemnified Person, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) or any loss of profits arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Credit Extension, or the use of the proceeds thereof. No Indemnified Person shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
This Section 11.3 shall survive the termination of this Agreement and the repayment of all Obligations until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.
11.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.
11.5 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
11.6 Amendments in Writing; Waiver; Integration. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be effective unless, and only to the extent, expressly set forth in a writing signed by each party hereto. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.
11.7 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, is an original, and all taken together, constitute one Agreement. Delivery of an executed signature page of this Agreement by electronic mail transmission shall be effective as delivery of a manually executed counterpart hereof.
11.8 Confidentiality. Bank agrees to maintain the confidentiality of Information (as defined below), except that Information may be disclosed (a) to Bank’s Subsidiaries and Affiliates and their respective employees, directors, agents, attorneys, accountants and other professional advisors (collectively, “Representatives” and, together with Bank, collectively, “Bank Entities”); (b) to prospective transferees, assignees, credit providers or purchasers of Bank’s interests under or in connection with this Agreement and their Representatives (provided, however, Bank shall use commercially reasonable efforts to obtain any such prospective transferee’s, assignee’s, credit provider’s, purchaser’s or their Representatives’ agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required or requested in connection with Bank’s examination or audit; (e) in connection with the exercise of remedies under the Loan Documents or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. “Information” means all information received from Borrower regarding Borrower or its business, in each case other than information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.
11.9 Electronic Execution of Documents. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures, including any Electronic Signature as defined in the Electronic Transactions Law (2003 Revision) of the Cayman Islands (the “Cayman Islands Electronic Signature Law”), if applicable, or the keeping of records in electronic form, including any Electronic Record, as defined in Cayman Islands Electronic Signature Law, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any Applicable Law, including, without limitation, any state law based on the Uniform Electronic Transactions Act or the Cayman Islands Electronic Signature Law; provided, however that sections 8 and 19(3) of the Cayman Islands Electronic Signature Law shall not apply to this Agreement or the execution or delivery thereof.
11.10 Right of Setoff. Borrower hereby grants to Bank a Lien and a right of setoff as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a subsidiary of Bank) or in transit to any of them, and other obligations owing to Bank or any such entity. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may setoff the same or any part thereof and apply the same to any liability or Obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
11.11 Captions and Section References. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Unless indicated otherwise, section references herein are to sections of this Agreement.
11.12 Construction of Agreement. The parties hereto mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.
11.13 Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.
11.14 Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any Persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any Person not an express party to this Agreement; or (c) give any Person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
11.15 Anti-Terrorism Law. Bank hereby notifies Borrower that, pursuant to the requirements of Anti-Terrorism Law, Bank may be required to obtain, verify and record information that identifies Borrower, which information may include the name and address of Borrower and other information that will allow Bank to identify Borrower in accordance with Anti-Terrorism Law. Borrower hereby agrees to take any action necessary to enable Bank to comply with the requirements of Anti-Terrorism Law.
12 ACCOUNTING TERMS AND OTHER DEFINITIONS
12.1 Accounting and Other Terms.
(a) Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP (except for with respect to unaudited financial statements for the absence of footnotes and subject to year-end audit adjustments), provided that if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or Bank shall so request, Borrower and Bank shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided, further, that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) Borrower shall provide Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
(b) As used in the Loan Documents: (i) the words “shall” or “will” are mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative; (ii) the term “continuing” in the context of an Event of Default means that the Event of Default has not been remedied (if capable of being remedied) or waived; and (iii) whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.
12.2 Definitions. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in this Section 12.2. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. As used in this Agreement, the following capitalized terms have the following meanings:
“Account” is, as to any Person, any “account” of such Person as “account” is defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to such Person.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.
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“Affiliate” is, with respect to any Person, each other 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.
“Agreement” is defined in the preamble hereof.
“Anti-Terrorism Law” means any law relating to terrorism or money-laundering, including Executive Order No. 13224 and the USA Patriot Act.
