CYAN 8-K
Cyanotech Corp (CYAN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
April 12, 2021
Date of Report: (Date of earliest event reported)
Cyanotech Corporation
(Exact name of registrant as specified in its charter)
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NEVADA (State or other jurisdiction of incorporation) |
000-14602 (Commission File Number) |
91-1206026 (IRS Employer Identification Number) |
73-4460 Queen Kaahumanu Highway, Suite #102, Kailua Kona, HI 96740
(Address of principal executive offices)
(808) 326-1353
(Registrant’s telephone number)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, $0.02 par value per share |
CYAN |
NASDAQ |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
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. ☐
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Item 1.01. |
Entry into a Material Definitive Agreement. |
On April 12, 2021, Cyanotech Corporation (the “Company”) entered into an Amended and Restated Promissory Note (the “Note”) with Skywords Family Foundation, Inc. (“Skywords”). The Company obtained the original Promissory Note (the “Existing Promissory Note”) in the principal amount of $1,500,000 in favor of Skywords on April 12, 2019. The Company and Skywords have agreed to amend, restate, replace or otherwise modify without novation, the Existing Promissory Note in order to convert $500,000 of the outstanding principal amount into revolving loans that may be prepaid and reborrowed from time to time in principal amounts not to exceed $500,000 (the “Maximum Revolving Amount”), extend the maturity date by three years, adjust the interest rate to reflect a floor of 5% and secure Skywords’ interest in the Note by granting a security interest in substantially all of the Company’s personal property assets, subject to limited exceptions (the “Collateral”). Concurrently with such conversion, the Company shall have repaid in cash to Skywords the principal amount of $500,000 plus all accrued interest to date on the Existing Promissory Note.
In connection with the grant of a security interest in the Collateral, on April 12, 2021, the Company also entered into an Intercreditor and Subordination Agreement (the “Intercreditor and Subordination Agreement”) with First Foundation Bank (the “Bank”) and Skywords. Cyanotech is indebted to the Bank pursuant to two Term Loan Agreements, dated August 14, 2012 and July 30, 2015, respectively, and a Revolving Credit Agreement, dated June 3, 2016, each of which granted the Bank a security interest in substantially all of the Company’s personal property assets. The Bank’s security interest in the Company’s personal property assets ranks senior to Skywords’ security interest in the Collateral, and the Intercreditor and Subordination Agreement generally governs the relationship between the Bank and Skywords as secured lenders to the Company and includes customary terms.
Skywords is controlled by Michael Davis, the Company’s Chairman of the Board of Directors and largest stockholder. The Note bears interest at a rate of the prime rate (as published by the Wall Street Journal) plus 1% and is adjustable on the first day of each calendar quarter and fixed for that quarter; provided that at no time will the annual interest rate be less than 5%. The interest will be payable on the last day of each calendar quarter ended. The entire principal amount and any accrued and unpaid interest will be due and payable on April 12, 2024, unless accelerated in an event of default. The Company may prepay the Note at any time without penalty.
The Note and the Intercreditor and Subordination Agreement were undertaken to provide financing alternatives to address periodic changes in the Company’s cash requirements.
The foregoing description of the Note and the Intercreditor and Subordination Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Note and the Intercreditor and Subordination Agreement, copies of which are filed by the Company as Exhibits 10.1 and 10.2, respectively, to this Current Report on Form 8-K and are incorporated by reference into this Item 1.01.
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Item 2.03. |
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The disclosure in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
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Item 9.01 |
Financial Statements and Exhibits. |
(d) Exhibits
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Exhibit Number |
Name and/or Identification of Exhibit |
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10.1 |
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10.2 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CYANOTECH CORPORATION |
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Dated: April 12, 2021 |
/s/ Felicia Ladin |
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By: |
Felicia Ladin |
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Chief Financial Officer, Vice President – Finance & Administration, and Treasurer |
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EXHIBIT INDEX
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Exhibit Number |
Name and/or Identification of Exhibit |
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10.1 |
Amended and Restated Promissory Note, dated April 12, 2021, by and between Skywords Family Foundation, Inc. and Cyanotech Corporation. |
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10.2 |
Intercreditor and Subordination Agreement, dated April 12, 2021, by and between First Foundation Bank, Skywords Family Foundation, Inc. and Cyanotech Corporation. |
Exhibit 10.1
THIS NOTE IS SUBJECT TO THE TERMS OF THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF APRIL 12, 2021, AMONG FIRST FOUNDATION BANK (THE “SENIOR CREDITOR”) AND SKYWORDS FAMILY FOUNDATION INC. AND THE OTHER PARTIES THERETO, AS THE SAME MAY BE AMENDED, MODIFIED, RESTATED OR SUPPLEMENTED FROM TIME TO TIME (THE “SUBORDINATION AGREEMENT”), TO THE EXTENT, AND IN THE MANNER PROVIDED IN THE SUBORDINATION AGREEMENT. NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY CONTAINED IN THIS NOTE, NO PAYMENT OR PREPAYMENT OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS HEREUNDER, WHETHER OF PRINCIPAL, INTEREST OR PREMIUM, SHALL BE MADE, PAID, RECEIVED OR ACCEPTED, AND NO REMEDIES SHALL BE PURSUED BY LENDER, EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH SUBORDINATION AGREEMENT.
AMENDED AND RESTATED PROMISSORY NOTE
This AMENDED AND RESTATED PROMISSORY NOTE (this “Note”) is entered into as of April 12, 2021, between Skywords Family Foundation Inc. (“Lender”), and Cyanotech Corporation, a Nevada corporation (“Borrower”).
RECITALS
WHEREAS, Borrower issued that certain Promissory Note, dated as of April 12, 2019 (the “Existing Promissory Note” and such date, the “Original Closing Date”) in favor of Lender in connection with Lender advancing to Borrower a principal amount of One Million And Five Hundred Thousand Dollars ($1,500,000.00) on the Original Closing Date;
WHEREAS, Borrower and Lender have agreed to amend, restate, replace or otherwise modify without novation, as applicable, the Existing Promissory Note on the date hereof (the date of such amendment and restatement, the “Amendment and Restatement Date”);
WHEREAS, on the Amendment and Restatement Date, Borrower and Lender have agreed to so amend, restate, replace or otherwise modify without novation, as applicable, the Existing Promissory Note in order to convert Five Hundred Thousand Dollars ($500,000.00) of the outstanding principal amount thereunder into revolving loans that may be prepaid and reborrowed from time to time in an aggregate principal amount not to exceed Five Hundred Thousand Dollars ($500,000.00) (the “Maximum Revolving Amount”), and concurrently with such conversion, Borrower shall have repaid in cash to Lender principal in an aggregate amount equal to Five Hundred Thousand Dollars ($500,000.00);
WHEREAS, Borrower and Lender have further agreed to so amend, restate, replace or otherwise modify without novation, as applicable, the Existing Promissory Note in order to, among other things: (a) extend the Maturity Date to April 12, 2024 and (b) secure all obligations under the Note by the Collateral provided from time to time by Borrower;
WHEREAS, Borrower and Lender are willing to take the actions described in the preceding paragraph on the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto amend and restate the Existing Promissory Note and covenant and agree as follows:
FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender the principal amount of this Note together with interest at the rate stated hereunder.
