Exhibit 10.2
LOAN AND SECURITY AGREEMENT
XXX PHARMACEUTICALS
Borrower
0000 Xxxxx Xxxxx Xxxxxx
Xxxxx Xx Xxxxx, XX 00000
Address
00-0000000
Borrower Fed ID Tax No.
$1,400,000.00
Credit Limit
February 20, 2001
Date
-------------------------------
PREFERRED BUSINESS CREDIT, INC.
-------------------------------
February, 2001
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION .......................................................1
1.1 Definitions ................................................................1
1.2 Accounting Terms ...........................................................4
1.3 Code .......................................................................5
1.4 Construction ...............................................................5
1.5 Exhibits ...................................................................5
2. LOANS; INTEREST RATE AND OTHER CHARGES .............................................5
2.1 Revolving Advances .........................................................5
2.2 Term Loan ..................................................................5
2.3 Overadvance ................................................................5
2.4 Interest: Rate; Payments; and Calculation ..................................5
2.5 Crediting Payments .........................................................6
2.6 Statements of Obligations ..................................................6
2.7 Fees .......................................................................6
2.8 Term; Automatic Renewal ....................................................7
2.9 Effect of Termination ......................................................7
2.10 Early Termination by Borrower ..............................................7
2.11 Termination Upon Event of Default ..........................................7
3. SECURITY ...........................................................................7
3.1 Grant of Security Interest .................................................8
3.2 Negotiable Collateral ......................................................8
3.3 Collection of Accounts, Negotiable Collateral ..............................8
3.4 Delivery of Additional Documentation Required ..............................8
3.5 Power of Attorney ..........................................................8
3.6 Right To Inspect ...........................................................8
4. CONDITIONS OF CLOSING ..............................................................8
4.1 Initial Advance ............................................................8
4.2 Subsequent Advances ........................................................9
5. REPRESENTATIONS AND WARRANTIES .....................................................9
5.1 No Prior Encumbrances ......................................................9
5.2 Bona Fide Accounts .........................................................9
5.3 Merchantable Inventory and Inventory Records ...............................9
5.4 Location of Inventory and Equipment ........................................9
5.5 Location of Principal Place of Business/Chief Executive Office/Residence ...9
5.6 Due Organization and Qualification .........................................9
5.7 Due Authorization; No Conflict ............................................10
5.8 Litigation ................................................................10
5.9 No Material Adverse Change in Financial Statements ........................10
5.10 Solvency ..................................................................10
5.11 ERISA .....................................................................10
5.12 Environmental Condition ...................................................10
5.13 Reliance by PBC; Cumulative ...............................................11
Page I
6. COVENANTS ........................................................................11
6.1 Affirmative Covenants
6.1.1 Accounting System ................................................11
6.1.2 Collateral Reports ...............................................11
6.1.3 Assignments of Accounts ..........................................11
6.1.4 Financial Statements, Reports, Certificates ......................11
6.1.5 Tax Returns, Receipts ............................................12
6.1.6 Guarantor Reports ................................................12
6.1.7 Designation of Inventory and Returns .............................12
6.1.8 Title to Equipment ...............................................12
6.1.9 Maintenance of equipment .........................................12
6.1.10 Taxes ............................................................13
6.1.11 Insurance ........................................................13
6.1.12 PBC Expenses .....................................................13
6.2 Negative Covenants .......................................................13
6.2.1 Extraordinary Transactions and Disposal of Assets ................13
6.2.2 Change Name ......................................................14
6.2.3 Merge, Acquire ...................................................14
6.2.4 Guarantee ........................................................14
6.2.5 Restructure ......................................................14
6.2.6 Prepayment .......................................................14
6.2.7 Change of Ownership ..............................................14
6.2.8 Capital Expenditures .............................................14
6.2.9 Consignments .....................................................14
6.2.10 Distributions ....................................................14
6.2.11 Accounting Methods ...............................................14
6.2.12 Investments ......................................................14
6.2.13 Transactions with Affiliates .....................................14
7. DEFAULTS AND REMEDIES ............................................................15
7.1 Defaults .................................................................15
7.2 Remedies .................................................................16
7.3 Remedies Cumulative ......................................................17
8. EXPENSES AND INDEMNITIES .........................................................17
9. MISCELLANEOUS ....................................................................18
9.1 Demand; Protest; etc .....................................................18
9.2 PBC's Liability for Inventory or Equipment ...............................18
9.3 NOTICES ..................................................................18
9.4 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER ...............................19
9.5 DESTRUCTION OF BORROWER'S DOCUMENTS ......................................19
9.6 Effectiveness ............................................................19
9.7 Successors and Assigns ...................................................19
9.8 Section Headings .........................................................19
9.9 Interpretation ...........................................................19
9.10 Publicity ................................................................20
9.11 Severability of Provisions ...............................................20
9.12 Amendments in Writing ....................................................20
9.13 Counterparts .............................................................20
Page II
This LOAN AND SECURITY AGREEMENT, is entered into as of February 20, 2001,
between PREFERRED BUSINESS CREDIT, INC. a California corporation ("PBC"),
located at P. O. Xxx 00000, Xxxxxxxx, XX 00000, and XXX PHARMACEUTICALS, a
California corporation ("Borrower") located at 0000 Xxxxx Xxxxx Xxxxxx, Xxxxx Xx
Xxxxx, XX 00000.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used 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 or the rendition 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.
"Agreement" means this Loan And Security Agreement and any
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan And Security Agreement. This Loan and Security
Agreement amends and supercedes that Loan and Security Agreement dated October
29, 1999 by and between FINOVA Capital Corporation and Xxx Pharmaceuticals.
"Authorized Officer" means any officer of Borrower
authorized in writing to transact business with PBC.