“Applicable Law” means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities and all orders and decrees of all courts and arbitrators.
“Arctic” is defined in Schedule I hereof.
“Authorized Signer” means any individual listed in Borrower’s Borrowing Resolution who is authorized to execute the Loan Documents, including making (and executing if applicable) any Credit Extension request, on behalf of Borrower.
“Bank” is defined in the preamble hereof.
“Bank Entities” is defined in Section 11.8.
“Bank Expenses” are all audit fees, costs and reasonable expenses (including reasonable, out-of-pocket and documented attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower or any Guarantor.
“Bank Services” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).
“Bank Services Agreement” is defined in the definition of Bank Services.
“BioLife” is defined in Schedule I hereof.
“Board” is Borrower’s board of directors or equivalent governing body.
“Borrower” is set forth on Schedule I hereto.
“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s board of directors (and, if required under the terms of such Person’s Operating Documents, stockholders) and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that set forth as a part of or attached as an exhibit to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents, including making (and executing if applicable) any Credit Extension request, on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.
“Business Day” is a day other than a Saturday, Sunday or other day on which commercial banks in the State of California are authorized or required by law to close, except that if any determination of a “Business Day” shall relate to an FX Contract, the term “Business Day” shall also mean a day on which dealings are carried on in the country of settlement of the Foreign Currency.
“Cash Equivalents” are (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least 95.0% of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.
“Cayman Islands Electronic Signature Law” is defined in Section 11.9.
“Change in Control” means (a) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)‑5 under the Exchange Act), directly or indirectly, of 49.0% or more of the ordinary voting power for the election of directors, partners, managers and members, as applicable, of Borrower (determined on a fully diluted basis) other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction; (b) during any period of 12 consecutive months, a majority of the members of the Board of Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or (c) at any time, Borrower shall cease to own and control, of record and beneficially, directly or indirectly, 100.0% of each class of outstanding stock, partnership, membership, or other ownership interest or other equity securities of each Subsidiary of Borrower free and clear of all Liens (except Permitted Liens).
“Change in Law” means the occurrence, after the Effective Date, of: (a) the adoption or taking effect of any law, rule, regulation or treaty; (b) any change in Applicable Law or in the administration, interpretation, implementation or application thereof by any Governmental Authority; or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Chase Account” is defined in Section 5.7(a).
“Claims” is defined in Section 11.3.
“CMS” is defined in the definition of Medicare Regulations.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of New York; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
“Collateral” consists of all of Borrower’s right, title and interest in and to the following personal property:
(a) (i) all goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, securities accounts, securities entitlements and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and (ii) all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
(b) Notwithstanding the foregoing, the Collateral does not include any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.
(c) Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.
“Compliance Statement” is that certain statement in the form attached hereto as Exhibit A.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Contingent Obligation” is, for any Person, any direct or indirect liability of that Person for (a) any direct or indirect guaranty by such Person of any indebtedness, lease, dividend, letter of credit, credit card or other obligation of another, (b) any other obligation endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (c) any obligations for undrawn letters of credit for the account of that Person; and (d) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar 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 any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
“Credit Extension” is any FX Contract, Term Loan Advance, or any other extension of credit by Bank for Borrower’s benefit.
“Currency” is coined money and such other banknotes or other paper money as are authorized by law and circulate as a medium of exchange.
“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.
“Default Rate” is defined in Section 1.2(c).
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.
“Designated Deposit Account” is the deposit account established by Borrower with Bank for purposes of receiving Credit Extensions.
“Division” means, in reference to any Person which is an entity, the division of such Person into two (2) or more separate Persons, with the dividing Person either continuing or terminating its existence as part of such division, including, without limitation, as contemplated under Section 18-217 of the Delaware Limited Liability Company Act for limited liability companies formed under Delaware law, Section 17-220 of the Delaware Revised Uniform Limited Partnership Act for limited partnerships formed under Delaware law, or any analogous action taken pursuant to any other Applicable Law with respect to any corporation, limited liability company, partnership or other entity.
