EXHIBIT 10.53
PHARMCHEM, INC.
COMERICA BANK - CALIFORNIA
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered
into as of July 31, 2002 by and between COMERICA BANK-CALIFORNIA ("Bank") and
PHARMCHEM, INC. ("Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Amended and Restated
Loan and Security Agreement by and between Bank and Borrower dated as of May 15,
2000, as amended by an Amendment to Loan and Security Agreement and Limited
Waiver dated as of September 12, 2001, by a Modification to Amended and Restated
Loan and Security Agreement dated as of May 25, 2001, by an Amendment and
Forbearance dated as of March 1, 2002, by an Amendment to Loan and Security
Agreement dated as of May 20, 2002, and by an Amendment to Loan and Security
Agreement dated as of June 28, 2002 (collectively, the "Original Agreement").
B. Borrower and Bank desire to amend and restate, without novation, the
Original Agreement on the terms stated herein. This Agreement sets forth the
terms on which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners (excluding any
corporation as to which any director of such Person serves only as a director or
is the beneficial owner of less than 25% of its outstanding securities).
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to eighty-five percent
(85%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Cash Collateral" has the meaning set forth in Section 4.4.
"Change in Control" means a transaction in which any "person"
or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a
sufficient number of shares of all classes of stock then outstanding of Borrower
ordinarily entitled to vote in the election of directors, empowering such
"person" or "group" to elect a majority of the Board of Directors of Borrower,
who did not have such power before such transaction.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Revolving Line" means a credit extension of up to
Four Million Two Hundred Fifty Thousand Dollars ($4,250,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, or any other extension
of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, the total
assets of the Borrower and its consolidated Subsidiaries (excluding Foreign
Subsidiaries) on a consolidated basis which may properly be classified as
current assets in accordance with GAAP.
"Current Liabilities" means, as of any applicable date, the
sum, determined on a consolidated basis, of all liabilities of Borrower and its
consolidated Subsidiaries (excluding Foreign Subsidiaries) which may properly be
classified as current liabilities in accordance with GAAP.
"Daily Balance" means the amount of the Obligations owed at
the end of a given day.
"Domestic Subsidiary" means any Subsidiary that is not a
Foreign Subsidiary.
"Effective Tangible Net Worth" means at any date as of which
the amount thereof shall be determined, the financial statement net worth of
Borrower, plus, without duplication, (a) Subordinated Debt, and
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(b) any imputed dividend received from any Subsidiary, minus, without
duplication, (i) intangible assets such as goodwill, and (ii) Investments in
Subsidiaries, all as determined in accordance with GAAP.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of the
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank as a
consequence of any Collateral audits done pursuant to Section 4.3 in Bank's
reasonable judgment and upon 30 days prior written notification thereof to
Borrower in accordance with the provisions hereof. Unless otherwise agreed to by
Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety-one (91) days of invoice date;
(b) Accounts with respect to an account debtor,
twenty-five percent (25%) or more of whose Accounts the account debtor has
failed to pay within ninety-one (91) days of invoice date.
(c) Accounts with respect to which the account
debtor is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, bill and
hold, or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account
debtor is an Affiliate of Borrower;
(f) Accounts with respect to which the account
debtor does not have its principal place of business in the United States and is
not supported by one or more letters of credit in an amount and of a tenor, and
issued by a financial institution, acceptable to Bank, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account
debtor is the United States or any agency or subdivision thereof in which Bank
has not perfected its security interest, except upon completion of the following
for each such account: (i) receipt by Bank of a copy of the contract to be
assigned; (ii) execution of document titled Government Receivables Rider to
Security Agreement (All Assets) by Borrower, in substantially the form of
Exhibit E hereto; (iii) execution of document titled Government Receivables
Instrument of Assignment by Borrower, in substantially the form of Exhibit F
hereto; and (iv) execution of document titled Government Receivables-Notice of
Assignment by both Borrower and the account debtor, in substantially the form of
Exhibit G hereto.
(h) Accounts with respect to which Borrower is
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower, but only to the extent of any amounts owing to the account
debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates of such account debtor, whose total
obligations to Borrower exceed twenty percent (20%) of all Accounts, except with
respect to the Administrative Office of U.S. Courts, as to which the percentage
shall be thirty-five percent (35%), to the extent such obligations exceed the
aforementioned percentages;
(j) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank
reasonably determines to be doubtful.