1. Amendment and Restatement Date Transactions. On the Original Closing Date, Lender delivered to Borrower, and Borrower promised to pay to the order of Lender under the Existing Promissory Note, the aggregate principal amount of One Million and Five Hundred Thousand Dollars ($1,500,000.00) (the “Existing Outstanding Principal”); which Existing Outstanding Principal Borrower acknowledges and agrees remains outstanding in its entirety as of the date hereof immediately prior to giving effect to the amendment and restatement of the Existing Promissory Note. On the Amendment and Restatement Date, (a) an aggregate principal amount of Five Hundred Thousand Dollars ($500,000.00) of the Existing Outstanding Principal shall be converted into revolving loans (collectively, the “Revolving Loans”) and (b) substantially concurrently with such conversion, Borrower shall have repaid in cash to Lender principal in an aggregate amount equal to Five Hundred Thousand Dollars ($500,000.00) as contemplated in Section 8(d) to reduce the aggregate outstanding principal amount of the Revolving Loans to zero after giving effect to such payment. The remaining outstanding principal amount of One Million Dollars ($1,000,000.00) not converted into Revolving Loans shall be hereby be referred to as “term loans” (collectively the “Term Loans”; and the Term Loans, together with the Revolving Loans, the “Loans”). For the avoidance of doubt, each of Borrower and Lender acknowledge and agree that, as of the Amendment and Restatement Date and after giving application to the conversion of principal into Revolving Loans and the repayment of Five Hundred Thousand Dollars ($500,000.00) of Revolving Loans contemplated in Section 8(d), there shall be Term Loans outstanding in an aggregate principal amount equal to One Million Dollars ($1,000,000.00) and no Revolving Loans outstanding, in each case as of such date. Borrower unconditionally promises to pay all Obligations in U.S. dollars and in immediately available funds in such amounts and on the dates specified herein. As used herein, the term “Lender” includes the successors and assigns of Lender and also includes a holder in due course.
2. Revolving Loan Requests and Advances. After the Amendment and Restatement Date, Borrower may, from time to time during the term of this Note, request in writing an advance of a Revolving Loan, which written request shall be made no later than thirty (30) days to the date of such proposed advance. In no event shall the amount of any requested advance, when added to the aggregate outstanding principal amount of Revolving Loans, exceed the Maximum Revolving Amount. Each written request shall specify the amount and date of the advance; provided that each advance shall be in an amount equal to Two Hundred and Fifty Thousand Dollars ($250,000.00) or a whole multiple of Two Hundred and Fifty Thousand Dollars ($250,000.000) in excess thereof. Lender shall be required to advance the requested funds on the date specified in such written request. The date and amount of each advance shall be noted by Lender on Exhibit A, and Borrower hereby authorizes and instructs Lender to update Exhibit A upon each such advance without any further action by Borrower.
3. Calculation and Payment of Interest. Interest on the unpaid principal balance of the Loans outstanding hereunder shall accrue from the Amendment and Restatement Date at a floating rate per annum equal to the greater of (a) five percent (5%) and (b) a rate equal to the prime rate, as published by the Wall Street Journal, plus 1.00%; provided, however, that said interest rate is subject to increase or decrease on the first day of each calendar quarter based on changes in the prime rate as of such date; provided, further that it is hereby acknowledged and agreed that after giving effect to such payment contemplated in Section 8(d), Borrower shall have paid all accrued and unpaid interest under the Existing Promissory Note for the period beginning on the Original Closing Date through (but not including) the Amendment and Restatement Date.
4. Payments. Interest shall be due and payable on the last day of each calendar quarter ended after the Original Closing Date during the term of this Note. The aggregate outstanding principal of each of the Loans and accrued but unpaid interest shall be due and payable on April 12, 2024 (the “Maturity Date”). Payments shall be made in cash, in U.S. dollars and immediately available funds. Each payment shall be credited first to interest then due and the remainder to principal; and interest shall thereupon cease to accrue with respect to the principal so credited.
5. Prepayment. Borrower may prepay the outstanding Loans, and all unpaid interest accrued thereon, in full or in part at any time during the term of this Note without notice and without premium or penalty. Prepayments of outstanding principal of the Revolving Loans shall be in an amount equal to Two Hundred and Fifty Thousand Dollars ($250,000.00) or a whole multiple of Two Hundred and Fifty Thousand Dollars ($250,000.00) in excess thereof. Borrower shall notify Lender in writing whether such prepayment shall be applied to the Revolving Loans or the Term Loans; provided that prepayments shall be applied first to the accrued interest then due and payable, and the remainder applied to the principal of such Loans.
6. Timeliness of Payment. A payment is timely made if it is actually received by Lender on or before the date on which it is due, or if it is mailed using the U.S. Postal Service and is postmarked at least one day prior to the date on which it is due. If the date a payment is due falls on a Saturday, Sunday, or a day that is a legal holiday under the laws of the United States, that payment shall be due on the next succeeding business day.
7. Collateral.
(a) Borrower hereby grants Lender, to secure the payment and performance in full of the Obligations, a continuing security interest in, and pledges to Lender, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower agrees that it is the intent of Borrower and Lender to have all Obligations secured by a perfected security interest in the Collateral granted herein.
(b) Borrower represents and warrants that the security interest granted herein shall at all times continue to be a perfected security interest in the Collateral prior to all other security interests in the Collateral other than the Senior Lien. 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.
(c) Borrower hereby authorizes Lender to file financing statements, without notice to Borrower, with all jurisdictions deemed necessary or appropriate by Lender to perfect or protect Lender’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Lender under the Code. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect.
(d) Borrower shall execute any further instruments and take such further action as Lender reasonably requests to perfect, protect, ensure the priority of or continue Lender’s Lien on the Collateral or to effect the purposes of this Note.
(e) If this Note is terminated, Lender’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), Lender shall, at Borrower’s sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower.
8. Conditions to Amendment and Restatement. The amendment and restatement of the Existing Promissory Note shall become effective and the Amendment and Restatement Date shall occur when each of the conditions set forth in this Section 8 shall have been satisfied:
(a) Lender shall have received a duly executed counterpart hereof bearing the signature of Borrower;
(b) Lender shall have received a duly executed counterpart of the Subordination Agreement bearing the signatures of each party thereto;
(c) Lender shall have received a UCC financing statement naming Borrower as “Debtor” and Lender as “Secured Party”, in proper form for filing, registration or recordation with the Secretary of State of the State of Nevada; and
(d) Borrower shall have repaid in cash to Lender: (a) Revolving Loans under this Note in an aggregate amount equal to Five Hundred Thousand Dollars ($500,000.00) and (b) all accrued but unpaid interest under the Existing Promissory Note.
9. Sale of Borrower. Upon the closing of a Sale of Borrower, the entire outstanding Loans and all accrued and unpaid interest at such time shall become immediately due and payable.
10. Events of Default. The occurrence of any one or more of the following shall constitute an “Event of Default” under this Note:
(a) Failure by Borrower to pay any amount due under this Note, as currently stated or as otherwise adjusted, within thirty (30) days of the date due.
(b) Failure by Borrower to perform or observe any other covenant or agreement contained in this Note.
(c) Determination that any representation or warranty made by Borrower in this Note is false or misleading in any material respect as of the date when made.
(d) Borrower shall default in the repayment of any indebtedness owed to First Foundation Bank or any of its successors and assigns, or any other material indebtedness, and such default shall not be waived or remedied within thirty (30) days after the occurrence thereof or such further time permitted for the remedying of such default under the applicable documents for such indebtedness.