“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.
“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.
“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.
“Draw Period A” is set forth on Schedule I hereto.
“Draw Period B” is set forth on Schedule I hereto.
“Draw Period C” is set forth on Schedule I hereto.
“Effective Date” is set forth on Schedule I hereto.
“Environmental Laws” means any Applicable Law (including any permits, concessions, grants, franchises, licenses, agreements or governmental restrictions) relating to pollution or the protection of health, safety or the environment or the release of any materials into the environment (including those related to hazardous materials, air emissions, discharges to waste or public systems and health and safety matters).
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” is the Employee Retirement Income Security Act of 1974, as amended, and its regulations.
“Event of Default” is defined in Section 7.
“Exchange Act” is the Securities Exchange Act of 1934, as amended.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to Bank or required to be withheld or deducted from a payment to Bank, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of Bank being organized under the laws of, or having its principal office or its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of Bank with respect to an applicable interest in a Credit Extension pursuant to a law in effect on the date on which (i) Bank acquires such interest in the Credit Extensions or (ii) Bank changes its lending office, except in each case to the extent that, pursuant to Section 1.6, amounts with respect to such Taxes were payable either to Bank’s assignor immediately before Bank became a party hereto or to Bank immediately before it changed its lending office, (c) Taxes attributable to Bank’s failure to comply with Section 1.6(e), and (d) any withholding Taxes imposed under FATCA.
“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Internal Revenue Code.
“Final Payment” is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the earliest to occur of (a) the Term Loan Maturity Date, (b) the repayment of the Term Loan Advances in full, (c) as required pursuant to Sections 1.1(c) or 1.1(d), or (d) the termination of this Agreement, in an amount equal to the aggregate principal amount of the Term Loan Advances extended by Bank multiplied by 5.75%.
“Financial Statement Repository” is Bank’s e-mail address specified in Section 9 or such other means of collecting information approved and designated by Bank after providing notice thereof to Borrower from time to time.
“Foreign Currency” is the lawful money of a country other than the United States.
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
“Funding Date” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.
“Funding Milestone” is set forth on Schedule I hereto.
“FX Contract” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency at a set price or on a specified date.
“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
“Global Cooling” is defined in Schedule I hereof.
“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority, including, without limitation, Healthcare Permits.
“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
“Guarantor” is any Person providing a Guaranty in favor of Bank.
“Guaranty” is any guarantee of all or any part of the Obligations, as the same may from time to time be amended, restated, modified or otherwise supplemented.
“Healthcare Laws” means all applicable laws relating to the operation or management of hospitalist practices, the provision of hospitalist services, proper billing and collection practices relating to the payment for healthcare services, insurance law (including law related to payment for “no-fault” claims) and workers compensation law as they relate to the provision of, and billing and payment for, healthcare services, patient healthcare, patient healthcare information, patient abuse, the quality and adequacy of rehabilitative care, rate setting, equipment, personnel, operating policies, fee splitting, including, without limitation, (a) all federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. §1320a-7b(b)), the Stark Law (42 U.S.C. §1395nn), the civil False Claims Act (31 U.S.C. §3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the exclusion laws (42 U.S.C. § 1320a-7); (b) the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009; (c) the Medicare Regulations and the Medicaid Program (Title XIX of the Social Security Act); (d) quality, safety and accreditation standards and requirements of all applicable state laws or regulatory bodies; (e) all laws, policies, procedures, requirements and regulations pursuant to which Healthcare Permits are issued; (f) any laws, regulations or administrative guidance with respect to fee splitting by healthcare professionals and the corporate practice of medicine in any jurisdiction in which any Borrower or any Guarantor operates; and (g) any and all comparable state or local laws and other applicable health care laws, regulations, manual provisions, policies and administrative guidance, each of (a) through (g) as may be amended from time to time and the regulations promulgated pursuant to each such law.