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"Eligible Foreign Accounts" means Accounts with respect to
which the account debtor does not have its principal place of business in the
United States and that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"Foreign Subsidiary" means any Subsidiary whose principal
place of business is located outside of the United States or whose assets and
business are located primarily outside of the United States.
"GAAP" means generally accepted accounting principles.
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services (other than trade
payables), (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property Collateral" means:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past,
present and future infringement of any of the rights included above, 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;
(e) All licenses or other rights to use any of the
Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any
of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the
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foregoing.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all loans, advances, debts, liabilities
and obligations for monetary amounts owing by Borrower to Bank, whether due or
to become due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, including those arising under any of the Loan Documents. This
term includes, without limitation, all principal, interest (including interest
that accrues after the commencement against Borrower or any Subsidiary of
Borrower under the Bankruptcy Code), fees, including, without limitation, any
and all closing fees, prepayment fees, commitment fees, advisory fees, and
attorneys' fees and any and all other fees, expenses, costs or other amounts
chargeable to Borrower under any of the Loan Documents.
"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.
"Periodic Payments" means all interest payments and other
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank under this Agreement.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness secured by a lien described in
clause (c) of the defined term "Permitted Liens", provided the amount of such
Indebtedness shall not exceed the cost of the Equipment acquired with the
proceeds of such Indebtedness; and
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(e) Extensions, renewals, modifications, amendments
and restatements of any of the items of permitted Indebtedness (a) through (d)
above, provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose materially more burdensome terms upon
Borrower.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed
in the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank, (iv) Bank's money market accounts, and (v)
certificates of deposit and money market accounts listed on the Schedule and as
disclosed to Bank in writing from time to time.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings;
(c) Liens (i) upon or in any equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price or
lease of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such equipment, or (ii) existing on such equipment
at the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment; and
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate" or "reference rate,"
whether or not such announced rate is the lowest rate available from Bank.
"Responsible Officer" means any of the Chief Executive
Officer, the Chief Financial Officer and Controller of Borrower.
"Revolving Maturity Date" means June 30, 2003.
"Revolving Facility" means the facility under which Borrower
may request Bank to make Advances, as specified in Section 2.1.1 hereof.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank and which is reflected in
a written agreement in a manner and form acceptable to
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Bank and approved by Bank in writing.
"Subsidiary" means any corporation, limited liability company
or partnership in which (i) any general partnership interest or (ii) more than
50% of the equity of which by the terms thereof ordinary voting power to elect
the Board of Directors, managers or trustees of the entity shall, at the time as
of which any determination is being made, be owned by Borrower, either directly
or through one or more Subsidiaries.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, the total liabilities of the Borrower and its
consolidated Subsidiaries (excluding Foreign Subsidiaries) on a consolidated
basis determined in accordance with GAAP, including in any event all
Indebtedness.
"Trademarks" means 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 Borrower
connected with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of
this Agreement, Borrower may request, and Bank agrees to make, Advances in an
aggregate outstanding amount not to exceed the Committed Revolving Line or the
Borrowing Base, whichever is less. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1.1 may be repaid and
reborrowed at any time prior to the Revolving Maturity Date, at which time all
Advances under this Section 2.1.1 shall be immediately due and payable. If at
any time the outstanding Advances under this Section 2.1.1 exceed the lesser of
the Borrowing Base or the Committed Revolving Line, Borrower shall immediately
pay Bank, in cash, the amount of such excess.
(b) Whenever Borrower desires an Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
California time, on the Business Day that an Advance is to be made. Bank is
authorized to make Advances under this Agreement, based upon instructions
received from a Responsible Officer or a designee of a Responsible Officer, or
without instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1.1
to Borrower's deposit account, as specified by such Borrower. Each written
request for an Advance, and each confirmation of a telephone request for such an
Advance, shall be in substantially the form of Exhibit B hereto executed by
Borrower.
(c) Borrower may at any time prepay any Advances,
in full or in part, without premium or penalty.
2.2 Interest Rates, Payments, and Calculations.
(a) Interest Rates. Except as set forth in Section
2.2(b), all Advances shall bear interest, on the outstanding principal balance,
at a per annum rate equal to the Prime Rate plus one half of one percent
(0.50%).