(e) Borrower is (i) the subject of an order for relief by the bankruptcy court or is unable or admits in writing Borrower’s inability to pay Borrower’s debts as they mature or makes an assignment for the benefit of creditors; or (ii) any judgment, writ, warrant of attachment or execution or similar process is issued or levied against all or any part of the property of Borrower and is not released, vacated or fully bonded within thirty (30) calendar days after its issue or levy.
(f) There is a material impairment in the perfection or priority of Lender’s security interest in the Collateral.
11. Remedies. If an Event of Default has occurred, Lender may (a) upon fifteen (15) days’ written notice to Borrower, (a) declare the Obligations (including the entire unpaid principal balance of all Loans and all accrued and unpaid interest) immediately due and payable and declare all commitments to advance any Loans to be terminated forthwith (whereupon all such commitments shall immediately terminate); provided that notwithstanding the foregoing, in the event of any Event of Default under Section 10(e), all Obligations shall automatically and immediately become due and payable and all commitments to advance any Loans shall immediately terminate automatically without any action or notice by any Person and (b) exercise any and all remedies provided under applicable law.
12. Lender’s Rights; No Waiver by Lender. The rights, powers and remedies of Lender under this Note shall be in addition to all rights, powers and remedies available to Lender by virtue of any statute or rule of law, including, but not limited to, the California Civil Code and the Code. All such rights, powers and remedies shall be cumulative and may be exercised successively or concurrently in Lender’s sole discretion without impairing Lender’s rights or available remedies. Any forbearance, failure or delay by Lender in exercising any right, power or remedy shall not preclude further exercise thereof, and every right, power or remedy of Lender shall continue in full force and effect until such right, power or remedy is specifically waived in a writing executed by Lender.
13. Borrower’s Waivers. Borrower and any endorsers of this Note, and each of them, hereby waive diligence, demand, presentment for payment, notice of non-payment, protest and notice of protest, and specifically consent to and waive notice of any renewals or extensions of this Note, whether made to or in favor of Borrower or any other person or persons. Borrower and any endorsers of this Note expressly waive all right to the benefit of any statute of limitations and any moratorium, reinstatement, marshaling, forbearance, extension, redemption or appraisement now or hereafter provided by the Constitution and the laws of the United States of America and of any state thereof, as a defense to any demand against Borrower or any such endorsers, to the fullest extent permitted by law.
14. Transfers. This Note or any interest in this Note may be hypothecated, transferred or assigned by Lender without the prior consent of Borrower. Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of Lender.
15. Amendment. This Note may be amended or modified only by an instrument in writing which by its express terms refers to this Note and which is duly executed by the party sought to be bound thereby.
16. Successors and Assigns. This Note shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns.
17. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California.
18. Attorneys’ Fees. Borrower agrees to pay all costs, including reasonable attorneys’ fees and expenses, incurred by Lender in enforcing payment or collection of this Note, whether or not suit is filed.
19. Usury. Notwithstanding any provision herein, the total liability for payments in the nature of interest shall not exceed the applicable limits imposed by any applicable state or federal interest rate laws. If any payments in the nature of interest, additional interest and other charges made hereunder are held to be in excess of the applicable limits imposed by any applicable state or federal laws, it is agreed that any such amount held to be in excess shall be considered payment of principal and the principal balance of the Loans shall be reduced by such amount in the inverse order of maturity so that the total liability for payments in the nature of interest, additional interest and other charges shall not exceed the applicable limits imposed by any applicable state or federal interest rate laws in compliance with the desires of Lender and Borrower.
20. Amendment and Restatement. This Note amends and restates and is issued in replacement of the Existing Promissory Note made by Borrower in favor of Lender. This Note is not intended to be, and shall not be construed to be, a novation of any of the obligations owing under or in connection with the Existing Promissory Note, and any obligations outstanding under the Existing Promissory Note will be deemed Obligations in accordance with this Note.
21. Notices. All notices, requests, demands, instructions and other documents required or permitted by this Note shall be personally delivered or couriered, or sent by other means of written telecommunication, or mailed, certified or registered mail, return receipt requested, to the following addresses (or such other address to which a party has been notified in accordance with this provision):
| If to Lender: | Skywords Family Foundation Inc. |
| 1621 Juanita Lane | |
| Tiburon, CA 94920 | |
| Attn: Michael A. Davis | |
| Email: [email protected] | |
| With a copy to: | Morrison & Foerster LLP |
| 425 Market Street | |
| San Francisco, CA 94105 | |
| Attn: Jackie Liu; Victor Liang | |
| Email: [email protected]; [email protected] | |
| If to Borrower: | Cyanotech Corporation |
| 73-4460 Queen Kaahumanu Hwy., #102 | |
| Kailua-Kona, HI 96740 | |
| Attn: Felicia Ladin | |
| Email: [email protected] | |
| With a copy to: | Farella Braun + Martel LLP |
| 235 Montgomery Street, 17th Floor | |
| San Francisco, CA 94104 | |
| Attn: Jesse Debban | |
| Email: [email protected] |
A personal or courier delivered notice shall be effective on delivery; a notice sent via telex, facsimile, electronic mail or other means of written telecommunications shall be effective one (1) business day after sending; a mailed notice shall be effective upon the date shown on the return receipt or other evidence of delivery, provided, however, that if the recipient refuses to accept delivery, such notice shall be effective three (3) business days after being mailed.
22. Definitions. As used in this Note, (including in the recitals hereof), the following terms shall have the following meanings; provided that all other terms contained in this Note, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein:
“Borrower’s Books” means all of 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.
“Code” means the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein 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, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, 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” means all of Borrower’s right, title and interest in and to the following personal property:
(a) all goods, Accounts, Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, Intellectual Property, 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
(b) 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;
provided that Collateral, the terms of this Note and the security interest granted hereby, shall not include or attach to any lease, license, contract, rights, permit or agreement to which the Borrower is a party or any of its rights or interests thereunder if and for so long as the grant of the security interest granted hereby would constitute or result in (i) the abandonment, invalidation or unenforceability of any material right, title or interest of Borrower therein, or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles of equity), provided, however, that the security interest granted hereby shall attach immediately at such time as the condition causing such abandonment, invalidation, voidness, voidability, terminability, revocability, material breach or default or unenforceability shall be remedied and, to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in parts (i) through (ii) above, including, without limitation, any proceeds of such lease, license, contract, rights, permit or agreement.
“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.
“Lien” means 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.
“Obligations” means Borrower’s obligations to pay when due any debts, principal, Loans, interest, fees, expenses and other amounts Borrower owes Lender now or later, in connection with this Note (including for the avoidance of doubt any such amount arising under the Existing Promissory Note prior to the amendment and restatement pursuant hereto), including, without limitation, all obligations and interest accruing after the beginning of any proceeding by or against Borrower under the United States Bankruptcy Code, or any other bankruptcy or insolvency law.
“Person” means 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.
“Sale of Borrower” means (a) a sale of all or substantially all of the assets of Borrower; or (b) any reorganization, stock sale, merger, consolidation or other transaction or series of related transactions in which, directly or indirectly, the holders of the voting securities of Borrower outstanding immediately prior to such transaction or series of related transactions retain less than a majority of the total voting power of Borrower or such other surviving or resulting entity.