“Healthcare Permit” means, with respect to any Person, a permit issued or required under Healthcare Laws applicable to the business of Borrower or any Guarantor, or necessary in the possession, ownership, warehousing, marketing, promoting, sale, labeling, furnishing, distribution or delivery of goods or services under Healthcare Laws applicable to the business of Borrower or any Guarantor.
“HHS” is defined in the definition of OIG.
“HIPAA” means, collectively, the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic Clinical Health (HITECKH) Act and the implementing regulations thereto.
“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, (d) Contingent Obligations and (e) other short- and long-term obligations under debt agreements, lines of credit and extensions of credit.
“Indemnified Person” is defined in Section 11.3.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Borrower under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Information” is defined in Section 11.8.
“Insolvency Proceeding” is any proceeding 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, receivership or other relief.
“Intellectual Property” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how and operating manuals;
(c) any and all source code;
(d) any and all design rights which may be available to such Person;
(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, 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; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower and its Subsidiaries, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).
“Interest Rate Ceiling” is set forth on Schedule I hereto.
“Internal Revenue Code” means the U.S. Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, each as amended or modified from time to time.
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership, membership, or other ownership interest or other equity securities), and any loan, advance or capital contribution to any Person.
“Key Person” is each of Borrower’s (a) Chairman and Chief Executive Officer, who is Michael Rice, as of the Effective Date and (b) Executive Vice President and Chief Scientific Officer, who is Aby J. Mathew, as of the Effective Date.
“Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.
“Lien” is a claim, mortgage, deed of trust, levy, attachment charge, pledge, hypothecation, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
“Loan Documents” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Perfection Certificate, the Subordination Agreement, any Bank Services Agreement, any Control Agreement, any other subordination agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, landlord waivers and consents, bailee waivers and consents, and any other present or future agreement by Borrower and/or any Guarantor with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified in accordance with the terms thereof.
“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a substantial likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 5 during the next succeeding financial reporting period.
“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.
“Medicare Regulations” means, collectively, all federal statutes (whether set forth in Title XVIII of the Social Security Act or elsewhere) affecting the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act and any statutes succeeding thereto; together with all applicable provisions of all rules, regulations, manuals and orders and administrative, reimbursement and other guidelines having the force of law of all Governmental Authorities (including The Centers for Medicare & Medicaid Services (“CMS”), the OIG, HHS, or any person succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing having the force of law, as each may be amended, supplemented or otherwise modified from time to time.
“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, fees, Bank Expenses, the Prepayment Fee, the Final Payment, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, all obligations relating to Bank Services and interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents.
“OFAC” is the Office of Foreign Assets Control of the United States Department of the Treasury and any successor thereto.
“OIG” means The Office of Inspector General of the United States Department of Health and Human Services (“HHS”) and any successor thereof.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership or limited partnership, its partnership agreement or limited partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
“Other Connection Taxes” means, with respect to Bank, Taxes imposed as a result of a present or former connection between Bank and the jurisdiction imposing such Tax (other than connections arising from Bank having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Credit Extension or Loan Document).
“Other Taxes” means all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.
“PacWest Account” is defined in Section 5.7(a).
“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
“Payment/Advance Form” is that certain form in the form attached hereto as Exhibit B.
“Payment Date” is set forth on Schedule I hereto.
“Perfection Certificate” is the Perfection Certificate delivered by Borrower in connection with this Agreement.
“Permitted Foreign HSBC Accounts” is defined in Section 5.7(a).
“Permitted Temporary Accounts” is defined in Section 5.7(a).
“Permitted Indebtedness” is:
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date which is shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;
(g) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be;
(h) unsecured Indebtedness in connection with corporate credit cards maintained by (i) Borrower with any credit card issuer in an aggregate amount not exceed $1,000,000.00 at any time and (ii) Foreign Subsidiaries with foreign financial institutions in which Bank does not have a presence in an aggregate amount not to exceed $500,000.00 at any time; and
(i) other unsecured Indebtedness not otherwise permitted by Section 6.4 not exceeding $200,000.00 in the aggregate outstanding at any time.