(b) Default Rate. All Obligations shall bear
interest after notice from Bank of the imposition of such default rate, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to three (3) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
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(c) Payments. Interest hereunder shall be due and
payable on the last Business Day of each month during the term hereof. Bank
shall automatically charge such interest and all Periodic Payments against
Borrower's deposit account held at Bank or against the Committed Revolving Line,
in which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.3 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 3:00 p.m. California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.4 Fees. Borrower shall pay to Bank the following:
(a) Facility Fees. A fee for the Revolving
Facility equal to one tenth of one percent (0.10%) per annum of the amount of
the Committed Revolving Line, payable quarterly on the last day of each March,
June, September and December.
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. On the Closing Date, an amount
equal to the Bank Expenses (including reasonable attorneys' fees and expenses)
incurred in connection with the preparation and negotiation of the Loan
Documents and, after the Closing Date, all Bank Expenses, including reasonable
attorneys' fees and expenses incurred in the enforcement of this Agreement, as
and when they become due.
2.5 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect for
so long as any Obligations remain outstanding or Bank has any obligation to make
Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF CREDIT EXTENSIONS.
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension after the Closing Date
is subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, the following:
(a) this Agreement;
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(b) a certificate of the Secretary of Borrower with
respect to the certificate of incorporation, bylaws, incumbency and
resolutions authorizing the execution and delivery of this Agreement;
(c) an intellectual property security agreement;
(d) affirmations of subordination from certain
Persons; and
(e) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation
of Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, except those
representations and warranties that expressly relate to an earlier date, in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants and pledges
to Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except for Permitted Liens,
such security interest shall constitute a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Notwithstanding the foregoing, the security interest granted herein does not
extend to and the term "Collateral" does not include any license or contract
rights to the extent (i) the granting of a security interest in it would be
contrary to applicable law, or (ii) that such rights are nonassignable by their
terms (but only to the extent the prohibition is enforceable under applicable
law) without the consent of the licensor or other party (but only to the extent
such consent has not been obtained). Borrower shall take such steps as Bank
reasonably requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for such licenses or contract rights 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 license or
agreement, whether now existing or entered into in the future.
4.2 Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right at Borrower' expense (not to exceed
$5,000 per annum, as long as an Event of Default has not occurred and is
continuing) upon reasonable prior notice, from time to time during Borrower's
usual business hours, to inspect Borrower's Books and to make copies thereof and
to check, test, and audit and appraise the Collateral in order to verify
Borrower's financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
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4.4 Cash Collateral.
(a) Borrower grants to Bank, as additional security for the
purpose of securing the Obligations, a valid, first priority security interest
in each of the Borrower's deposit accounts and/or certificates of deposit
maintained with Bank, including, without limitation, _____________ No.
_________, together with all proceeds and substitutions thereof, any interest
thereon, and all cash and noncash proceeds of the foregoing (the "Cash
Collateral"). The minimum principal amount of the Cash Collateral pledged
hereunder during the term of this Agreement shall be not less than Five Hundred
Thousand Dollars ($500,000) at any time. Borrower acknowledges that Bank shall
place a "hold" on any deposit account or certificate of deposit constituting the
Cash Collateral; provided that if no Event of Default has occurred and is
continuing, nothing contained in this Section 4.4 shall prohibit Borrower from
making any withdrawals from, or canceling, any deposit account or certificate of
deposit constituting the Cash Collateral so long as Borrower maintains an
aggregate of not less than Five Hundred Thousand Dollars ($500,000) in such
deposit accounts and/or certificates of deposit.