"Base Rate" means the variable rate of interest, per
annum, most recently announced by UNION BANK OF CALIFORNIA, N.A., (or any
successor thereto), from time to time as its "base rate", which may not be such
institution's lowest rate (the "Base Rate"), with the understanding that the
"Base rate" merely serves as a basis upon which effective rates of interest are
calculated for loans making reference thereto and may not be the lowest or best
rate available from such financial institution.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records indicating, summarizing, or evidencing
Borrower's assets or liabilities, or the Collateral; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day, which is not a Saturday,
Sunday, or other day on which banks in the state of California are authorized
or required to close.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts;
the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; the Investment Property; any money, or other assets of Borrower
which hereafter come into the possession, custody, or control of PBC and the
proceeds and products, whether tangible or intangible, of any of the foregoing,
including proceeds of insurance covering any or all of the Collateral, and any
and all Accounts, Equipment, General Intangibles, Investment Property,
Negotiable Collateral, money, deposit accounts, or other tangible or intangible
property resulting from the sale or other disposition of the Collateral, or any
portion thereof or interest therein, and the proceeds thereof.
1
"Daily Balance" means the amount of the Obligations owed
by Borrower at the end of a given day.
"Eligible Accounts" means those Accounts created by
Borrower in the ordinary course of business arising out of Borrower's sale of
goods or rendition of services, which have been validly assigned and strictly
comply with all of Borrower's representations and warranties to PBC, and which
are and at all times shall continue to be acceptable to PBC in all respects;
PROVIDED, HOWEVER, that standards of eligibility may be fixed and revised from
time to time by PBC in PBC's exclusive judgment. Eligible Accounts shall not
include the following:
(a) Accounts which the account debtor has failed to pay
within NINETY (90) days of invoice date;
(b) Accounts with selling terms of more than thirty (30)
days;
(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, xxxx 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
not a resident of the United States, and which are not either (1) covered by
credit insurance in form and amount, and by an insurer, satisfactory to PBC, or
(2) supported by one or more letters of credit in favor of PBC as
co-beneficiary, in an amount and of a tenor, and issued by a financial
institution, acceptable to PBC;
(f) Accounts with respect to which the account debtor is
the United States or any department, agency, or instrumentality of the United
States, any State of the United States, or any city, town, municipality, or
division thereof;
(g) Accounts with respect to which the account debtor is
a subsidiary of, related to, affiliated with or has common shareholders,
officers or directors with Borrower;
(h) Accounts with respect to which Borrower is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower;
(i) Accounts with respect to an account debtor whose total
obligations to Borrower exceed ten percent (10%) of all Eligible Accounts to the
extent such obligations exceed the aforementioned percentage;
(j) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto, or is subject to any
insolvency proceeding, or becomes insolvent, fails, or goes out of business; and
(k) Accounts the collection of which PBC believes to be
doubtful by reason of the account debtor's financial condition.
"Eligible Inventory" means Inventory consisting of first
quality finished goods held for resale in the ordinary course of Borrower's
business and raw materials for such finished goods, which are located at
Borrower's premises and acceptable to PBC in all respects. Eligible Inventory
shall not include work in process, components which are not part of finished
goods, spare parts, packaging and Shipping materials, supplies used or consumed
in Borrower's business, Inventory at the premises of third parties or subject to
a security interest or lien in favor of any third party, xxxx and hold goods,
inventory
2
which is not subject to PBC's perfected security interest, returned and/or
defective goods, "seconds" and Inventory purchased on consignment. Eligible
Inventory shall be valued at the lower of Borrower's cost or market.
"Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, parts, dies, jigs, goods (other than consumer
goods or farm products), and any interest in any of the forgoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the forgoing, wherever located.
"ERISA" means the Employee Retirement Income Security act
of 1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or
not incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b) (1), or IRC Section 414.
"PBC Expenses" means all: costs or expenses (including
taxes and insurance premiums) required to be paid by Borrower under any of the
Loan Documents which are paid or advanced by PBC: filing, recording,
publication, appraisal, and search fees paid or incurred by PBC in connection
with PBC's transactions with Borrower; costs and expenses incurred by PBC in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges
resulting from the dishonor of checks; costs and expenses incurred by PBC to
correct any default or enforce any provision of the Loan Documents, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any
portion thereof, whether or not a sale is consummated; costs and expenses of
auditing Borrower; costs and expenses of third party claims or any suit incurred
by PBC in enforcing or defending the Loan Documents; and PBC's reasonable
attorneys' fees and expenses incurred in advising, structuring, drafting,
reviewing, administering, amending, terminating, enforcing, defending, or
concerning the Loan Documents, whether or not suit is brought.
"GAAP" means generally accepted accounting principles as
in effect from time to time.
"General Intangibles" means all of Borrower's present and
future general intangibles and other personal property (including choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blue prints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, monies due under any royalty or
licensing agreements, infringement claims, computer programs, computer discs,
computer tapes, literature, reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims) other than goods and
Accounts, and Borrower's Books relating to any of the foregoing.
"Insolvency Proceeding" means any proceeding commenced by
or against any person or entity 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, or extensions generally with its creditors.
"Inventory" means all present and future inventory in
which borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packaging and shipping
materials, wherever located, and any documents of title representing any of the
above, and Borrower's books relating to any of the foregoing.
3
"Investment Property" means all of Borrower's presently
existing and hereafter acquired or arising investment property (as that term is
defined in Section 9115 of the Code).
"IRC" means the Internal Revenue Code of 1986, as amended,
and regulations thereunder.
"Judicial Officer or Assignee" means any trustee,
receiver, controller, custodian, assignee for the benefit of creditors, or any
other person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian, or assignee for the
benefit of creditors.
"Loan Documents" means, collectively, this Agreement, any
note or notes (including the term note) executed by Borrower to the order of
PBC, and any other agreement entered into between Borrower and PBC in connection
with this Agreement.
"Multiemployer plan" means a "multiemployer plan" as
defined in ERISA Section 3(37) or 4001(a)(3) or IRC Section 414(f), which covers
employees of the Borrower of any ERISA Affiliate.
"Negotiable Collateral" means all of Borrower's present
and future letters of credit, notes, drafts, instruments, documents, leases, and
chattel paper, and Borrower's books relating to any of the foregoing.