“Permitted Investments” are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date which are shown on the Perfection Certificate;
(b) Investments consisting of Cash Equivalents;
(c) Investments consisting of deposit accounts (but only to the extent that Borrower is permitted to maintain such accounts pursuant to Section 5.7 of this Agreement) in which, to the extent required pursuant to Section 5.7, Bank has a first priority perfected security interest;
(d) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower’s business;
(e) Investments accepted in connection with Transfers permitted by Section 6.1;
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers, directors, partners, managers and members relating to the purchase of equity securities of Borrower pursuant to employee equity purchase plans or similar agreements approved by the Board;
(g) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (h) shall not apply to Investments of Borrower in any Subsidiary;
(i) Investments by Borrower in (i) its Subsidiaries which are co-Borrowers under this Agreement and (ii) its Subsidiaries which are not co-Borrowers under this Agreement for ordinary, necessary and current operating expenses in an aggregate amount not to exceed $7,000,000.00 in any twelve (12) month period, provided that an Event of Default does not exist at the time of any such Investment and would not exist after giving effect to any such Investment;
(j) other Investments not otherwise permitted by Section 6.7 not exceeding $200,000.00 in the aggregate in any fiscal year.
“Permitted Liens” are:
(a) Liens existing on the Effective Date which are shown on the Perfection Certificate or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on Borrower’s Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than $7,500,000.00 in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;
(d) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(e) leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;
(f) non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business;
(g) Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 7.4 and 7.7;
(h) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(i) Liens arising from the filing of any precautionary financing statement on operating leases covering the leased property, to the extent such operating leases are permitted under this Agreement;
(j) customary Liens of any bank in connection with statutory, common law and contractual rights of setoff and recoupment with respect to any deposit account or securities account of Borrower or its Subsidiaries, provided that (i) to the extent required by Section 5.7, Bank has a first priority perfected security interest in such account and (ii) such account is permitted to be maintained pursuant to Section 5.7 of this Agreement; and
(k) Liens incurred in the extension, renewal or refinancing of the Indebtedness secured by Liens described in (a) through (j), 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, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
“PNC Account” is defined in Section 5.7(a).
“Prepayment Fee” shall be an additional fee, payable to Bank, with respect to each Term Loan Advance, in an amount equal to:
(a) for a prepayment of the Term Loan Advances made on or prior to the first (1st) anniversary of the Effective Date, 2.0% of the then-outstanding principal amount of the Term Loan Advances immediately prior to the date of such prepayment; and
(b) for a prepayment of the Term Loan Advances made after the first (1^st^) anniversary of the Effective Date, but prior to the Term Loan Maturity Date, 1.00% of the then-outstanding principal amount of the Term Loan Advances immediately prior to the date of such prepayment.
“Prime Rate” is set forth on Schedule I hereto.
“Prime Rate Margin” is set forth on Schedule I hereto.
“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.
“Representatives” is defined in Section 11.8.
“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.
“Restricted License” is any material license or other material agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with Bank’s right to sell any Collateral.
“Sanctioned Person” means a Person that: (a) is listed on any Sanctions list maintained by OFAC or any similar Sanctions list maintained by any other Governmental Authority having jurisdiction over Borrower; (b) is located, organized, or resident in any country, territory, or region that is the subject or target of Sanctions; or (c) is 50.0% or more owned or controlled by one (1) or more Persons described in clauses (a) and (b) hereof.
“Sanctions” means the economic sanctions laws, regulations, embargoes or restrictive measures administered, enacted or enforced by the United States government and any of its agencies, including, without limitation, OFAC and the U.S. State Department, or any other Governmental Authority having jurisdiction over Borrower.
“SEC” is the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.
“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.