(b) Prior to the maturity of any Certificate of Deposit held
by Bank pursuant hereto, Borrower and Bank shall agree upon a security or
instrument similar in form, quality and substance to the original Certificate of
Deposit in which the proceeds of the Certificate of Deposit can be reinvested on
maturity. Upon maturity of the Certificate of Deposit in accordance with its
terms, or in the event the Certificate of Deposit otherwise becomes payable
during the term of this Agreement, such maturing Certificate of Deposit may be
presented for payment, exchange, or otherwise marketed by Bank on behalf of
Borrower and the proceeds therefrom used to purchase the security or instrument
agreed to by Borrower and Bank in accordance with the immediately preceding
sentence. If no agreement has been made, such proceeds shall be placed into an
interest bearing account offered by Bank in which Bank has a first priority
security interest until such time as an agreement as to the security replacing
the original Certificate of Deposit can be reached. Bank may retain any such
successor collateral and the proceeds therefrom as Collateral in accordance with
the terms of this Agreement.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
as follows:
5.1 Due Organization and Qualification. Borrower is a corporation
duly existing under the laws of the State of Delaware and qualified and licensed
to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified in which the failure to
so qualify could reasonably be expected to have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and marketable
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The service or property giving rise to such Eligible
Accounts has been delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor whose accounts are included in any Borrowing
Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed
in the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
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5.7 Intellectual Property Collateral. Borrower is the owner or
licensee of the Intellectual Property Collateral, except for non-exclusive
licenses granted by Borrower to its customers in the ordinary course of
business. Each of the Patents is valid and enforceable, and no part of the
Intellectual Property Collateral has been judged invalid or unenforceable, in
whole or in part, and to Borrower's knowledge, no claim has been made that any
part of the Intellectual Property Collateral violates the rights of any third
party, which violation could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the Schedule, no part of the Intellectual
Property Collateral is subject to any agreement restricting the transfer thereof
or the grant of a security interest therein. The Copyrights, Patents and
Trademarks listed on the Exhibits to the Intellectual Property Security
Agreement constitute all of the intellectual property necessary to sell, license
or distribute all of Borrower's products in the ordinary course of business. The
Schedule lists all of the material licenses, contracts and agreements as to
which Borrower's rights are excluded from the Collateral pursuant to Section
4.1.
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could reasonably
be expected to have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower does
not have knowledge of any such pending or threatened actions or proceedings.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and its Subsidiaries that
are delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank, other than as set forth in the Schedule.
5.10 Solvency, Payment of Debts. Borrower is solvent and able
to pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of the important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of any regulations promulgated by the Board of Governors of
the Federal Reserve System). Borrower has complied in all material respects with
all the provisions of the Federal Fair Labor Standards Act. Borrower has not
violated any statutes, laws, ordinances or rules applicable to it, violation of
which could reasonably be expected to have a Material Adverse Effect.
5.12 Environmental Condition. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators, in the disposal of, or to produce, store,
handle, treat, release, or transport, any hazardous waste or hazardous substance
other than in accordance with applicable law; to the best of Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
hazardous waste or hazardous substance disposal site, or a candidate for closure
pursuant to any environmental protection statute; no lien arising under any
environmental protection statute has attached to any revenues or to any real or
personal property owned by Borrower; and Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower resulting in the releasing, or otherwise disposing of
hazardous waste or hazardous substances into the environment.
5.13 Taxes. Borrower has filed or caused to be filed all tax
returns required to be filed, and has paid, or has made adequate provision for
the payment of, all taxes reflected therein, except for taxes which are being
contested in good faith by appropriate proceedings and reserved against (to the
extent required by GAAP) by Borrower.
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5.14 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower has obtained all material
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted, the
failure to obtain which could reasonably be expected to have a Material Adverse
Effect.
5.16 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, until
payment in full of all outstanding Obligations under this Agreement, and for
so long as Bank may have any commitment to make a Credit Extension hereunder,
Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
material Subsidiaries' corporate existence in its jurisdiction of incorporation
and maintain qualification in each jurisdiction in which the failure to so
qualify could reasonably by expected to have a Material Adverse Effect. Borrower
shall maintain, and shall cause each of its Subsidiaries to maintain in force
all licenses, approvals and agreements, the loss of which could reasonably by
expected to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably by expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within fifty (50)
days after the end of each of Borrower's fiscal quarters, a copy of the report
filed by Borrower on Form 10-Q with the Securities and Exchange Commission; (b)
as soon as available, but in any event within one hundred twenty (120) days
after the end of Borrower's fiscal year, a copy of the report filed by Borrower
on Form 10-K with the Securities and Exchange Commission, together with audited
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, and an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank (each
of the "Big 4" accounting firms is acceptable), which financial statements shall
reflect no material adverse changes from the financial statements prepared by
Borrower and delivered to Bank; (c) as soon as available, but in any event
within five (5) days after filing, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and any other reports filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of Two Hundred
Fifty Thousand Dollars ($250,000) or more; (e) as soon as available, but in any
case within ninety (90) days after the first day of each fiscal year, Borrower's
business plan, including operating budget, for such year.
Borrower shall deliver to Bank with the quarterly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
Within twenty-five (25) days of the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of Borrower's accounts payable and accounts receivable, in each case in
form and substance reasonably satisfactory to Bank and certified by a
Responsible Officer. Bank agrees to adjust Borrowing Base within ten (10) days
of receipt of Borrowing Base Certificate and further agrees to advise Borrower
of any changes to the Certificate submitted by Borrower.