"Obligations" means all loans, advances, debts, principal,
interest (including any interest which, but for the provisions of the United
States Bankruptcy Code, would have accrued), premiums, liabilities (including
all amounts charged to Borrower's loan account pursuant to any agreement
authorizing PBC to charge Borrower's loan account), obligations, fees (including
early termination fees), lease payments, guaranties, covenants, and duties owing
by Borrower to PBC of any kind and description (whether pursuant to or evidenced
by the Loan Documents, by any note or other instrument, or by any other
agreement between PBC and Borrower, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from Borrower to others which PBC may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all PBC Expenses which Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Plan" means any plan described in ERISA Section 3(2)
maintained for employees of Borrower or any ERISA Affiliate, other than a
Multiemployer plan.
"Prohibited Transaction" means any transaction described
in Section 406 of ERISA, which is not exempt by reason of Section 408 of ERISA,
and any transaction, described in Section 4975(c) of the IRC, which is not
exempt by reason of Section 4975(c)(2) of the IRC.
"Reportable Event" means a reportable event described in
Section 4043 of ERISA or the regulations thereunder, a withdrawal from a plan
described in Section 4063 of ERISA, or a cessation of operations described in
Section 4068(f) of ERISA.
"Term Note" has the meaning set forth in Section 2.2.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
4
1.3 CODE. Any terms used in this Agreement, which are defined in
the Code, shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, to the
singular include the plural. The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
sub-section, clause, and exhibit references are to this Agreement unless
otherwise specified.
1.5 EXHIBITS. All of the exhibits attached to this Agreement shall
be deemed incorporated herein by reference.
2. LOANS; INTEREST RATE AND OTHER CHARGES
2.1 REVOLVING ADVANCES. Subject to the terms and conditions of
this Agreement, PBC agrees to make revolving advances to Borrower in an amount
not to exceed the Borrowing Base. For purposes of this Agreement "Borrowing
Base" shall mean the sum of:
(a) An amount equal to the lesser of:
(I) SEVENTY FIVE PERCENT (75%) of the amount of Eligible Accounts; and (II) an
amount equal to Borrower's cash collections for the immediately preceding
forty-five (45) day period; plus
(b) An amount equal to the least of:
(I) TWENTY FIVE PERCENT (25%) of the amount of Eligible Inventory, (II) the
outstanding balance of advances against Eligible Accounts and (III) THREE
HUNDRED THOUSAND DOLLARS ($300,000.00) evidenced by a Secured Promissory Note of
even date.
PBC shall have no obligation to make advances hereunder to
the extent they would cause the outstanding balance of revolving advances under
this Section 2.1 to exceed a maximum amount of ONE MILLION FOUR HUNDRED THOUSAND
AND 00/100 DOLLARS ($1,400,000.00). PBC is authorized to make advances under
this Agreement based upon telephonic or other instructions received from anyone
purporting to be an officer, employee or representative of Borrower, or without
instructions if in PBC's discretion such advances are necessary to meet
Obligations. PBC will charge the amount of advances made under this Section 2.1
to Borrower's loan account. Amounts borrowed pursuant to this Section 2.1 may be
repaid and reborrowed at any time during the term of this Agreement so long as
no Event of default has occurred and is continuing.
2.2 TERM LOAN. PBC has agreed to make a term loan to Borrower
evidenced by, and repayable in accordance with, that certain Secured Promissory
Note, of even date herewith, by Borrower to the order of PBC, in the original
principal amount of N/A (the "Term Note"). Obligations owing under the Term Note
shall constitute Obligations, and the Term Note, together with each amendment,
extension, supplement, or replacement thereto, shall be deemed to be a Loan
Document.
2.3 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to PBC pursuant to Section 2.1 is greater than the
dollar or percentage limitation set forth in Section 2.1 (an "overadvance"),
Borrower shall immediately pay to PBC, in cash, the amount of such excess, plus
any fees owing pursuant to Section 2.7(b).
2.4 INTEREST: RATE; PAYMENTS; AND CALCULATIONS.
(a) INTEREST RATE. Except as specified to the contrary in
any Loan Document, the obligations shall bear interest, on the average Daily
Balance, at a rate of EIGHT PERCENTAGE POINTS (8%) above the Base Rate.
5
(b) DEFAULT RATE. All obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate of Ten
PERCENTAGE POINTS (10%) above the Base Rate.
(c) MINIMUM INTEREST. In no event shall interest
chargeable hereunder be less than ONE PERCENT (1.0%) per month, nor less than
THREE THOUSAND AND 00/100 DOLLARS ($3,000.00) per month.
(d) PAYMENTS. Interest hereunder shall be due and payable
on the first Business Day of each calendar month during the term hereof. PBC
shall, at its option, charge such interest and all PBC Expenses to Borrower's
loan account, which amounts shall thereafter accrue interest at the rate then
applicable hereunder.
(e) COMPUTATION. The Base Rate as of this date is EIGHT
AND ONE HALF Percent (8.5%) per annum. In the event the Base Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased by an amount equal to the Base Rate change on the
effective date of such change. 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.
2.5 CREDITING PAYMENTS. The receipt of any wire transfer of
funds, check, or other item of payment by PBC shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds
and is made to the appropriate deposit account of PBC or unless and until
such check or other item of payment is honored when presented for payment.
For interest calculation purposes, the receipt of any check, wire transfer,
or other item of payment by PBC shall be deemed to have been paid to PBC FIVE
(5) calendar days after the date PBC actually receives such wire transfer or
possession of such check or other item of payment. Notwithstanding anything
to the contrary contained herein, any wire transfer or payment received by
PBC after 10:00 a.m. Los Angeles time shall be deemed to have been received
by PBC as of the opening of business on the immediately following business
day.
2.6 STATEMENT OF OBLIGATIONS. PBC shall render statements to
Borrower of the Obligations, including all statements of principal, interest,
fees, and PBC Expenses owing, and such statements shall be conclusively presumed
to be correct and accurate and constitute an account stated between Borrower and
PBC unless, within thirty (30) days after receipt thereof by Borrower, Borrower
shall deliver to PBC by registered or certified mail at its address specified
herein above, written objection thereto describing the error or errors, if any,
contained in any such statements.