“Subordination Agreement” is that certain Subordination Agreement by and among, Bank, Borrower, and Advantage Capital Community Development Fund XXXII, L.L.C., Advantage Capital Community Development Fund XXXIII, L.L.C., and Midwest Community Development Fund IX, L.L.C dated as of the Effective Date.
“Subordinated Debt” is indebtedness incurred by Borrower or any of its Subsidiaries subordinated to all of Borrower’s or any of its Subsidiaries’ now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.
“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock, partnership, membership, or other ownership interest or other equity securities having ordinary voting power (other than stock, partnership, membership, or other ownership interest or other equity securities having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or Guarantor.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term A Loan Advance” and “Term A Loan Advances” are each defined in Section 1.3.
“Term A Loan Availability Amount” is set forth on Schedule I hereto.
“Term B Loan Advance” is defined in Section 1.3.
“Term C Uncommitted Loan Advance” is defined in Section 1.3.
“Term B Loan Availability Amount” is set forth on Schedule I hereto.
“Term B Milestone Event” is set forth on Schedule I hereto.
“Term C Loan Availability Amount” is set forth on Schedule I hereto.
“Term C Milestone Event” is set forth on Schedule I hereto.
“Term Loan Amortization Date” is set forth on Schedule I hereto.
“Term Loan Maturity Date” is set forth on Schedule I hereto.
***
“Trademarks” means, with respect to any Person, 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 such Person connected with and symbolized by such trademarks.
“Transfer” is defined in Section 6.1.
“Transition Period” means the period of time commencing on the Effective Date and continuing through the earlier to occur of (i) March 19, 2023 and (ii) an Event of Default.
“USA Patriot Act” means the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” (Public Law 107-56, signed into law on October 26, 2001), as amended from time to time.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.
| BORROWER: | |
|---|---|
| BIOLIFE SOLUTIONS, INC. | |
| By: | /s/ Troy Wichterman |
| Name: Troy Wichterman | |
| Title: Chief Financial Officer | |
| SAVSU TECHNOLOGIES, INC. | |
| By: | /s/ Troy Wichterman |
| Name: Troy Wichterman | |
| Title: Secretary, Vice President, Treasurer | |
| ARCTIC SOLUTIONS, INC. | |
| By: | /s/ Troy Wichterman |
| Name: Troy Wichterman | |
| Title: Secretary, Vice President, Treasurer | |
| SCISAFE HOLDINGS, INC. | |
| By: | /s/ Troy Wichterman |
| Name: Troy Wichterman | |
| Title: Secretary, Vice President, Treasurer | |
| GLOBAL COOLING, INC. | |
| By: | /s/ Troy Wichterman |
| Name: Troy Wichterman | |
| Title: Secretary, Vice President, Treasurer | |
| SEXTON BIOTECHNOLOGIES, INC. | |
| By: | /s/ Troy Wichterman |
| Name: Troy Wichterman | |
| Title: Secretary, Vice President, Treasurer | |
| BANK: | |
| SILICON VALLEY BANK | |
| By: | /s/ Shawn Parr |
| Name: Shawn Parry | |
| Title: Managing Director |
SCHEDULE I
LSA PROVISIONS
| LSA Section | LSA Provision |
|---|---|
| 1.1(a) – Term Loan – Availability | Each Term A Loan Advance (other than the Initial Term Loan Advance) must be in an amount equal to at least $5,000,000.00. After repayment, no Term Loan Advance (or any portion thereof) may be reborrowed. |
| 1.1(b) – Term Loan – Repayment | Commencing on the Term Loan Amortization Date and continuing on each Payment Date thereafter, Borrower shall repay each Term Loan Advance in (i) 24 consecutive equal monthly installments of principal, plus (ii) monthly payments of accrued interest at the rate set forth in Section 1.2(b)(i). |
| 1.2(a) – Interest Payments – Term Loan Advances | Interest on the principal amount of each Term Loan Advance is payable in arrears monthly (A) on each Payment Date commencing on the first Payment Date following the Funding Date of each such Term Loan Advance, (B) on the date of any prepayment and (C) on the Term Loan Maturity Date. |
