ADDENDUM TO SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND/OR INVENTORY)
("SECURITY AND LOAN AGREEMENT") BETWEEN
MONTEREY PASTA COMPANY AND IMPERIAL BANK DATED
July 23, 1998
This Addendum is made and entered into July 23, 1998, between
Monterey Pasta Company ("Borrower") and Imperial Bank ("Bank").
This Addendum amends and supplements the Security and Loan
Agreement. In the event of any inconsistency between the terms
herein and the terms of the Security and Loan Agreement, the terms
herein shall in all cases govern and control. All capitalized terms
herein, unless otherwise defined herein, shall have the meaning set
forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security
and Loan Agreement, to make advances against Eligible Accounts and
Inventory shall expire on July 22, 1999, subject to Bank's right to
renew said commitment in its sole discretion. Any such renewal of
the commitment shall not be binding upon Bank unless it is in writing
and signed by an officer of the Bank.
2. As a condition precedent to Bank's obligation to make any
advances to Borrower, Borrower shall, among other things, (i)
provide to Bank a perfected security interest in all it owned patents
and trademarks in form and substance satisfactory to Bank and (ii)
cause any material copyright registerable works including software to
be promptly registered in the U.S. Copyright Office and execute and
deliver a mortgage of copyrights and amendments appropriate and
acceptable to Bank to perfect Bank's security interest in all proceeds
of such works.
3. In addition to the provisions in the Security and Loan Agreement,
Eligible Accounts shall only include such accounts as Bank in its sole
discretion shall from time to time determine are eligible. Eligible
Accounts shall also not include any of the following:
a. Accounts with respect to which the account debtor is an
officer, director, shareholder, employee, subsidiary or affiliate of
Borrower.
b. Accounts due from a customer if more than twenty five
percent (25%) or more of the aggregate amount of accounts of such
customer have at that time remained unpaid for more than ninety (90)
days from the invoice date.
c. Accounts representing xxxxxxxx for service or maintenance
contracts or for inventory or equipment on rent to the account debtor.
d. Accounts with respect to international transactions unless
insured or covered by a letter of credit in a manner and form
acceptable to the Bank.
e. Salesman's accounts for promotional purposes.
f. The amount by which any one account exceeds ten percent
(10%) (thirty five percent [35%] in the case of Price/Costco and
Walmart/Sam's Club, and fifteen percent [15%] in the case of
Safeway Stores, Kroger, Stop & Shop, American Stores/Lucky and
Albertson's) of the total accounts receivable balance. Bank may allow
higher concentration limits from time to time, as evidenced in writing
and signed by an officer of Bank.
g. Accounts where the account debtor is a seller to
borrower, to the extent that a potential offset exists.
h. Consignment or Guaranteed Sales,
i. US Government Accounts.
j. Credits over 90 days.
k. Bankrupt Accounts.
l. Accounts over 90 days past invoice date.
4. Pursuant to the provisions in the Security and Loan Agreement,
Bank will advance up to thirty percent (30%) of the Value of
Inventory at the request of Borrower made from time to time, up to a
maximum amount outstanding of $250,000.00 ("Inventory Sublimit").
Value of Inventory shall only include such inventory as Bank in its
sole discretion shall from time to time determine is eligible. Value of
Inventory shall include Inventory consisting of raw materials in the
original manufacturer's packaging, bulk raw materials, all properly
stored, and readily salable and shall not include Inventory consisting
of unused packaging, work in process, ingredients which have been
mixed with others or finished goods.
5. Borrower represents and warrants that:
a. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in
default with respect to any order, writ, injunction, decree or demand
of any court or other governmental or regulatory authority.
b. The balance sheet of Borrower dated as of May 28, 1998,
and the related profit and loss statement for the five fiscal months then
ended, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by
Borrower to Bank in connection with its request for credit are true and
correct, and said balance sheet and profit and loss statement truly
present the financial condition of Borrower as of the date thereof and
the results of the operations of Borrower for the period covered
thereby, and have been prepared in accordance with generally
accepted accounting principles on a basis consistently maintained.