“Senior Creditor Agreements” means (i) that certain Term Loan Agreement, dated as of August 14, 2012, by and between Senior Creditor (as successor in interest to Pacific Rim Bank), Borrower and Nutrex Hawaii, Inc., a Hawaii corporation (“Nutrex”), (ii) that certain Term Loan Agreement, dated as of July 30, 2015, between Senior Creditor, Borrower and Nutrex and (iii) that certain Revolving Credit Agreement, dated as of June 3, 2016, between Senior Creditor and Borrower.
“Senior Debt” means any and all indebtedness and obligations for borrowed money at any time owing by Borrower to Senior Creditor under the Senior Loan Documents.
“Senior Lien” means such Lien securing the Senior Debt to the extent provided in, and subject to, the Subordination Agreement.
“Senior Loan Documents” means each of the Senior Creditor Agreements and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor in connection with the Senior Creditor Agreement, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced.
[Signature Page Follows]
IN WITNESS WHEREOF, Borrower has executed and delivered this Note effective as of the date first written above.
| BORROWER: | |||
| Cyanotech Corporation | |||
| a Nevada corporation | |||
| By: | /s/Felicia Ladin | ||
| Name: | Felicia Ladin | ||
| Title: | CFO | ||
| ACCEPTED AND AGREED: | |||
| LENDER: | |||
| Skywords Family Foundation Inc. | |||
| By: | /s/Michael Davis | ||
| Name: | Michael Davis | ||
| Title: | President | ||
EXHIBIT A
SCHEDULE OF ADVANCES AND REPAYMENTS
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DATE |
AMOUNT BORROWED |
AMOUNT REPAID |
OUTSTANDING BALANCE OF ALL REVOLVING LOANS |
NOTATION BY |
Exhibit 10.2
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (this “Agreement”), is entered into as of April 12, 2021 (the “Effective Date”), by and between FIRST FOUNDATION BANK, a California corporation (“Senior Creditor”), SKYWORDS FAMILY FOUNDATION INC. ( “Subordinated Creditor”) and CYANOTECH CORPORATION, a Nevada corporation (“Cyanotech” or “Borrower”). Capitalized terms used but not otherwise defined herein shall have the meanings given them in Section 1(a) below.
RECITALS
A. Borrower is indebted to Senior Creditor pursuant to (i) that certain Term Loan Agreement, dated as of August 14, 2012, by and between Senior Creditor (as successor in interest to Pacific Rim Bank), Cyanotech and Nutrex Hawaii, Inc., a Hawaii corporation (“Nutrex”) (as amended, modified, restated, replaced or supplemented from time to time, the “First Term Loan Agreement”), (ii) that certain Term Loan Agreement, dated as of July 30, 2015, between Senior Creditor, Cyanotech and Nutrex (as amended, modified, restated, replaced or supplemented from time to time, the “Second Term Loan Agreement”) and (iii) that certain Revolving Credit Agreement, dated as of June 3, 2016, between Senior Creditor and Cyanotech (as amended, modified, restated, replaced or supplemented from time to time, the “Revolving Agreement” and together with the First Term Loan Agreement and the Second Term Loan Agreement, the “Senior Creditor Agreements”). The funds advanced to or owed by Borrower under the Senior Creditor Agreements shall be referred to collectively herein as the “Senior Loans.” To secure the Senior Loans, Borrower granted to Senior Creditor a security interest in substantially all of its personal property assets.
B. Borrower is indebted to Subordinated Creditor pursuant to the Subordinated Loan Documents, originally executed and delivered as of April 12, 2019.
C. Borrower and Subordinated Creditor have agreed to amend and restate (without novation) the Subordinated Loan Documents as of the Effective Date, which amendment and restatement shall provide, among other things, for a conversion of $500,000.00 of the Subordinated Debt into revolving loans on such date, the repayment by Borrower of $500,000.00 of revolving loans to Subordinated Creditor on such date, and a grant by Borrower of a security interest in substantially all of its personal property assets to Subordinated Creditor to secure the Subordinated Debt.
D. In connection with such amendment and restatement of the Subordinated Loan Documents, Borrower, Senior Creditor and Subordinated Creditor desire to agree to and to set forth their respective rights, priorities and interests governing their respective relationships with Borrower and the collateral for the loans granted pursuant to the Subordinated Loan Documents and the Senior Loan Documents at all times on and after the Effective Date.
AGREEMENT
NOW, THEREFORE, in consideration of Borrower’s and Subordinated Creditor’s entering into the Subordinated Loan Documents, Subordinated Creditor and Senior Creditor hereby agree as follows:
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1. |
DEFINITIONS; EFFECTIVENESS |
(a) DEFINITIONS. As used herein, the following terms shall have the following meanings:
“Senior Debt” means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Senior Creditor under the Senior Loan Documents (including, without limitation, such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower, the principal amount of which, excluding the principal amount of any DIP Financing (as defined below)), which shall in no event exceed the Senior Debt Cap.
“Senior Debt Cap” means principal indebtedness under the Senior Creditor Agreements in an amount outstanding at any time of up to Seven Million Eight Hundred Seventy Five Thousand Six Hundred Dollars ($7,875,600.00); provided that (a) the Senior Debt Cap with respect to the First Term Loan Agreement shall be an amount outstanding at any time of up to Four Million Seven Hundred Thirteen Thousand Six Hundred Dollars ($4,713,600.00), (b) the Senior Debt Cap with respect to the Second Term Loan Agreement shall be an amount outstanding of up to Seven Hundred Sixty Two Thousand Dollars ($762,000.00) and (c) the Senior Debt Cap with respect to the Revolving Credit Agreement shall be an amount outstanding of up to Two Million Four Hundred Thousand Dollars ($2,400,000.00).
“Senior Loan Documents” means each of the Senior Creditor Agreements and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor in connection with the Senior Creditor Agreements, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced.
“Subordinated Debt” means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Subordinated Creditor under the Subordinated Loan Documents (including, without limitation, such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower).
“Subordinated Loan Documents” means that certain Promissory Note, dated as of April 12, 2019, as amended and restated by the Amended and Restated Promissory Note, dated as of April 12, 2021, issued by Borrower in favor of Subordinated Creditor, and any other agreement, document, promissory note, financing statement, or instrument executed by Borrower in favor of Subordinated Creditor pursuant to or in connection with the Subordinated Debt, in each case may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced.
Unless otherwise specified, all references in this Agreement to a “Section” shall refer to the corresponding Section in or to this Agreement. The capitalized term “Collateral” as used in this Agreement has the meaning ascribed to such term in the Senior Loan Documents. Other capitalized terms used herein and not otherwise defined herein shall have the meaning given such terms in the Uniform Commercial Code as in effect in the State of California, as in effect from time to time (“UCC”).
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2. |
SUBORDINATION |
(a) On the terms and conditions set forth below, Subordinated Creditor’s right to payment and performance of the Subordinated Debt and all liens and security interests securing the Subordinated Debt are hereby subordinated to Senior Creditor’s right to full payment and performance of the Senior Debt and all liens and security interests securing the Senior Debt. Subject to and except as set forth in Section 3, Subordinated Creditor shall not ask, demand, sue for, take or receive from Borrower, by setoff or in any other manner, the whole or any part of any monies which may now or hereafter be owing by Borrower to Subordinated Creditor, or be owing by any other person or entity to Subordinated Creditor under a guaranty or similar instrument, on account of the Subordinated Debt, nor any collateral security for any of the foregoing, including, without limitation, any personal property collateral granted to Subordinated Creditor pursuant to the Subordinated Loan Documents, unless and until the Senior Debt shall have been fully paid in cash and all commitments to extend credit under the Senior Creditor Agreements shall have been terminated (the temporary reduction of outstanding obligations, liabilities and indebtedness of Borrower to Senior Creditor not being deemed to constitute full payment or satisfaction thereof).