| 1.2(b)(i) – Interest Rate – Term Loan Advances | Subject to the Interest Rate Ceiling, the outstanding principal amount of any Term Loan Advance shall accrue interest at a floating rate per annum equal to the greater of (1) 5.75% and (2) the Prime Rate plus the Prime Rate Margin, which interest shall be payable in accordance with Section 1.2(a). |
| 1.2(e) – Interest Computation | Interest shall be computed on the basis of the actual number of days elapsed and a 360-day year. |
| 8.8 – Borrower Liability | Each Borrower hereunder shall be jointly and severally obligated to repay all Credit Extensions made hereunder and any other Obligations related thereto, regardless of which Borrower actually receives said Credit Extension, as if each Borrower hereunder directly received all Credit Extensions. |
| 12.2 – “Borrower” | “Borrower” means, individually and collectively, jointly and severally (a) **** BIOLIFE SOLUTIONS, INC., a Delaware corporation (“BioLife”), (b) SAVSU TECHNOLOGIES, INC., a Delaware corporation, (c) ARCTIC SOLUTIONS, INC., a Delaware corporation (“Arctic”), (d) SCISAFE HOLDINGS, INC., a Delaware corporation, (e) GLOBAL COOLING, INC., a Delaware corporation (“Global Cooling”), and (f) SEXTON BIOTECHNOLOGIES, INC., a Delaware corporation. |
| 12.2 – “Draw Period A” | “Draw Period A” is the period commencing on the Effective Date and ending on the earlier to occur of (a) June 30, 2023, and (b) an Event of Default. |
| 12.2 – “Draw Period B” | “Draw Period B” is the period commencing upon the occurrence of the Term B Milestone Event and ending on the earlier to occur of (a) June 30, 2023, and (b) an Event of Default. |
| 12.2 – “Draw Period C” | “Draw Period C” is the period commencing upon the occurrence of the Term C Milestone Event and ending on the earlier to occur of (a) December 31, 2023, and (b) an Event of Default. |
| 12.2 – “Effective Date” | “Effective Date” is September 20, 2022. |
| 12.2 – “Funding Milestone” | “Funding Milestone” occurs if any when (if ever) the Bank has made Term Loan Advances to Borrower in an aggregate original principal amount greater than $20,000,000.00. |
|---|---|
| 12.2 – “Interest-Only Extension Event” | *** |
| 12.2 – “Interest Rate Ceiling” | “Interest Rate Ceiling” means the overall rate of interest applicable to any Term Loan Advance shall not increase more than 1.0% above the overall rate of interest applicable to such Term Loan Advance on the Funding Date of such Term Loan Advance. |
| 12.2 – “Payment Date” | “Payment Date” is the first (1st) calendar day of each month. |
| 12.2 – “Prime Rate” | “Prime Rate” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero percent (0.0%) per annum, such rate shall be deemed to be zero percent (0.0%) per annum for purposes of this Agreement. |
| 12.2 – “Prime Rate Margin” | “Prime Rate Margin” is 0.50%. |
| 12.2 – “Term A Loan Availability Amount” | “Term A Loan Availability Amount” is an aggregate principal amount equal to $30,000,000.00. |
| 12.2 – “Term B Loan Availability Amount” | “Term B Loan Availability Amount” is an original principal amount equal to $10,000,000.00. |
| 12.2 – “Term C Loan Availability Amount” | “Term C Loan Availability Amount” is an original principal amount equal to $10,000,000.00. |
| 12.2 – “Term B Milestone Event” | *** |
| 12.2 – “Term C Milestone Event” | “Term C Milestone Event” occurs if and when (if ever), if at any time prior to December 31, 2023, Bank confirms in writing that: (a) Borrower has requested the Term C Uncommitted Loan Advance, (b) all Term A Loan Advances and the Term B Loan Advance has been made, (c) Bank has received all necessary internal and credit approvals to make the Term C Uncommitted Loan Advance, (d) no Event of Default exists at the time the Term C Uncommitted Loan Advance is requested or would exist as a result of the Term C Uncommitted Loan Advance, and (e) Bank has provided written approval in its sole discretion that the Term C Uncommitted Loan Advance shall occur. For clarity, upon satisfaction of each of the conditions in (a) through (e), the determination of whether to provide any such increase shall be in Bank’s sole discretion. |