Since such date, there have been no material adverse changes in the
financial condition or business of Borrower. Borrower has no
knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected
in said balance sheet, other than in the ordinary and normal course of
its business, which may have a materially adverse effect upon its
financial condition, operations or business as now conducted.
c. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
d. Borrower, as of the date hereof, possesses all necessary
trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated (collectively, these
rights are sometimes hereinafter referred to as "Intellectual
Property"), without any known conflict with valid trademarks, trade
names, copyrights, patents and license rights of others. Further,
Borrower agrees to do all things necessary for Bank to file its security
interest in any such Intellectual Property with the appropriate
recording office, and shall notify Bank when any such Intellectual
Property is acquired or otherwise becomes owned by Borrower.
6. Borrower agrees that so long as it is indebted to Bank, or so long
as Bank has any obligation to extend credit to Borrower, it will not,
without the prior written consent of Bank:
a. Make any substantial change in the character of its
business; or make any change in its executive management.
b. Create, incur, assume or permit to exist any indebtedness
for borrowed monies other than loans from Bank except obligations
now existing as shown in financial statement dated May 28, 1998,
excluding those being refinanced by Bank; or sell or transfer, either
with or without recourse, any accounts or notes receivable or any
monies due or to become due.
c. Create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or
other title retention agreement) upon any asset now owned or
hereafter acquired by it, other than liens for taxes not delinquent and
liens in Bank's favor.
d. Make any loans or advances to any person or other entity
other than in the ordinary and normal course of its business as now
conducted or make any investment in the securities of any person or
other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other
entity, except by endorsement of negotiable instruments for deposit or
collection in the ordinary and normal course of its business.
e. Purchase or otherwise acquire the assets or business of
any person or other entity; or liquidate, dissolve, merge or
consolidate, or commence any proceedings therefore; or except in the
ordinary and normal course of its business, sell (including without
limitation the selling of any property or other asset accompanied by
the leasing back of the same) any assets including any fixed assets,
any property, or other assets necessary for the continuance of its
business as now conducted.
Declare or pay any dividend or make any other distribution on any of
its capital stock now outstanding or hereafter issued or purchase,
redeem or retire any of such stock.
g. Make, or incur obligations for, capital expenditures in
excess of $1,000,000 in any one fiscal year. Bank will not consider
any request to exceed this limitation unless said request is
accompanied by written evidence of the unanimous approval of such
request by the Board of Directors of Borrower.
h. Make, or incur liability for, payments of rent under leases
of real property in excess of $100,000, and personal property in
excess of $100,000, in any one fiscal year. Bank will not consider
any request to exceed this limitation unless said request is
accompanied by written evidence of the unanimous approval of such
request by the Board of Directors of Borrower.
8. All financial covenants and financial information referenced herein
shall be interpreted and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with
previous years. Compliance with financial covenants shall be
calculated and monitored on a fiscal monthly, quarterly or annual
basis.
9. Borrower affirmatively covenants that so long as any loans,
obligations or liabilities remain outstanding or unpaid to Bank, or so
long as Bank has any obligation to extend credit to Borrower, it will:
a. At all times maintain a minimum tangible net worth
(meaning the excess of all assets, excluding any value for goodwill,
trademarks, patents, copyrights, organization expense and other
similar intangible items, less its liabilities, plus subordinated debt) of
not less than $4,450,000. The minimum tangible net worth shall
increase by $200,000 each fiscal quarter end beginning September 30,
1998.
b. At all times maintain a maximum ratio of total debt to
tangible net worth (total liabilities less subordinated debt divided by
tangible net worth), not to exceed 1.50 to 1.00.
c. At all times maintain a minimum working capital
(Borrower's current assets minus current liabilities) of not less than
$750,000.