(b) Subordinated Creditor shall not create, maintain or perfect any security interest in or lien on any property of Borrower, other than the security interests and liens granted in favor of Subordinated Creditor in certain of Borrower’s personal property under and as described in the Subordinated Loan Documents, which liens and security interests are junior and subordinated to the security interests and liens securing the Senior Debt. If, notwithstanding the foregoing, any lien shall be created or shall arise (including, without limitation, the security interests granted in favor of Subordinated Creditor pursuant to the Subordinated Loan Documents), whether by operation of law or otherwise, and may from time to time exist in favor of Subordinated Creditor in or on any property of Borrower to secure all or any portion of the Subordinated Debt, then any liens granted by Borrower in favor of Senior Creditor to secure the Senior Debt shall in all respects be first and senior liens, superior to any liens in favor of Subordinated Creditor securing the Subordinated Debt, including, without limitation, the security interests granted in favor of Subordinated Creditor pursuant to the Subordinated Loan Documents notwithstanding (i) the date, manner or order of perfection of the security interests and liens granted in favor of Senior Creditor, (ii) the provisions of the UCC or any other applicable laws or decisions, (iii) the provisions of any contract in effect between Senior Creditor, on the one hand, and Borrower or any affiliate thereof, on the other, and (iv) whether Senior Creditor or any agent or bailee thereof holds possession of any part or all of the Collateral. In the event Subordinated Creditor has or obtains possession of any such property or forecloses upon or enforces its lien upon any such property, whether by judicial action or otherwise, then all such property shall be immediately delivered in kind to Senior Creditor or, if not deliverable in kind, all cash or non‑cash proceeds and profits of such property shall be held in trust for the benefit of Senior Creditor and paid over to Senior Creditor, without any deduction or offset, unless and until all of the Senior Debt shall have been paid in cash in full and all commitments to extend credit under the Senior Creditor Agreements shall have been terminated.
(c) The subordination contained in this Agreement is intended to define the rights and duties of Subordinated Creditor and Senior Creditor; it is not intended that any third party (including any bankruptcy trustee, receiver, or debtor in possession) shall benefit from it. If the effect of the subordination contained in this Agreement would be to give any third party a priority status to which that party would not otherwise be entitled, then that provision shall, to the extent necessary to avoid that priority, be given no effect and the rights and priorities of Senior Creditor and Subordinated Creditor shall be determined in accordance with applicable law and this Agreement.
(d) Notwithstanding anything in this Agreement to the contrary, nothing herein shall be deemed to subordinate, waive or restrict the contractual rights of Subordinated Creditor under any warrants or capital stock that Borrower may issue to Subordinated Creditor from time to time, nor shall anything herein restrict the performance of Borrower’s obligations under such warrants or with respect to such capital stock.
(e) In the event of the occurrence of an Insolvency Event (as hereinafter defined), (i) this Agreement shall remain in full force and effect in accordance with Section 510(a) of the United States Bankruptcy Code, and (ii) the Collateral shall include, without limitation, all Collateral arising during or after any such Insolvency Event.
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3. |
PERMITTED PAYMENTS; PAYMENT BLOCKAGE |
(a) Notwithstanding anything to the contrary contained in Section 2, but subject expressly to Section 3(b), Borrower shall be permitted to make, and Subordinated Creditor shall be permitted to ask, demand, sue for, take or receive from Borrower, by setoff or in any other manner, the following permitted payments (“Permitted Payments”): (i) prepayments of non-accelerated principal (together with non-default accrued but unpaid interest thereon) under the Subordinated Loan Documents; (ii) scheduled repayments of non‑accelerated principal when due under the Subordinated Loan Documents; (iii) scheduled payments of non‑default accrued interest when due under the Subordinated Loan Documents; (iv) payments of interest by payment-in-kind, adding to the principal balance of the Subordinated Loan Documents or otherwise on an accretion basis; (v) payments of reimbursable expenses, costs and professional fees and expenses as and when due under the Subordinated Loan Documents; and (vi) other payments consented to in writing by Senior Creditor.
(b) Notwithstanding anything to the contrary contained in this Section 3 or elsewhere in this Agreement, if Senior Creditor delivers to Subordinated Creditor written notice (a “Blockage Notice”) which states that there has been an event of default under the Senior Loan Documents that has not been cured then, during any Blockage Period (as defined below), Subordinated Creditor shall not accept or receive any payment of any kind of or on account of the Subordinated Debt (including any Permitted Payment), unless and until the earlier of (A) the time Senior Creditor notifies Subordinated Creditor in writing that the event of default by Borrower has been cured by Borrower or waived by Senior Creditor, or (B) the expiration of the Blockage Period for such Blockage Notice. Additionally, Subordinated Creditor shall disgorge any Permitted Payments received during the shorter of either (1) the period commencing upon the occurrence of an event of default under the Senior Loan Documents until the date of receipt by Subordinated Creditor of such Blockage Notice, or (2) the one month period immediately prior to the date of receipt by Subordinated Creditor of such Blockage Notice; provided, that Subordinated Creditor may accept and retain any distribution to Borrower’s unsecured creditors constituting the proceeds of Borrower’s assets that are not otherwise subject to Senior Creditor’s security interest or lien.
As used herein, “Blockage Period” means a period of time beginning on the date a Blockage Notice is delivered to Subordinated Creditor and terminating on the earlier to occur of:
(1) 90 days following such date; provided that if, prior to the expiration of such 90‑day period, Senior Creditor has commenced a judicial proceeding or non‑judicial actions to collect or enforce the Senior Debt or foreclose on any Collateral for the Senior Debt, or a case or proceeding by or against Borrower is commenced under the United States Bankruptcy Code or any other insolvency law, then such period shall be extended during the continuation of such proceedings and actions until the payment in cash in full of the Senior Debt; or
(2) the written consent of Senior Creditor to such termination.
Senior Creditor shall not issue more than two (2) Blockage Notices in the aggregate for any and all events of default which do not involve a failure to make a payment of Senior Debt in any period of 365 consecutive days.
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4. |
ENFORCEMENT RIGHTS |
Notwithstanding anything to the contrary contained in Section 2, Subordinated Creditor’s rights to enforce any claim (including any default remedy) with respect to the Subordinated Debt or the collateral for the Subordinated Debt, or otherwise to take any action against Borrower or Borrower’s property with respect to the Subordinated Debt shall be subject to any Blockage Notice given pursuant to Section 3(b); provided, however, notwithstanding the foregoing, Subordinated Creditor may take any of the following actions: (a) file claims upon the occurrence of an Insolvency Event (as defined in Section 6 below) pursuant to the terms of Section 6(b); (b) accelerate the maturity of, or demand as immediately due and payable, all or any portion of the Subordinated Debt; (c) impose any default rate of interest in accordance with the Subordinated Loan Documents; or (d) deliver any notice of exclusive control with respect to any deposit, operating, securities or investment accounts of Borrower provided that Subordinated Creditor shall not exercise any rights with respect to such accounts in violation of the terms of this Agreement including, without limitation, withdrawing, disposing or otherwise instructing any person or entity to post for the account of Subordinated Creditor any cash, funds, securities, entitlements or other property or rights in such accounts or any proceeds thereof.