2.7 FEES. Borrower shall pay to PBC the following fees:
(a) INITIAL FACILITY FEE. Concurrently with the execution
and delivery of this Agreement, a fee (the "Initial Facility Fee") in the amount
of N/A AND 00/100 Dollars ($N/A). The Initial Facility Fee shall be fully earned
at the time of payment and non-refundable;
(b) OVERADVANCE FEE. Upon the occurrence of any
Overadvance, a fee in an amount equal to one percent (1%) of the dollar amount
of such Overadvance, and every thirty (30) days thereafter that an Overadvance,
or any portion thereof, remains outstanding, a fee in an amount equal to one
percent (1%) of the highest dollar amount of Overadvance existing on any day
during the previous thirty (30) day period.
(c) ANNUAL FACILITY FEE. On each anniversary date of the
effective date of this Agreement while any Obligations are outstanding, a fee
(the "Annual Facility Fee") in the amount equal to N/A percent (-0-%) of the
maximum amount of revolving advances allowable under Section 2.1. The Annual
Facility Fee shall be fully earned at the time of payment and non-refundable.
6
(d) FINANCIAL EXAMINATION AND APPRAISAL. PBC's customary
fee of Five Hundred Dollars ($500) per day per examiner, plus out-of pocket
expenses for each financial analysis and examination of Borrower performed by
PBC or its agents.
(e) COLLATERAL MANAGEMENT FEE. On the first day of each
month while this Agreement remains in effect, a fee (the "Collateral Management
Fee") in an amount equal to N/A% of Borrower's net sales for the preceding
month. The Collateral Management fee shall be based upon Borrower's sales as
assigned/or reported to PBC each month.
2.8 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon acceptance by PBC and shall continue in full force and effect for a term
ending May 20, 2003 (the "Renewal Date") and shall be automatically renewed for
successive ONE (1) year periods thereafter, unless sooner terminated pursuant
to terms hereof. Either party may terminate this Agreement on the Renewal Date
or on any anniversary of the Renewal date by giving the other party at least
ninety (90) days prior written notice by registered or certified mail, return
receipt requested. Notwithstanding the foregoing, PBC shall have the right to
terminate this Agreement immediately and without notice upon the occurrence of
an Event of Default.
2.9 EFFECT OF TERMINATION. On the date of termination, all
Obligations shall become immediately due and payable without notice or demand.
No termination of this Agreement, however, shall relieve or discharge Borrower
of Borrower's duties, Obligations, and covenants hereunder, and PBC's continuing
security interest in the Collateral shall remain in effect, until all
Obligations have been fully discharged and PBC's obligation to provide advances
hereunder is terminated. If Borrower has sent a notice of termination pursuant
to the provisions of Section 2.10, but fails to pay all Obligations as of the
date set in said notice, then PBC may, but shall not be required to, renew this
Agreement for an additional term of one (1) years.
2.10 EARLY TERMINATION BV BORROWER. Before May 21, 2003, the
Borrower has the option, on ninety (90) days prior written notice to PBC, to
terminate this Agreement on a date other than an anniversary of the effective
date by paying to PBC, in cash, the Obligation together with all accrued and
unpaid interest and expense and a prepayment penalty of FIFTEEN THOUSAND Dollars
($15,000.00).
2.11 TERMINATION UPON EVENT OF DEFAULT. If PBC terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of PBC's lost
profits as a result thereof, Borrower shall pay to PBC upon the effective date
of such termination, a fee ("Early Termination Fee") in an amount equal to THE
MINIMUM INTEREST DUE FOR THE REMAINING TERM OF THE AGREEMENT. The Early
Termination Fee shall be presumed to be the amount of damages sustained by PBC
as the result of the early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early Termination Fee provided
for in this Section 2.11 shall be deemed included in the Obligations.
3. SECURITY
3.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to PBC 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. PBC's security interest in the
Collateral shall attach to all Collateral without further act on the part of PBC
or Borrower.
3.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of PBC, endorse and assign such
Negotiable Collateral to PBC and deliver physical possession of such Negotiable
Collateral to PBC.
7
3.3 COLLECTION OF ACCOUNTS, NEGOTIABLE COLLATERAL. PBC or PBC's
designee may, at any time: (a) notify, customers or account debtors of Borrower
that the Accounts or Negotiable Collateral have been assigned to PBC or that PBC
has a security interest therein; (b) require Borrower to establish a lockbox or
other restricted account satisfactory to PBC for the collection of Accounts; and
(c) collect the accounts and Negotiable Collateral directly and charge the
collection costs and expenses to Borrower's loan account; but, unless and until
PBC does so or gives Borrower other written instruction, Borrower shall collect
all Accounts and Negotiable Collateral for PBC, receive in trust all payments
thereon as PBC's trustee, and immediately deliver said payments to PBC in their
original form as received from the account debtor.
3.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
execute and deliver to PBC, prior to or concurrently with Borrower's execution
and delivery of this Agreement and at any time thereafter at the request of PBC,
all financing statements, continuation financing statements, fixture filings,
security agreements, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that PBC may reasonably request,
in form satisfactory to PBC, to perfect and maintain perfected PBC security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
3.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints PBC (and any of PBC's officers, employees, or agents
designated by PBC) as Borrower's true and lawful attorney, with power to: (a)
sign the name of Borrower on any of the documents described in Section 3.4 or on
any other similar documents to be executed, recorded, or filled in order to
perfect or continue perfected PBC's security interest in the Collateral; (b)
sign Borrower's name on any invoice or xxxx of lading relating to any Account,
drafts against account debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to account debtors; (c) send requests for
verification of Accounts; (d) endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts, or other forms of payment or security that
may come into PBC's possession; (e) notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by PBC, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward all other mail to Borrower; (f) make, settle, and
adjust all claims under Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of insurance; and (g)
settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which PBC determines to be
reasonable, and PBC may cause to be executed and delivered any documents and
releases which PBC determines to be necessary. The appointment of PBC as
Borrower's attorney, and each and every one of PBC's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and PBC's obligation to provide advances hereunder is
terminated.
3.6 RIGHT TO INSPECT. PBC (through any of its officers, employees,
or agents) shall have the right, from time to time hereafter, during Borrower's
usual business hours, or during the usual business hours of any third party
having control over the records of Borrower, to inspect Borrower's books and to
check and test the Collateral in order to verify Borrower's financial condition
or the amount, quality, value, condition of, or any other matter relating to,
the Collateral.
