The case involved a $60 million dollar loan to a borrower (as husband and wife) for the purpose of research and development in the medical device industry.  The lender was a non-bank, active in that industry.  Each of 7 subsidiaries were to be down streamed loan proceeds as each held various technology and development rights. Through a series of mishaps, the negotiation of the original loan was delayed and the borrow had to obtain interim financing.  When the credit agreement was executed, the lender had reduced the loan amount and had negotiated warrant rights and technology licenses with respect to the subsidiaries.  The original loan was non-recourse against the borrower and the guarantors. A default was called, within a short period of time, and a forbearance agreement was signed.  At that point, the new borrower was 3 of the subsidiaries and the loan was now full recourse.  However, when an amended and restated credit agreement was signed, the loan was supposed to be non-recourse.  This provision of the forbearance agreement was never incorporated into the amended and restated credit agreement.  In a short period of time, the lender filed an involuntary receivership against the borrower and the guarantors and the borrower parties subsequently filed a Chapter 11 bankruptcy.

One issue that I will address is whether the use of funds clause in the loan agreement would have allowed the borrower to use loan proceeds to repay mezzanine loan made to certain subsidiaries, during the negotiation period.

When I am asked to be an expert, the counsel for the plaintiff, in this case is interested in my opinions.  What are my opinions about the borrowers, original use of the loan proceeds?  What are my opinions as to the conduct of the lender?