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5. |
ASSIGNMENT OF SUBORDINATED DEBT |
Subordinated Creditor hereby covenants to Senior Creditor that prior to the termination of this Agreement in accordance with Section 11, the entire Subordinated Debt created in favor of Subordinated Creditor shall continue to be owing only to Subordinated Creditor, and any collateral security therefor (including, without limitation, the collateral security granted to Subordinated Creditor pursuant to the Subordinated Loan Documents) shall continue to be held solely for the benefit of Subordinated Creditor, unless assigned pursuant to an assignment made expressly subject to this Agreement. Any promissory note issued pursuant to the Subordinated Loan Agreement shall include the following legend: THIS NOTE, THE RIGHTS, INDEBTEDNESS AND OBLIGATIONS EVIDENCED HEREBY, AND THE RIGHTS OF LENDER HEREOF ARE SUBORDINATE, INFERIOR AND SUBJECT TO THE RIGHTS OF THE SENIOR CREDITOR IN RESPECT OF ANY SENIOR INDEBTEDNESS IN THE MANNER SET FORTH IN THE INTERCREDITOR AND SUBORDINATION AGREEMENT. EACH HOLDER OR TRANSFEREE OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THIS NOTE AND THE INTERCREDITOR AND SUBORDINATION AGREEMENT AS A HOLDER OF SUBORDINATED INDEBTEDNESS, AS SET FORTH IN THE INTERCREDITOR AND SUBORDINATION AGREEMENT.
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6. |
SENIOR CREDITOR’S PRIORITY |
In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the property of Borrower or the proceeds thereof to the creditors of Borrower, or the readjustment of the Senior Debt and the Subordinated Debt of Borrower, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding involving the readjustment of all or any part of the Senior Debt or the Subordinated Debt, or the application of the property of Borrower to the payment or liquidation thereof, or upon the dissolution, liquidation, reorganization, or other winding up of Borrower’s business, or upon the sale of all or any substantial part of Borrower’s property (any of the foregoing being hereinafter referred to as an “Insolvency Event”), then, and in any such event, Senior Creditor shall be entitled to receive the payment in cash in full of the Senior Debt before Subordinated Creditor shall be entitled to receive any payment on account of the Subordinated Debt, and to that end and in furtherance thereof:
(a) All payments and distributions of any kind or character, whether in cash, property, or securities, in respect of the Subordinated Debt to which Subordinated Creditor would be entitled if the Subordinated Debt were not subordinated pursuant to this Agreement, shall be paid to Senior Creditor and applied in payment of the Senior Debt;
(b) Subordinated Creditor shall file a claim or claims, on the form required in such proceedings, on or before thirty (30) days prior to the last date such claims or proofs of claim may be filed pursuant to law or the order of any court exercising jurisdiction over such proceeding; and
(c) Notwithstanding the foregoing, if any payment or distribution of any kind or character, whether in cash, properties or securities, shall be received by Subordinated Creditor on account of the Subordinated Debt before all of the Senior Debt has been paid, then such payment or distribution shall be received by Subordinated Creditor in trust for and shall be promptly paid over to Senior Creditor for application to the payments of amounts due on the Senior Debt until the Senior Debt shall have been paid in cash in full.
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7. |
GRANT OF AUTHORITY |
In the event of the occurrence of an Insolvency Event, and in order to enable Senior Creditor to enforce its rights hereunder in any of the aforesaid actions or proceedings, Senior Creditor is hereby irrevocably authorized and empowered, in Senior Creditor’s discretion, as follows:
(a) Senior Creditor is hereby irrevocably authorized and empowered (in its own name or in the name of Subordinated Creditor or otherwise), but shall have no obligation, (i) to demand, sue for, collect and receive every payment or distribution referred to in Section 6, and give acquittance therefor, (ii) (if Subordinated Creditor has failed to file claims or proofs of claim on or before thirty (30) days prior to the last date such claims or proofs of claim may be filed pursuant to law or the order of any court exercising jurisdiction over such proceeding) to file claims and proofs of claim and (iii) to take such other action (including, without limitation, enforcing any lien securing payment of the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of Senior Creditor hereunder. Subordinated Creditor shall duly and promptly take such action as Senior Creditor may reasonably request to execute and deliver to Senior Creditor such authorizations, endorsements, assignments, or other instruments as Senior Creditor may reasonably request in order to enable Senior Creditor to enforce any and all claims with respect to, and any liens securing payment of, the Subordinated Debt as such enforcement is contemplated herein.
(b) To the extent that payments or distributions on account of the Subordinated Debt are made in property or securities other than cash, Subordinated Creditor authorizes Senior Creditor, to sell or dispose of such property or securities on such terms as are commercially reasonable in the situation in question. Following full payment in cash of the Senior Debt, Senior Creditor shall remit to Subordinated Creditor (with all necessary endorsements), to the extent of Subordinated Creditor’s interest therein, all payments and distributions of cash, property, or securities paid to and held by Senior Creditor in excess of the allowed amount of the Senior Debt.
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8. |
AGREEMENTS OF SUBORDINATED CREDITOR |
In addition to and without limiting the provisions of Section 7:
(a) Until the Senior Debt has been fully paid in cash and Senior Creditor’s agreements to lend any funds to Borrower have been terminated, Subordinated Creditor shall not commence or join in any involuntary bankruptcy petition or similar judicial proceeding against Borrower.
(b) If an Insolvency Event occurs:
(i) Subordinated Creditor shall not assert, without the prior written consent of Senior Creditor, any claim, motion, objection or argument in respect of the Collateral in connection with any Insolvency Event which could otherwise be asserted or raised in connection with such Insolvency Event, including, without limitation, any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of the Collateral; provided, that (A) if Senior Creditor is granted adequate protection in the form of additional or replacement Collateral, then Subordinated Creditor may seek or request adequate protection in the form of a lien on such additional or replacement Collateral, which lien will be subordinated to the lien securing the Senior Debt and any DIP Financing provided by Senior Creditor on the same basis as the other liens securing the Subordinated Debt are subordinated to the liens securing the Senior Debt in accordance with the terms of this Agreement and (B) Subordinated Creditor may assert claims, motions, objections or arguments in respect of any proposed DIP Financing if the sum of the then outstanding principal amount of any Senior Debt and such proposed DIP Financing is in excess of the Senior Debt Cap plus Five Hundred Thousand Dollars ($500,000) (the “DIP Financing Cap”);
(ii) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as it shall in good faith determine without seeking or obtaining the consent of Subordinated Creditor as (if applicable) holder of an interest in the Collateral; provided, that (A) Subordinated Creditor otherwise retains its lien on the Collateral (subject to the priorities and other agreements set forth herein), (B) Subordinated Creditor may seek adequate protection as permitted by clause (i) above, (C) after taking into account the use of cash collateral and the principal amount of any DIP Financing on any date, the sum of the then outstanding principal amount of any Senior Debt and any DIP Financing does not exceed the DIP Financing Cap and (D) the interest rate, fees, advance rates, lending limits and sublimits are approved by the bankruptcy court;
(iii) if use of cash collateral by Borrower is consented to by Senior Creditor, Subordinated Creditor shall not oppose such use of cash collateral on the basis that Subordinated Creditor’s interest in the Collateral (if any) is impaired by such use or inadequately protected by such use, or on any other ground, so long as the conditions in the proviso of clause (ii) above have been satisfied;
(iv) Subordinated Creditor shall not object to, or oppose, any sale or other disposition of any assets comprising all or part of the Collateral, free and clear of security interests, liens and claims of any party, including Subordinated Creditor, under Section 363 of the United States Bankruptcy Code or otherwise, on the basis that the interest of Subordinated Creditor in the Collateral (if any) is impaired by such sale or inadequately protected as a result of such sale, or on any other ground (and, if requested by Senior Creditor, Subordinated Creditor shall affirmatively and promptly consent to such sale or disposition of such assets), if Senior Creditor has consented to, or supports, such sale or disposition of such assets; provided, that (A) pursuant to court order, the liens of Subordinated Creditor attach to the net proceeds of such sale or other disposition with the same priority and validity as the liens held by Subordinated Creditor on such Collateral, and the liens remain subject to the terms of this Agreement, (B) the proceeds of such sale or other disposition of Collateral received by Senior Creditor are applied to permanently reduce the Senior Debt and the proceeds in excess of those necessary to achieve the payment in full of the Senior Debt are distributed to Subordinated Creditor or if not so applied and distributed, are subject to the rights of Subordinated Creditor to object to any further use and (C) Subordinated Creditor may credit bid on the Collateral in any such sale or other disposition in accordance with section 363(k) of the Bankruptcy Code; provided further that: (y) any such credit bid shall provide for payment in full in cash of all Senior Debt, or (z) Senior Creditor has approved, in writing and in its sole discretion, the terms and conditions of any such credit bid prior to any sale; and
(v) Each of Senior Creditor and Subordinated Creditor shall, subject to the terms and conditions of this Agreement, be permitted to include in any claim filed in connection with an Insolvency Event any indebtedness, liabilities and obligations of the Borrower regardless of whether such obligations were incurred after the commencement of any proceedings relating to such Insolvency Event, and references to “collateral” in such claims may include without limitation all collateral arising during any such proceedings, and this Agreement shall continue to apply during any such proceedings.