4. CONDITIONS OF CLOSING
4.1 INITIAL ADVANCE. Borrower agrees and acknowledges that PBC has
no obligation to make the initial advance hereunder until such time as PBC is
fully satisfied that (a) it has all the loan and related documents, properly
authorized and executed by Borrower, (b) it has a first secured position in the
Collateral, and (c) all other closing conditions reasonably required by PBC have
been met.
8
4.2 SUBSEQUENT ADVANCES. The obligation of PBC to make any
subsequent advance hereunder shall be subject to the further conditions
precedent that, on and as of the date of such advance: (a) the representations
and warranties of Borrower set forth in this Agreement shall be accurate, before
and after giving effect to such advance and to the application of any proceeds
thereof; (b) no Event of Default and no event which, with notice or passage of
time or both, would constitute an Event of Default has occurred and is
continuing, or would result from such advance or from the application of any
proceeds thereof; (c) no material adverse change has occurred in the Borrower's
business, operations, or financial condition, or in the condition of the
Collateral or other assets of Borrower or in the prospect of repayment of the
Obligations; and (d) PBC shall have received such other approvals, opinions or
documents as PBC shall reasonably request.
5. REPRESENTATION AND WARRANTIES
Borrower represents and warrants as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of liens, claims, security interest, or
encumbrances (except as held by PBC and except as may be specifically consented
to, in advance and in writing, by PBC).
5.2 BONA FIDE ACCOUNTS. The Accounts are, and at all times
hereafter shall be, bona fide existing obligations created by the sale and
delivery of Inventory or the rendition of services to account debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
The property giving rise to such 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, and at all
times hereafter, shall not have, received notice of actual or imminent
bankruptcy, insolvency, or financial embarrassment of any account debtor at the
time an Account due from such account debtor is assigned to PBC.
5.3 MERCHANTABLE INVENTORY AND INVENTORY RECORDS. All Inventory is
now and at all times hereafter shall be of good and marketable quality, free
from defects. Borrower now keeps and hereafter at all times shall keep, correct
and accurate records itemizing and describing the kind type, quality and
quantity of the Inventory, and Borrower's cost therefor.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment is not now and shall not at any time hereafter be stored with a
bailee, warehouseman, or similar party without PBC's prior written consent.
Borrower shall keep the Inventory and Equipment only at the following
location(s):
1428, 1434, 1444, 1460, 1470, 1500 AND 0000 XXXXX XXXXX XXX., X. XX
XXXXX, XX 00000 AND 1425 and 0000 XXXXXXXX XXX., X. XX XXXXX, XX 00000
5.5 LOCATION OF PRINCIPAL PLACE OF BUSINESS/CHIEF EXECUTIVE
OFFICE/RESIDENCE. The chief executive office or residence of Borrower is at the
address indicated in the first paragraph of this Agreement and Borrower
covenants and agrees that it will not, without thirty (30) days prior written
notification to PBC, relocate such principal place of business, chief executive
office, or residence.
5.6 DUE ORGANIZATION AND QUALIFICATION If Borrower is a
corporation it is and shall at all times hereafter be duly organized and
existing and in good standing under the laws of the state of its incorporation
and qualified and licensed to do business in, and in good standing in, any state
in which the conduct of its business or its ownership of property requires that
it be so qualified; if Borrower is a partnership, or limited liability company,
it is and shall at all times hereafter be duly organized and existing and in
good standing under the laws of the state of its organization and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or the ownership of property requires that its be so
qualified.
9
5.7 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate, partnership,
trust, limited liability company or personal powers, as the case may be, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's Articles or Certificate of Incorporation,
By-laws, or any operating agreement, partnership or trust agreement pertaining
to Borrower, nor will they constitute an event of default under any material
agreement to which Borrower is now or may hereafter become a party.
5.8 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for ongoing
collection matters in which Borrower is the plaintiff. If any of the forgoing
arises during the term of this Agreement, Borrower shall promptly notify PBC in
writing.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
financial statements relating to Borrower or any guarantor of the Obligations
which have been or may hereafter be delivered by Borrower to PBC have been
prepared in accordance with GAAP and fairly present Borrower's financial
condition as of the date thereof and Borrower's results of operations for the
period then ended. There has been no material adverse change in the financial
condition of Borrower or any guarantor since the date of the most recent of such
financial statements submitted to PBC.
5.10 SOLVENCY. Borrower is now and shall be at all times hereafter
solvent and able to pay its debts (including trade debts) as they mature.
5.11 ER1SA. None of Borrower, any ERISA Affiliate, or any plan is
or has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a), or any of the published
interpretations there under. No notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA, nor has any Plan been terminated under
Section 4041(e) of ERISA. The PBGC has not instituted proceedings to terminate,
or appoint a trustee to administer, a plan an no event has occurred or condition
exists which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan. Neither
Borrower nor any ERISA Affiliate would be liable for any amount pursuant to
Section 4062, 4063, or 4064 of ERISA if all Plans terminated as of the most
recent valuation dates of such Plans. Neither Borrower nor any ERISA Affiliate
have: withdrawn from a "multiple employer plan" during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; or failed
to make a payment to a plan required under Section 302(f)(1) of ERISA such that
security would have to be provided pursuant to Section 307 of ERISA. No lien
upon the assets of Borrower has arisen with respect to any plan. No Prohibited
Transaction or Reportable Event has occurred with respect to Plan. Neither
Borrower nor any ERISA Affiliate has incurred any withdrawal liability with
respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have made
all contributions required to be made by them to any plan or Multiemployer Plan
when due. There is no accumulated funding deficiency in any Plan, whether or not
waived.
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. None of Borrower's properties or assets has ever been designed 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. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state 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.
10
5.13 RELIANCE BY PBC; CUMULATIVE. Each warranty, representation,
and agreement contained in this Agreement shall be automatically deemed repeated
with each advance and shall be conclusively presumed to have been relied on by
PBC regardless of any investigation made or information possessed by PBC. The
warranties, representation, and agreements set forth herein shall be cumulative
and in addition to any and all other warranties, representations, and agreements
which Borrower shall now or hereafter give, or cause to be given, to PBC.