12
Borrower shall deliver to Bank as soon as available, but in any
event within thirty (30) days after the end of each month, a company prepared
balance sheet, income statement and cash flow statement covering Borrower's
consolidated domestic operations during such period, in a form and certified by
an Officer of Borrower reasonably acceptable to Bank.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects except for Inventory
for which adequate reserves have been made. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Two Hundred Fifty
Thousand Dollars ($250,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance. Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's. All such policies
of insurance shall be in such form, with such companies, and in such amounts as
are reasonably satisfactory to Bank. All such policies of property insurance
shall contain a Bank's loss payable endorsement, in a form satisfactory to Bank,
showing Bank as an additional loss payee thereof and all liability insurance
policies shall show the Bank as an additional insured, and shall specify that
the insurer must give at least ten (10) days notice to Bank before canceling its
policy for any reason. Upon Bank's request, Borrower shall deliver to Bank
certified copies of such policies of insurance and evidence of the payments of
all premiums therefor. After the occurrence and during the continuance of an
Event of Default, all proceeds payable under any such policy that are not used
to repair or replace the property insured shall, at the option of Bank, be
payable to Bank to be applied on account of the Obligations.
6.7 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be
registered on an expedited basis (to the extent not already registered) with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, those intellectual property rights listed on Exhibits A, B and C
to the Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement within thirty (30) days of the date of this
Agreement. Borrower shall, on an expedited basis, register or cause to be
registered with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, and notify Bank of, all registerable
intellectual property rights which constitute or give rise to more than five
percent (5%) of Borrower's gross income in any fiscal quarter which Borrower has
developed as of the date of this Agreement but heretofore failed to register and
give Bank notice thereof. Borrower shall register or cause to be registered with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, and notify Bank of those additional intellectual property
rights which constitute or give rise to more than five percent (5%) of
Borrower's gross income in any fiscal quarter which are developed or acquired by
Borrower from time to time in connection with any product prior to the sale or
licensing of such product to any third party and prior to Borrower's use of such
product (including without limitation major revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C) and shall give
Bank notice thereof.
13
(b) Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect Bank's security interest in the Intellectual Property
Collateral.
(c) Borrower shall (i) protect, defend and maintain
the validity and enforceability of the Trademarks, Patents and Copyrights, (ii)
use its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any material Trademarks, Patents or Copyrights to
be abandoned, forfeited or dedicated to the public without the written consent
of Bank, which shall not be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual Property
Collateral to confirm compliance with this Section 6.7, provided such audit may
not occur more often than once per year, unless an Event of Default has occurred
and is continuing. Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.7 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.7.
6.8 Current Ratio. Borrower shall maintain, as of the last day of
each fiscal quarter, a ratio of Current Assets to Current Liabilities of at
least 0.85 to 1.0.
6.9 Profitability. Borrower shall achieve a minimum net profit of
at least One Dollar ($1) for the fiscal year ending December 31, 2002. Borrower
shall achieve a minimum net profit of One Dollar ($1) for each fiscal quarter
commencing with the fiscal quarter ending March 31, 2003.
6.10 Total Liabilities-Effective Tangible Net Worth. Borrower shall
maintain, as of the last day of each fiscal quarter, a ratio of Total
Liabilities to Effective Tangible Net Worth of not more than 2.0 to 1.0.
6.11 Capital Expenditures. The aggregate amount of all Capital
Expenditures of Borrower shall not exceed Two Million Six Hundred Thousand
Dollars ($2,600,000) in any fiscal year of Borrower. "Capital Expenditures"
means, without duplication, all financed or unfinanced expenditures exceeding
$25,000 individually (whether made in the form of cash or property, including,
without limitation, expenditures made by exchanging or trading in property) for
any fixed assets or improvements, or for renewals, replacement, substitutions or
additions thereto, which have a useful life of more than two years (excluding
expenditures for such assets funded with insurance proceeds) including, but not
limited to, the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise, and
expenditures which are financed pursuant to Capital Leases or with the proceeds
of purchase money indebtedness. "Capital Lease" means any lease of any property
(whether real, personal or mixed) by any Person that, in conformity with GAAP,
is or should be accounted for as a capital lease on the Balance Sheet of such
Person.
6.12 Effective Tangible Net Worth. Borrower shall maintain, as of
the last day of each fiscal quarter, a minimum Effective Tangible Net Worth of
Ten Million Dollars ($10,000,000).