(c) Notwithstanding the foregoing, (i) in any proceedings related to an Insolvency Event, Subordinated Creditor may take any action to preserve or protect the validity and enforceability of its liens so long as no such action is, or could reasonably be expected to be, (A) adverse to the Senior Creditor’s liens on the Collateral or the rights of the Senior Creditor to exercise remedies in respect thereof or (B) otherwise inconsistent with the terms of this Agreement; (ii) Subordinated Creditor may file any responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any person or entity objecting to or otherwise seeking the disallowance of the claims of Subordinated Creditor, including any claims secured by the Collateral, or the avoidance of any liens held by Subordinated Creditor or otherwise make any agreements or file any motions pertaining to the Subordinated Debt, in each case, to the extent not inconsistent with the terms of this Agreement; (iii) Subordinated Creditor may participate in any insolvency proceeding against Borrower as an unsecured creditor; and (iv) Subordinated Creditor may enforce any of its rights and exercise any of its remedies with respect to the Collateral after the termination of the period set forth in Section 3(b); and
(d) As used herein, “DIP Financing” means the obtaining of credit or incurring debt secured by Liens on the Collateral pursuant to section 364 of the Bankruptcy Code (or similar bankruptcy law).
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9. |
PAYMENTS RECEIVED BY SUBORDINATED CREDITOR |
Should any payment, distribution, or security be received by Subordinated Creditor upon or with respect to the Subordinated Debt (other than Permitted Payments) prior to termination of this Agreement in accordance with Section 11, Subordinated Creditor shall receive and hold the same in trust for the benefit of Senior Creditor and shall forthwith deliver the same to Senior Creditor in precisely the form received (except for the endorsement or assignment of Subordinated Creditor where necessary) for application to the Senior Debt, and, until so delivered, the same shall be held in trust by Subordinated Creditor as the property of Senior Creditor.
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10. |
FURTHER ASSURANCES; COOPERATION |
Subject to Section 17(b), Subordinated Creditor agrees to cooperate with Senior Creditor and to take all commercially reasonable actions that Senior Creditor may reasonably require to enable Senior Creditor to realize the full benefits of this Agreement.
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11. |
TERMINATION OR AMENDMENT OF AGREEMENT |
This Agreement shall be effective upon its execution by each of Senior Creditor and Subordinated Creditor. After the Effective Date, this Agreement shall remain in effect and cannot be revoked or amended by Subordinated Creditor, except with the prior written consent of Senior Creditor. Senior Creditor and Subordinated Creditor agree that no amendment hereto shall be binding upon Borrower unless Borrower shall have received notice of such amendment. Subject to Section 15, this Agreement shall automatically terminate without further action by any person immediately upon the date on which both (a) the Senior Debt shall have been paid in cash in full and (b) the Senior Loan Documents shall have been terminated.
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12. |
ADDITIONAL AGREEMENTS FOR SENIOR CREDITOR |
(a) Senior Creditor may administer and manage its credit and other relationships with Borrower in its own best interest, without notice to or consent of Subordinated Creditor. At any time and from time to time, Senior Creditor may enter into any amendment or agreement with Borrower as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms of all or any of the obligations constituting Senior Debt or affecting the collateral security for, supporting or underlying any or all of the Senior Debt, and may exchange, sell, release, surrender or otherwise deal with any such collateral without in any way thereby impairing or affecting this Agreement, and all such additional agreements and amendments shall be Senior Loan Documents evidencing the Senior Debt; provided, that the Senior Creditor shall not (i) increase the principal amount under the Senior Creditor Agreements above the limits set forth in the definition of “Senior Debt”, (ii) permit any term loans that are repaid to be reborrowed, (iii) prohibit or restrict the making of any payments, prepayments, repayments, increases or extensions in respect of Subordinated Debt beyond the prohibitions or restrictions in the Senior Loan Documents as of the Effective Date or (iv) prohibit or restrict the making of any amendments, restatements, supplements, modifications, waivers, consents or changes to the Subordinated Loan Documents that are permitted by this Agreement; and provided further, that neither this Section 12 nor any provision of such agreements shall affect the limitations contained in the definitions of Senior Creditor or Senior Debt. Upon written request, Senior Creditor shall provide Subordinated Creditor with copies of such amendments and/or agreements with Borrower.
(b) Without limiting the generality of any other covenant or agreement made by Senior Creditor in this Agreement, Senior Creditor hereby covenants and agrees that (i) Senior Creditor shall not contest, challenge or dispute the validity, attachment, perfection, priority or enforceability of Subordinated Creditor’s security interest in the Collateral, or the validity, priority or enforceability of the Subordinated Debt and (ii) Senior Creditor shall endeavor to give Subordinated Creditor prompt written notice of the occurrence of any default or event of default under the Senior Loan Documents, and shall, simultaneously with giving any notice of default to Borrower, provide Subordinated Creditor with a copy of any notice of default given to Borrower; provided, that a failure to provide such notices and such copies shall not be deemed to be a breach of this Agreement.
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13. |
SUBROGATION |
If cash or other property otherwise payable or deliverable to Subordinated Creditor or on account of the Subordinated Debt shall have been applied pursuant to this Agreement to the payment of the Senior Debt, and if the Senior Debt shall have been paid in cash in full and all commitments to extend credit under the Senior Creditor Agreements shall have been terminated, then Subordinated Creditor shall be subrogated to any rights of Senior Creditor to receive further payments or distributions applicable to the Senior Debt until the Subordinated Debt shall have been fully paid. No such payments or distributions received by Subordinated Creditor by reason of such subrogation shall, as between Borrower and its creditor other than Senior Creditor, on the one hand, and Subordinated Creditor, on the other hand, be deemed to be a payment by Borrower on account of the Subordinated Debt owed to Subordinated Creditor.