6. COVENANTS
6.1 AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, so
long as any credit hereunder shall be available and until payment in full of the
Obligations, and unless PBC shall otherwise consent in writing, Borrower shall
do all of the following:
6.1.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP with
ledger and account cards or computer tapes, disks, printouts, and records
pertaining to the Collateral which contain information as may from time to time
be requested by PBC. Borrower shall also keep proper books of Accounts showing
all Sales, claims, and allowances on its inventory.
6.1.2 COLLATERAL REPORTS. Borrower shall, deliver to PBC, no later
than the tenth (10th) day of each month during the term of this Agreement, a
detailed aging, by total, of the accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any book overdraft.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each account debtor with a copy to PBC, and, at PBC's direction, the invoices
shall indicate on their face that the Account has been assigned to PBC and that
all payments are to be made directly to PBC. Borrower shall deliver to PBC, as
PBC may from time to time require, collection reports, sales journals, invoices,
original delivery receipts, customer's purchase orders, shipping instructions,
bills of lading and other documentation respecting shipment arrangements. Absent
such a request by PBC, copies of all such documentation shall be held by
Borrower as custodian for PBC.
6.1.3 ASSIGNMENTS OF ACCOUNTS. Borrower shall provide PBC with
schedules describing all Accounts and shall execute and deliver to PBC
assignments of all Accounts. Borrower's failure to execute and deliver such
schedules or assignments shall not affect or limit PBC's security interest or
other rights in and to the Accounts.
6.1.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees
to deliver to PBC: (a) as soon as available, but in any event within forty-five
(45) days after the end of each fiscal quarter during each of Borrower's fiscal
years, a company prepared balance sheet, income statement and cash flow
statement covering Borrower's operations during such period; and (b) as soon as
available, but in any event within one hundred twenty (120) days after the end
of each of Borrower's fiscal years, financial statements of Borrower for each
such fiscal year, reviewed by independent certified public accountants
acceptable to PBC and certified, without any qualifications, by such accountants
to have been prepared in accordance with GAAP, consistently applied, together
with a certificate of such accountants addressed to PBC stating that such
accountants do not have knowledge of the existence of any event or condition
constituting an Event of Default. Such reviewed financial statements shall
include a balance sheet, profit and loss statement, and cash flow statement, and
such accountants' letter to management. Borrower shall have issued written
instructions to its independent certified public accountants, authorizing them
to communicate with PBC and to release to PBC whatever financial information
concerning Borrower that PBC may request. If Borrower is a parent company of one
or more subsidiaries, or affiliates, or is a subsidiary or affiliate of another
company, then, in addition to the financial statement referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and on
a consolidated basis.
11
Together with the above, Borrower shall also deliver to PBC any
other report reasonably requested by PBC relating to the Collateral and the
financial condition of Borrower.
Each month Borrower shall deliver to PBC a certificate signed by
its chief financial officer to the effect that: (a) all reports, statements, or
computer prepared information of any kind or nature delivered or caused to be
delivered to PBC hereunder have been prepared in accordance with GAAP,
consistently applied and fully and fairly present the financial condition of
Borrower; (b) Borrower is in timely compliance with all representations,
warranties, and covenants hereunder; and (c) on the date of delivery of such
certificate to PBC there does not exist any condition or event which constitutes
an Event or Default.
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to PBC, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to PBC any
information they may have regarding Borrower's business affairs and financial
conditions.
6.1.5 TAX RETURNS, RECEIPTS: Borrower agrees to deliver to PBC
copies of Borrower's future federal income tax returns and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
6.1.6 GUARANTOR REPORTS. Borrower agrees to cause all guarantors
of any of the Obligations to deliver their annual financial statements and
copies of all federal income tax returns as soon as the same are available and
in any event no later than thirty (30) days after the same are required to be
filed by law.
6.1.7 DESIGNATION OF INVENTORY AND RETURNS. Borrower shall now and
from time to time hereafter, but not less frequently than monthly, execute and
deliver to PBC a designation of Inventory specifying Borrower's cost and the
wholesale market value of Borrower's raw materials, work in process, and
finished goods, and further specifying such other information as PBC may
reasonably request. 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. If at any time prior to the occurrence of an Event
of Default, any account debtor returns any Inventory to Borrower, Borrower shall
promptly determine the reason for such return and, if Borrower accepts such
return, issue a credit memorandum (with a copy to be sent to PBC) in the
appropriate amount to such account debtor. Borrower shall promptly notify PBC of
all returns and recoveries and of all disputes and claims.
6.1.8 TITLE TO EQUIPMENT. Upon PBC's request, Borrower shall
immediately deliver to PBC, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Equipment.
6.1.9 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain
the Equipment in good operating condition and repair, make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any item of
Equipment to become a fixture to real estate or an possession to other property,
and the Equipment is now and shall at all times remain personal property.
6.1.10 TAXES. All assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property have been paid, and shall hereafter be paid in
full, before delinquency or before the expiration of any extension period.
Borrower shall make due and timely payment or deposit of all federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to PBC, on demand, appropriate certificates attesting to the
payment or deposit thereof. Borrower will make timely payment or deposit of
12
all tax payments and withholding taxes required of it by applicable laws,
including, but not limited to, those laws concerning F.I.C.A., and F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon
request, furnish PBC with proof satisfactory to PBC indicating that Borrower has
made such payments or deposits.
6.1.11 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss of 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. Borrower shall also maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Collateral.
(b) All such policies of insurance shall be in such form,
with such companies, and on such amounts as satisfactory to PBC. All such
policies of insurance (except those of public liability and property damage)
shall contain a 438BFU lender's loss payable endorsement, or an equivalent
endorsement in a form satisfactory to PBC, showing PBC as sole loss payee
thereof, and shall contain a waiver of warranties, and shall specify that, the
insurer must give at least ten (10) days notice to PBC before canceling its
policy for any reason. Borrower shall deliver to PBC certified copies of such
policies of insurance and evidence of the payments of all premiums therefor. All
proceeds payable under any such policy shall be payable to PBC to be applied on
account of the Obligations.
6.1.12 PBC EXPENSES. Borrower shall immediately and without
demand reimburse PBC for all sums expended by PBC which constitute PBC Expenses
and Borrower hereby authorizes and approves all advances and payments by PBC for
items constituting PBC Expenses.