| 12.2 – “Term Loan Amortization Date” | “Term Loan Amortization Date” is, for each Term Loan Advance, July 1, 2024, which shall be extended to July 1, 2025 upon the occurrence of the Interest-Only Extension Event. |
| 12.2 – “Term Loan Maturity Date” | “Term Loan Maturity Date” is June 1, 2026, which shall be executed to June 1, 2027 upon the occurrence of the Interest-Only Extension Event. |
EXHIBIT A
COMPLIANCE STATEMENT
***
Schedule 1 to Compliance Statement
***
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
Deadline for same day processing is Noon Pacific Time
| Date: | |||
|---|---|---|---|
| Loan Payment : BIOLIFE SOLUTIONS, INC., SAVSU TECHNOLLGIES, INC., ARCTIC SOLUTIONS, INC., SCISAFE HOLDINGS, INC., GLOBAL COOLING, INC., AND SEXTON BIOTECHNOLOGIES, INC. | |||
| --- | --- | --- | --- |
| From Account # | To Account # | ||
| (Deposit Account #) | (Loan Account #) | ||
| Principal | $ | and/or Interest | $ |
| Authorized Signature: | Phone Number: | ||
| Print Name/Title: | |||
| Loan Advance: | |||
| --- | --- | --- | --- |
| Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire. | |||
| From Account # | |||
| (Loan Account #) | (Deposit Account #) | ||
| Amount of Term Loan Advance | |||
| All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; 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 and correct in all material respects as of such date: | |||
| Authorized Signature: | |||
| Print Name/Title: |
All values are in US Dollars.
| Outgoing Wire Request: | ||
|---|---|---|
| Complete only if all or a portion of funds from the loan advance above is to be wired. | ||
| Deadline for same day processing is noon, Pacific Time | ||
| Beneficiary Name: | Amount of Wire: | $ |
| Beneficiary Bank: | Account Number: | |
| City and State: | ||
| Beneficiary Bank Transit (ABA) #: | Beneficiary Bank Code (Swift, Sort, Chip, etc.): | |
| (For International Wire Only) | ||
| Intermediary Bank: | Transit (ABA) #: | |
| For Further Credit to: | ||
| Special Instruction: | ||
| By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us). | ||
| 2^nd^ Signature (if required): | ||
| Authorized Signature: | Print Name/Title: | |
| Print Name/Title: | Telephone #: | |
| Telephone #: |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) or RULE 13d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Michael Rice, certify that:
I have reviewed this quarterly report on Form 10-Q of BioLife Solutions, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
- The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 9, 2022
| /s/ Michael Rice |
|---|
| Michael Rice |
| Chief Executive Officer and Chairman of the Board |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) or RULE 13d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Troy Wichterman, certify that:
I have reviewed this quarterly report on Form 10-Q of BioLife Solutions, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
- The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 9, 2022
| /s/ Troy Wichterman |
|---|
| Troy Wichterman |
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BioLife Solutions, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Rice, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|---|---|
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| --- | --- |
Date: November 9, 2022
| /s/ Michael Rice |
|---|
| Michael Rice |
| Chief Executive Officer and Chairman of the Board |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BioLife Solutions, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Troy Wichterman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|---|---|
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| --- | --- |
Date: November 9, 2022
| /s/ Troy Wichterman |
|---|
| Troy Wichterman |
| Chief Financial Officer |