6.13 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
6.14 Receipt of Subordinated Debt. Bank hereby approves Borrower's
incurrence of, and the making of payments by Borrower under, up to Two Million
Five Hundred Thousand Dollars ($2,500,000) of Subordinated Debt, subject to the
provisions of Section 7.9 of this Agreement and provided that each lender under
such Subordinated Debt executes a subordination agreement in form and substance
acceptable to Bank. Bank further acknowledges that such lender(s) under such
Subordinated Debt may be Affiliates of Borrower.
7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long
as any credit hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any
14
commitment to make any Credit Extensions, Borrower will not do any of the
following without the written consent of Bank:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of
its Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a Change in Control. Borrower will not,
without thirty (30) days prior written notification to Bank, relocate its chief
executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any cash dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, or otherwise Transfer any assets to any Affiliates, other
than Permitted Investments; provided that Borrower may utilize up to $2,000,000
in Advances to repurchase outstanding stock of the Borrower; and provided,
further, that Borrower shall be permitted to declare and distribute any
dividends in the form of rights which allow shareholders to purchase shares of a
new series of preferred stock of Borrower, including the Rights Agreement dated
as of November 30, 1999 previously furnished to Bank, or other such actions that
are now currently contemplated by Borrower.
7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, other than Permitted Investments.
7.8 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.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
if an Event of Default exists at the time of such payment or would exist after
giving effect to such payment, or make any payment on any Subordinated Debt
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory and Equipment. Store the Inventory or Equipment with
a bailee, warehouseman, or similar party unless Bank has received a pledge of
the warehouse receipt covering such Inventory or Equipment. Except for that sold
in the ordinary course of business and except for such other locations as Bank
may approve in writing, Borrower shall keep the Inventory and Equipment only at
the locations set forth in the Schedule and such other locations of which
Borrower gives Bank prior written notice and as to which Borrower signs and
files a financing statement where needed to perfect Bank's security interest.
15
7.11 Compliance. Become an "investment company" within the meaning
of the Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending credit
for the purpose of purchasing or carrying margin stock, or use the proceeds of
any Credit Extension for such purpose. Fail to meet the minimum funding
requirements of ERISA, permit a Prohibited Transaction, as defined in ERISA, to
occur, fail to comply with the Federal Fair Labor Standards Act or any other law
or regulation, which failure or violation could have a Material Adverse Effect
or a material adverse effect on the Collateral or the priority of Bank's Lien on
the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any
of the Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation
under Article 6 or violates any of the covenants contained in Article 7 of
this Agreement, or
(b) If Borrower fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within twenty (20) days after the
occurrence thereof (provided that no Credit Extensions will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material
adverse change in the business, operations, or condition (financial or
otherwise) of Borrower or (ii) is a material impairment of the prospect of
repayment of any portion of the Obligations or (iii) is a material impairment of
the value or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any portion of Borrower's assets with a value
in excess of $50,000 is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any trustee,
receiver or person acting in a similar capacity and such attachment, seizure,
writ or distress warrant or levy has not been removed, discharged or rescinded
within ten (10) days, or if Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs, or if a judgment or other claim in excess of $50,000
becomes a lien or encumbrance upon any material portion of Borrower's assets, or
if a notice of lien, levy, or assessment in excess of $50,000 is filed of record
with respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within twenty (20) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties, and such default shall
not have been cured or waived within any applicable grace period, resulting in a
right by such third party or parties, whether or not exercised, to accelerate
the maturity of Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
16
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank as of the date such
representation or warranty was made by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document.
9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and
to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Bank a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;
(e) Set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness
at any time owing to or for the credit or the account of Borrower held by
Bank;
(f) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, 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 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit except to the extent such license would result in a breach of such
agreement;
(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's
17
premises) as Bank determines is commercially reasonable, and apply any proceeds
to the Obligations in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public
sale; and
(i) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) if an Event of Default has occurred and is continuing,
send requests for verification of Accounts or notify account debtors of Bank's
security interest in the Accounts; (b) if an Event of Default has occurred and
is continuing, endorse Borrower's name on any checks or other forms of payment
or security that may come into Bank's possession; (c) if an Event of Default has
occurred and is continuing, sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) if an Event of Default has occurred and is continuing, dispose of
any Collateral; (e) if an Event of Default has occurred and is continuing, make,
settle, and adjust all claims under and decisions with respect to Borrower's
policies of insurance; and (f) if an Event of Default has occurred and is
continuing, settle and adjust disputes and claims respecting the accounts
directly with account debtors, for amounts and upon terms which Bank determines
to be reasonable; provided Bank may exercise such power of attorney to sign the
name of Borrower on any of the documents described in Section 4.2 regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 Accounts Collection. If an Event of Default has occurred and
is continuing, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account. After the
occurrence and during the continuance of an Event of Default, Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. Except as provided under the
Code, Bank shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release,
18
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on which
Borrower may in any way be liable.
10. NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by facsimile to Borrower or to Bank, as the case may be, at its
addresses set forth below:
If to Borrower: PHARMCHEM, INC.
4600 North Beach Street
Haltom City, Texas 76137
Attn: Mr. David Lattanzio
FAX: (817) 605-6402
If to Bank: Comerica Bank-California
250 Lytton Avenue
Palo Alto, California 94301
Attn: Mr. Jim Weber
FAX: (650) 462-6191
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
California, without regard to principles of conflicts of law. Borrower and Bank
hereby submit to the jurisdiction of the state and Federal courts located in the
County of Los Angeles and the County of Santa Clara, State of California.
BORROWER AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS
AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS.
12.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
19
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 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, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Effect of Amendment and Restatement.
This Agreement is intended to and does completely amend and
restate, without novation, the Original Agreement. All security interests
granted under the Original Agreement are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement. In particular, in
connection with the Original Agreement, Borrower executed for the benefit of
Bank five (5) documents entitled Government Receivables Rider to Security
Agreement, five (5) documents entitled Government Receivables -- Notice of
Assignment, and five (5) documents entitled Government Receivables Instrument of
Assignment (collectively, the "Government Receivables Documents"). The
Government Receivables Documents shall continue in full force and effect, shall
continue to secure all Obligations under this Agreement, and each Government
Receivables Rider to Security Agreement shall be and hereby is incorporated by
reference into this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMCHEM, INC.
By: /S/ DAVID LATTANZIO
-----------------------------------
Title: VICE-PRESIDENT
COMERICA BANK-CALIFORNIA
By: /S/ JAMES L. WEBER
-----------------------------------
Title: FIRST V.P.
21
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) Any and all goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) Any and all inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) Any and all contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind, but excluding
real estate leases;
(d) Any and all now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing;
(e) Any and all documents, cash, deposit accounts, securities,
investment property, financial assets, securities entitlements, securities
accounts, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrower's Books relating to the
foregoing;
(f) 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, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM FOR WORKING CAPITAL ADVANCES:
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M. PACIFIC TIME
TO: COMERICA BANK-CALIFORNIA DATE: _________________
FAX #: _________________ TIME: _________________
- --------------------------------------------------------------------------------
FROM: PHARMCHEM, INC.
CLIENT NAME (BORROWER)
REQUESTED BY:
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # ______________________ TO ACCOUNT # _________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
$______________________________________
PRINCIPAL INCREASE (ADVANCE) $______________________________________
PRINCIPAL PAYMENT (ONLY) $______________________________________
INTEREST PAYMENT (ONLY) $______________________________________
PRINCIPAL AND INTEREST (PAYMENT) $______________________________________
OTHER INSTRUCTIONS: ____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for an Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
________________________________________________________________________________
________________________________________________________________________________
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_________________________________________________ __________________________
Authorized Requester Phone #
_________________________________________________ __________________________
Received By (Bank) Phone #
_____________________________________________
Authorized Signature (Bank)
________________________________________________________________________________
EXHIBIT C
[BORROWING BASE CERTIFICATE]
EXHIBIT D
[COMPLIANCE CERTIFICATE]
EXHIBIT E
[FORM OF GOVERNMENT RECEIVABLES RIDER]
EXHIBIT F
[FORM OF GOVERNMENT RECEIVABLES INSTRUMENT OF ASSIGNMENT BY BORROWER]
EXHIBIT G
[FORM OF GOVERNMENT RECEIVABLES-NOTICE OF ASSIGNMENT]
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Section 1.1)
See Attached Schedule 1
Permitted Investments (Section 1.1)
1) Loans to officers/employees in an aggregate amount not to exceed $250,000
at any time outstanding.
Permitted Liens (Section 1.1)
See Attached Schedule 1
Prior Names (Section 5.6)
Intellectual Property (Section 5.7)
Litigation (Section 5.8)
Locations of Inventory and Equipment (Section 7.10)