6.2 NEGATIVE COVENANTS. Borrower covenants and agrees that, so
long as any credit hereunder shall be available and until payment in full of the
Obligations, Borrower will not do any of the following without PBC's prior
written consent:
6.2.1 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including but not limited to, the sale, lease, or other disposition
of, moving, relocation, or transfer, whether by sale or otherwise, of any of
Borrower's assets (other than sales of Inventory in the ordinary and usual
course of Borrower's business as presently conducted), the incurrence of any
debts outside the ordinary and usual course of Borrower's business except for
renewals or extensions of existing debts, or the making of any advance or loan
except in the ordinary course of business as presently conducted, or the
suspension of Borrower's business.
6.2.2 CHANGE NAME. Change Borrower's name, business structure, or
identity, or add any new fictitious name.
6.2.3 MERGE, ACQUIRE. Acquire, merge, or consolidate with or into
any other business organization.
6.2.4 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the account of Borrower of which
are transmitted or turned over to PBC.
6.2.5 RESTRUCTURE. Make any change in Borrower's financial
structure or in any of its business operations, or change the date of its fiscal
year.
6.2.6 PREPAYMENT. Prepay any existing indebtedness owing to any
third party.
13
6.2.7 CHANGE OF OWNERSHIP. Cause, permit, or suffer any change,
direct or indirect, in Borrower's ownership in excess of ten percent (10%).
6.2.8 CAPITAL EXPENDITURES. Make any plant or fixed capital
expenditure, or any commitment therefor, or purchase or lease any real or
personal property or replacement equipment subject to a purchase money security
interest, trust deed or lease, in excess of FIFTY THOUSAND AND 00/100 Dollars
($50,000.00) for any individual transaction or where the aggregate amount of
such transactions, in any fiscal year, is in excess of FIFTY THOUSAND AND 00/100
Dollars ($50,000.00).
6.2.9 CONSIGNMENTS. Consign any Inventory, sell any goods on xxxx
and hold, or other unusual terms of sale.
6.2.10 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire any
of Borrower's capital stock, of any class, whether now or hereafter outstanding.
6.2.11 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement presently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide PBC
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by PBC pursuant to or in accordance with this Agreement, and agrees
that PBC may contact directly any such accounting firm or service bureau in
order to obtain such information.
6.2.12 INVESTMENTS. Directly or indirectly make or any beneficial
interest in (including stock, partnership interest, or other securities of), or
make any loan, advance, or capital contribution to, any corporation,
association, person, or entity, in excess of Fifty Thousand and 00/100 Dollars
($50,000.00).
6.2.13 TRANSACTIONS WITH AFFILIATES. Borrower will not directly or
indirectly enter into or permit to exist any material transaction with any
person or entity controlling, controlled by, or under common control (whether by
contract, ownership of voting securities, or otherwise) with Borrower except for
transactions which are in the ordinary course of Borrower's business, upon fair
and reasonable terms and which are fully disclosed to PBC and no less favorable
to Borrower than would be obtained in an arm's length transaction with a
non-affiliated person or entity.
7. DEFAULTS AND REMEDIES
7.1 DEFAULTS. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
(a) If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the United
States Bankruptcy Code, would have accrued on such accounts), fees and charges
due PBC, taxes, reimbursement of PBC Expenses, or otherwise);
(b) If Borrower fails or neglects to perform, keep, or
observe any 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 PBC;
(c) If there is a material impairment of the prospect of
repayment of any portion of the Obligations owing to PBC or a material
impairment of the value or priority of PBC's security interests in the
Collateral;
14
(d) If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any judicial officer or assignee;
(e) If an Insolvency Proceeding is commenced by Borrower;
(f) If an Insolvency Proceeding is commenced against
Borrower;
(g) 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;
(h) If a notice of lien, levy, or assessment is filed or
recorded 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 other governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether xxxxxx or otherwise, upon any of Borrower's assets and the same is not
paid on the payment date thereof;
(i) If a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's assets;
(j) If there is default in any material agreement to which
Borrower is a party with third parties resulting in a right by such third
parties, whether or not exercised, to accelerate the maturity of Borrower's
indebtedness;
(k) If Borrower makes any payment on account of
indebtedness which has been subordinated to the Obligations except to the extent
such payment is allowed under any subordination agreement entered into with PBC;
(l) If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to PBC by
Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty, or representation is withdrawn by any officer or director;
(m) If any guaranty of the Obligations is limited or
terminated by operation of law or by the guarantor thereunder, or any guarantor
becomes the subject of an Insolvency Proceeding;
(n) If a Prohibited Transaction or Reportable Event shall
occur with respect to a Plan which could have a material adverse effect on the
financial condition of Borrower; if any lien upon the assets of Borrower in
connection with any plan shall arise; if Borrower or any ERISA Affiliate shall
completely or partially withdraw from a Multiemployer Plan or a Multiple
Employer Plan of which Borrower or such ERISA Affiliate was a substantial
employer, and such withdrawal could, in the opinion of PBC, have a material
adverse effect on the financial condition of Borrower; if Borrower or any of its
ERISA Affiliates shall fail to make full payment when due of all amounts which
Borrower or any of its ERISA Affiliates may by required to pay to any Plan or
any Multiemployer plan as one or more contributions thereto; if Borrower or any
of its ERISA Affiliates creates or permits the creation of any accumulated
funding deficiency, whether or not waived; or upon the voluntary or involuntary
termination of any Plan which termination could, in the opinion of PBC, have a
material adverse effect on the financial condition of Borrower, or Borrower
shall fail to notify PBC promptly and in any event within ten (10) days of the
occurrence of any event which constitutes an Event of Default under this clause
or would constitute such an Event of Default upon exercise of PBC's judgment; or
(o) If any writing, document, aging, certificate or other
evidence of the Accounts or Inventory shall be materially incomplete, incorrect,
or misleading at the time the same is furnished to PBC.