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14. |
SUBORDINATED CREDITOR’S WAIVERS AND COVENANTS |
(a) Without limiting the generality of any other waiver made by Subordinated Creditor in this Agreement, Subordinated Creditor hereby expressly waives (i) reliance by Senior Creditor upon the subordination and other agreements herein provided and (ii) any claim that Subordinated Creditor may now or hereafter have against Senior Creditor arising out of any and all actions that Senior Creditor, in good faith, takes or omits to take (A) with respect to the creation, perfection or continuation of liens in or on any collateral security for the Senior Debt, (B) with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the collateral security for the Senior Debt, (C) with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other third party and (D) with respect to the valuation, use, protection or release of any collateral security for the Senior Debt.
(b) Without limiting the generality of any other covenant or agreement made by Subordinated Creditor in this Agreement, Subordinated Creditor hereby covenants and agrees that (i) Senior Creditor has not made any warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of the Senior Creditor Agreements or any of the other Senior Loan Documents, or the collectability of the Senior Debt; (ii) Subordinated Creditor will not interfere with or in any manner oppose a disposition of any collateral security for the Senior Debt by Senior Creditor; (iii) Subordinated Creditor shall not contest, challenge or dispute the validity, attachment, perfection, priority or enforceability of Senior Creditor’s security interest in the Collateral, or the validity, priority or enforceability of the Senior Debt; and (iv) Subordinated Creditor shall give Senior Creditor prompt written notice of the occurrence of any default or event of default under the Subordinated Loan Documents, and shall, simultaneously with giving any notice of default to Borrower, provide Senior Creditor with a copy of any notice of default given to Borrower. Subordinated Creditor acknowledges and agrees that any default or event of default under the Subordinated Loan Documents shall be deemed to be a default and an event of default under the Senior Loan Documents.
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15. |
REINSTATEMENT OF SENIOR DEBT |
To the extent that Senior Creditor receives payments on or proceeds of any collateral security for the Senior Debt, which payments or proceeds are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law, or equitable cause, then, to the extent of such payments or proceeds invalidated, declared to be fraudulent or preferential, set aside or required to be repaid, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.
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16. |
NO WAIVERS |
Senior Creditor shall not be prejudiced in its rights under this Agreement by any act or failure to act of Borrower or Subordinated Creditor or any noncompliance of Borrower or Subordinated Creditor with any agreement or obligation, regardless of any knowledge thereof which Senior Creditor may have, or with which Senior Creditor may be charged; no action permitted hereunder that has been taken by Senior Creditor shall in any way affect or impair the rights or remedies of Senior Creditor in the exercise of any other right or remedy or shall operate as a waiver thereof; no single or partial exercise by Senior Creditor of any right or remedy shall preclude any other or further exercise thereof; and no modification or waiver of any of the provisions of this Agreement shall be binding upon Senior Creditor, in each case except as expressly set forth in a writing duly signed and delivered by Senior Creditor.
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17. |
INFORMATION CONCERNING BORROWER; CREDIT ADMINISTRATION |
(a) Subordinated Creditor hereby assumes responsibility for keeping itself informed of the financial condition of Borrower, any and all endorsers and any and all guarantors of the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt or the Subordinated Debt that diligent inquiry would reveal, and Subordinated Creditor hereby agrees that Senior Creditor shall not have any duty to advise Subordinated Creditor of information known to Senior Creditor regarding such condition.
(b) Subject to Sections 2(b), 3, 4, 7, 8 and 9, Subordinated Creditor may (i) administer and manage its credit and other relationships with Borrower in its own best interest and (ii) amend or extend its agreements with Borrower or enter into additional agreements with Borrower, all without the consent of or notice to Senior Creditor; provided that neither this Section 17(b) nor any amendments or additional agreements referred to therein shall impair or affect the subordination of Subordinated Debt or change the definition of Permitted Payments, Subordinated Debt, Subordinated Creditor, Senior Debt or Senior Creditor.
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18. |
POSSESSION OR CONTROL OF COLLATERAL |
Solely for the purpose of assisting Senior Creditor and/or Subordinated Creditor in perfecting the security interest granted in the collateral of Senior Creditor or Subordinated Creditor securing the Senior Debt or Subordinated Debt, Senior Creditor and Subordinated Creditor each agree to hold any such collateral that is in Senior Creditor’s or Subordinated Creditor’s possession or control as a gratuitous bailee for the other party. Senior Creditor and Subordinated Creditor do not make any representation regarding any perfection or possession or otherwise with respect to any collateral and shall not have any duty or liability to the other party whatsoever arising out of this Section 18.
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19. |
NOTICES |
Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of: (a) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service or (b) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:
| If to Senior Creditor: | First Foundation Bank |
| 18101 Von Karman Avenue, Suite 750 | |
| Irvine, CA 92612 | |
| Attn: Christopher M. Naghibi | |
| Email: [email protected] |
| If to Subordinated Creditor: | Skywords Family Foundation Inc. |
| 1621 Juanita Lane | |
| Tiburon, CA 94920 | |
| Attn: Michael A. Davis | |
| Email: [email protected] | |
| With a copy to: | Morrison & Foerster LLP |
| 425 Market Street | |
| San Francisco, CA 94105 | |
| Attn: Jackie Liu; Victor Liang | |
| Email: [email protected]; [email protected] |
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20. |
SEVERABILITY |
Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
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21. |
GOVERNING LAW |
This Agreement shall be governed by and interpreted in accordance with the laws of the State of California without regard to principles of conflict of laws that would cause the application of laws of any other jurisdiction.
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22. |
ASSIGNMENT |
This Agreement shall be binding upon Subordinated Creditor and its respective successors and assigns, and shall inure to the benefit of and be enforceable by Senior Creditor and its successors and assigns.
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23. |
CONSENT |
Senior Creditor hereby consents to the liens and security interests in the collateral for the Subordinated Debt and the indebtedness created or to be created under Subordinated Loan Agreement and agrees that the grant or existence of such liens and security interests does not and shall not constitute a default or an event of default under or a breach of the Senior Loan Documents or this Agreement. Subordinated Creditor hereby consents to the liens and security interests in the collateral for the Senior Debt and the indebtedness created or to be created under the Senior Creditor Agreements and agrees that the grant or existence of such liens and security interests does not and shall not constitute a default or an event of default under the Subordinated Loan Documents.
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24. |
WAIVER AND JUDICIAL REFERENCE |
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, SUBORDINATED CREDITOR AND SENIOR CREDITOR EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SENIOR LOAN DOCUMENTS, THE SUBORDINATED LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY, AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self‑help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
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25. |
COUNTERPARTS |
This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.
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26. |
ATTORNEYS’ FEES |
In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.
[Signature page follows.]
IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.
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FIRST FOUNDATION BANK |
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Signature: /s/Christopher M. Naghibi |
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Print Name: Christopher M. Naghibi |
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Title: Executive Vice President/Chief Credit Officer |
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SKYWORDS FAMILY FOUNDATION INC. |
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Signature: /s/Michael Davis |
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Print Name: Michael Davis |
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Title: President |
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Acknowledged and Agreed to by: |
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Borrower: |
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CYANOTECH CORPORATION |
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Signature: /s/Felicia Ladin |
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Print Name: Felicia Ladin |
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Title: CFO |
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