d. At all times maintain a current ratio (current assets
divided by current liabilities) of not less than 1.25 to 1.00.
e. Maintain profitable operations on a fiscal year end basis
in the minimum amount of $250,000.00.
f. As of each fiscal year end, achieve a Debt Service
Coverage Ratio (net profit after tax plus depreciation and amortization
expense for the period divided by the current portion of long term
debt and capital leases) of not less than 2.5 to 1.0.
g. As soon as it is available, but not later than fifteen (15)
days after and as of the end of each fiscal month, deliver to Bank an
accounts receivable aging, accounts payable aging, inventory
summary, and transaction report together with supporting schedules in
form satisfactory to Bank, and certified by an officer of Borrower.
h. As soon as it is available, but not later than thirty (30)
days after and as of the end of each fiscal month, deliver to Bank a
financial statement consisting of a balance sheet and profit and loss
statement in form satisfactory to Bank, and a Compliance Certificate
certified by an officer of Borrower.
I. As soon as it is available, but not later than forty five (45)
days after the end of Borrower's fiscal quarter, deliver to Bank a form
10-Q containing a financial statement consisting of a balance sheet and
profit and loss statement in form satisfactory to Bank, together with a
Compliance Certificate certified by an officer of Borrower.
j. As soon as it is available, but not later than ninety (90)
days after the end of Borrower's fiscal year, deliver to Bank a 10-K
report containing a report of audit of Borrower's financial statements
together with changes in financial position certified without negative
qualification by an independent certified public accountant selected by
Borrower but acceptable to Bank together with a Compliance
Certificate certified by an officer of Borrower.
k. Maintain and preserve all rights, franchises and other
authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct
its business or partnership, maintain and preserve its existence.
l. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses. Borrower shall
provide evidence of property insurance in amounts and types
acceptable to Bank, and certificates naming Bank loss payee.
m. Pay and discharge, before the same become delinquent
and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and
any of its other liabilities at any time existing, except to the extent and
so long as:
(i) The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(ii) It shall have set aside on its books reserves (segregated to
the extent required by generally accepted accounting practice) deemed
by it adequate with respect thereto.
n. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access
to, and to examine its properties, books and records at all reasonable
times.
10. At such times as Borrower chooses (or Bank requires) reporting
of collateral and loan activity on a daily basis with submission of
"payment in kind" for credit to Loan Account ("Streamline
Reporting"), all sums received by Bank, whether from Borrower or
from Borrower's account debtors shall be applied to the outstanding
loan balance on the second (2nd) day following receipt thereof by the
Bank. Interest shall continue to accrue on all loans outstanding
pursuant to the Security and Loan Agreement until sums received are
applied as herein provided. While Borrower reports on a basis other
than daily ("Formula Reporting"), Borrower may retain its collections
for its own account, in trust for Bank.
11. In addition to any other amounts due, or to become due,
Borrower agrees to pay to Bank:
a. Audit fees in the amount of $2,500.00 for periodic
examinations of Borrower's books and records by Bank conducted at
intervals, absent default, of once each six months during the initial
term of this agreement.
12. Borrower will maintain substantially all its banking relationship
with Bank. It is acceptable that Borrower maintains a payroll
disbursement account for the accommodation of its employees at
another financial institution of its choosing.
13. No failure or delay on the part of Bank or any holder of Notes
issued hereunder, in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof. All rights and remedies existing under this
agreement or any not issued in connection with a loan that Bank may
make hereunder, are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
14. This Security and Loan Agreement and Addendum extends to all
obligations of Borrower to Bank.
MONTEREY PASTA COMPANY
IMPERIAL BANK
"BORROWER"
"BANK"
BY: ________________________________
/s/ Xxxxx X. Xxxxxx Vice President
BY: ________________________________
/s/ R. Xxxxx Xxxxxx
'TITLE: CEO
BY: _______________________________
/s/ Xxxxxxx Xxxxxxxx
TITLE: CFO/Secretary