7.2. REMEDIES. Upon the occurrence of an Event of Default PBC 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:
15
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and PBC;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or Obligation of PBC, but without affecting
PBC's rights and security interest in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which PBC considers advisable, and in
such cases, PBC will credit Borrower's loan account with only the net amounts
received by PBC in payment of such disputed Accounts, after deducting all PBC
Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for PBC, segregate all returned Inventory from all other property of Borrower or
in Borrower's possession and conspicuously label said returned Inventory as the
property of PBC;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts, as PBC considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if PBC so requires, and to make the Collateral
available to PBC as PBC may designate. Borrower authorizes PBC 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 PBC'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 PBC a license to enter into possession of such premises and to occupy the
same, without charge, for up to ninety (90) days in order to exercise any of
PBC's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Set off and apply any and all balances and deposits
held by, or indebtedness at any time owing to or for the credit or the account
of Borrower by PBC without notice to Borrower (such notice being expressly
waived);
(h) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. PBC is hereby granted a license or other right 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
Borrower's rights under all licenses and all franchise agreements shall inure to
PBC's benefit;
(i) 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 premises) as PBC
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(j) PBC shall give notice of the disposition of the
Collateral as follows:
(1) PBC shall give the Borrower and each holder of a
security interest in the Collateral who has filed with PBC a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
16
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 9.3 of this
Agreement, at least five (5) calendar days before the date fixed for the
sale, or at least five (5) calendar days before the date on or after which
the private sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to persons other
than Borrower claiming and interest in the Collateral shall be sent to such
addresses as they have furnished to PBC;
(3) If the sale is to be a public sale, PBC shall
also give notice of the time and place by publishing a notice one time at
least five (5) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
(k) PBC may credit bid and purchase at any public sale;
and
(l) Any deficiency, which exists after disposition of the
Collateral, as provided above will be paid immediately by Borrower. Any excess
will be returned to Borrower, without interest and subject to the rights of
third parties, by PBC.
7.3 REMEDIES CUMULATIVE. PBC's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative. PBC
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by PBC or one right or remedy
shall be deemed an election, and no waiver by PBC of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by PBC shall
constitute a waiver, election, or acquiescence by it.
8. EXPENSES AND INDEMNITIES
8.1 If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that PBC determines that such failure by Borrower could have a material adverse
effect on PBC's interests in the Collateral, in its discretion and without prior
notice to Borrower, PBC may do any or all of the following: (a) make payment of
the same or any part thereof; (b) set up such reserves in Borrower's loan
account as PBC deems necessary to protect PBC from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type discussed in
Section 6.1.11 of this Agreement, and take any action with respect to such
policies as PBC deems prudent. Any amounts paid or deposited by PBC shall
constitute PBC Expenses, shall be immediately charged to Borrower's loan account
and become additional Obligations, shall bear interest at the then applicable
rate herein above provided, and shall be secured by the Collateral. Any payments
made by PBC shall not constitute an agreement by PBC to make similar payments in
the future or a waiver by PBC of any Event of Default under this Agreement. PBC
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance, or lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
9. MISCELLANEOUS
9.1 DEMAND; PROTEST; ETC. 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, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by PBC on which Borrower may in any way be liable.
9.2 PBC'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long as PBC
complies with its obligations, if any, under Section 9207 of the Code, PBC 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
17
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. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.
9.3 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
registered or certified mail, postage prepaid, return receipt requested, or by
prepaid telex, TWX, telefacsimile, or telegram (with messenger delivery
specified) to Borrower or to PBC, as the case may be, at its addresses set forth
below:
IF TO BORROWER: XXX PHARMACEUTICALS
0000 Xxxxx Xxxxx Xxxxxx
Xxxxx Xx Xxxxx, XX 00000
ATTN.: Xxxxxx X. Xxx, President
IF TO PBC: PREFERRED BUSINESS CREDIT, INC.
P. O. Xxx 00000 Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxx, President
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. All notices or demands sent in accordance with this Section 9.3, other
than notices by PBC in connection with Section 9504 or 9505 of the Code, shall
be deemed received on the earlier of the date of actual receipt or three (3)
calendar days after the deposit thereof in the mail. Borrower acknowledges and
agrees that notices sent by PBC in connection with Sections 9504 or 9505 of
the Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
9.4 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF
THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT AND THE RIGHTS
OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR AT THE SOLE OPTION OF PBC, IN ANY OTHER COURT IN
WHICH PBC SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHlCH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND PBC
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.4. BORROWER AND PBC
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 HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND PBC
EACH REPRESENT THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
18
9.5 DESTRUCTION OF BORROWER'S DOCUMENTS. All documents, schedules,
invoices, agings, or other papers delivered to PBC may be destroyed or otherwise
disposed of by PBC three (3) months after they are delivered to or received by
PBC, unless Borrower requests, in writing, the return of the said documents,
schedules, invoices or other papers and makes arrangements, at Borrower's
expense, for their return.
9.6 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and accepted and executed by PBC.
9.7 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights
hereunder without PBC's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by PBC shall release
Borrower from its Obligations. PBC may assign this Agreement and its rights and
duties hereunder. PBC reserves the right to sell, assign, transfer, negotiate,
or grant participations in all or any part of, or any interest in PBC's rights
and benefits hereunder. In connection therewith, PBC may disclose all documents
and information, which PBC now or hereafter may have relating to Borrower or
Borrower's business.
9.8 SECTION HEADINGS. Heading and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
9.9 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against PBC or Borrower, whether
under any rule of construction or otherwise. On the contrary, this Agreement has
been reviewed by all parties and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish the purposes
and intentions of all parties hereto.
9.10 PUBLICITY. PBC is hereby authorized by the undersigned to
issue appropriate press releases and to cause a tombstone to be published
announcing the consummation of this transaction.
9.11 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.
9.12 AMENDMENTS IN WRITING. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
19
9.13 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.
Borrower and PBC have executed this Agreement at PBC's place
of business in Pasadena, California.
XXX PHARMACEUTICALS
a California corporation
By: /s/ Xxxxxx X. Xxx, President
---------------------------------------
Xxxxxx X. Xxx, President
PREFERRED BUSINESS CREDIT, INC.
a California corporation
By: /s/ Xxxxxx Xxxxx, President
---------------------------------------
Xxxxxx Xxxxx, President
20
