[LOGO]
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND/OR INVENTORY)
This Agreement is entered into between MONTEREY PASTA COMPANY, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate
unpaid principal balance, the following Borrowing Base:
100% of Imperial Bank Time Certificate(s) of Deposit
pledged in support hereof
70.000% of Eligible Accounts
30.000% of the Value of Inventory Not to Exceed $250,000.00
and in no event more than $1,500,000.00.
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank
(herein called "Loan Account") and Bank shall credit the Loan Account
with all loan repayments made by Borrower. Borrower promises to pay
Bank (a) the unpaid balance of Borrower's Loan Account on demand and (b)
on or before the tenth day of each month, interest on the average daily
unpaid balance of the Loan Account during the immediately preceding
month at the rate of Two percent (2.000%) per annum in excess of the
rate of interest which Bank has announced as its prime lending rate
("Prime Rate") which shall vary concurrently with any change in such
Prime Rate. Interest shall be computed at the above rate on the basis
of the actual number of days during which the principal balance of the
loan account is outstanding divided by 360, which shall for Interest
computation purposes be considered one year. Bank at its option may
demand payment of any or all of the amount due under the Loan Account
Including accrued but unpaid interest at any time. Such notice may be
given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall
not be less than a minimum monthly charge of $250.00. Bank is hereby
authorized to charge Borrower's deposit account(s) with Bank for all
sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in Section 1, which
shall disclose that Borrower is entitled to the amount of loan being
requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or
leased, or to be sold or to be leased, or for services
rendered or to be rendered no matter how evidenced, Including
accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances,
general intangibles and other forms of obligations and
receivables.
B. "Inventory" means all of the Borrower's goods,
merchandise and other personal property which are held for
sale or lease, including those held for display or
demonstration or out on lease or consignment or to be
furnished under a contract of service or are raw materials,
work in process or materials used or consumed, or to be used
or consumed in Borrower's business, and shall include all
property rights, patents, plans, drawings, diagrams,
schematics, assembly and display materials relating thereto.
C. "Collateral" means any and all personal property of
Borrower which is assigned or hereafter is assigned to Bank as
security or in which Bank now has or hereafter acquires a
security interest.
D. "Eligible Accounts" means all of Borrower's Accounts
excluding, however, (1) all Accounts under which payment is
not received within 90 days from any invoice date, (2) all
Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability
represented by the Account and (3) any Accounts if the account
debtor or any other person liable in connection therewith is
in solvent, subject to bankruptcy or receivership proceedings
or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are
eligible from time to time.
E. "Value of Inventory" means the value of Borrower's
Inventory determined in accordance with generally accepted
accounting principles consistently applied excluding, however,
the amount of progress payments, pre-delivery payments,
deposits and any other sums received by Borrower in
anticipation of the sale and delivery of Inventory, all
Inventory on consignment or lease to others, and all property
on consignment or lease from others to Borrower.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and
security therefor and all merchandise giving rise thereto, and hereby
grants to Bank a continuing security interest in all Borrower's
Inventory and in all proceeds and products thereof, whether now owned or
hereafter existing or acquired, including all moneys in the Collateral
Account referred to in Section 6 hereof, as security for any and all
obligations of Borrower to Bank, whether now owing or hereafter incurred
and whether direct, indirect, absolute or contingent. So long as
Borrower is indebted to Bank or Bank is committed to extend credit to
Borrower, Borrower will execute and deliver to Bank such assignments,
including Bank's standard forms of Specific or General Assignment
covering Individual Accounts, notices, financing statements, and other
documents and papers as Bank may require in order to affirm, effectuate
or further assure the assignment to Bank of the Collateral or to give
any third party, including the account debtors obligated on the
Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts and Inventory
proceeds pursuant to paragraph 10, Borrower will collect with diligence
all Borrower's Accounts and Inventory proceeds, provided that no legal
action shall be maintained thereon or in connection therewith without
Bank's prior written consent. Any collection of Accounts or inventory
proceeds by Borrower, whether in the form of cash, checks, notes, or
other instruments for the payment of money (properly endorsed or
assigned where required to enable Bank to collect same), shall be in
trust for Bank, and Borrower shall keep all such collections separate
and apart from all other funds and property so as to be capable of
identification as the property of Bank and deliver said collections,
together with the proceeds of all cash sales, daily to Bank in the
identical form received. The proceeds of such collections when received
by Bank may be applied by Bank directly to the payment of Borrower's
Loan Account or any other obligation secured hereby. Any credit given
by Bank upon receipt of said proceeds shall be conditional credit
subject to collection. Returned items at Bank's option may be charged
to Borrower's general account. All collections of the Accounts and
inventory proceeds shall be set forth on an itemized schedule, showing
the name of the account debtor, the amount of each payment and such
other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts or Inventory
proceeds pursuant to paragraph 10, Borrower may continue its present
policies with respect to returned merchandise and adjustments. However,
Borrower shall immediately notify Bank of all cases involving returns,
repossessions, and loss or damage of or to merchandise represented by
the Accounts or constituting Inventory and of any credits, adjustments
or disputes arising in connection with the goods or services represented
by the Accounts or constituting Inventory and, in any of such events,
Borrower will immediately pay to Bank its own funds (and not from the
proceeds of Accounts or Inventory) for application to Borrower's Loan
Account or any other obligation secured hereby the amount of any credit
for such returned or repossessed merchandise and adjustments made to any
of the Accounts. Until payment is made as provided herein or until
release by Bank from its security interest, all merchandise returned to or
Page 1 of 2
repossessed by Borrower shall be set aside and identified as the
property of Bank and Bank shall be entitled to enter upon any premises
where such merchandise is located and take immediate possession thereof
and remove same.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that Borrower is duly organized and existing in the State
of its incorporation and the execution, delivery and performance hereof
are within Borrower's corporate powers, have been duly authorized and
are not in conflict with law or the terms of any charter, by-law or
other incorporation papers, or of any indenture, agreement or undertaking
to which Borrower is a party or by which Borrower is found or affected;
(ii) Borrower is, or at the time the collateral becomes subject to
Bank's security interest will be, the true and lawful owner of and has,
or at the time the Collateral becomes subject to Bank's security
interest will have, good and clear title to the Collateral, subject only
to Bank's rights therein; (iii) Each Account is, or at the time the
Account comes into existence will be, a true and correct statement of a
bona fide indebtedness incurred by the debtor named therein in the
amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services
rendered, performed and accepted by, the account debtor; (iv) That there
are or will be no defenses, counterclaims, or setoffs which may be
asserted against the Accounts; and (v) any and all financial
information, including information relating to the Collateral, submitted
by Borrower to Bank, whether previously or in the future, is or will be
true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform
Bank immediately upon the occurrence of a material adverse change
therein; (ii) Furnish Bank periodically, in such form and detail and at
such times as Bank may require, statements showing aging and
reconciliation of the Accounts and collections thereon, and reports as to
the Inventory and sales thereof; (iii) Permit representatives of Bank to
inspect the Inventory and Borrower's books and records relating to the
Collateral and make extracts therefrom at any reasonable time and to
arrange for verification of the Accounts, under reasonable procedures,
acceptable to Bank, directly with the account debtors or otherwise at
Borrower's expense; (iv) Promptly notify Bank of any attachment or other
legal process levied against any of the Collateral and any information
received by Borrower relative to the Collateral, including the Accounts,
the account debtors or other persons obligated in connection therewith,
which may in any way affect the value of the Collateral or the rights
and remedies of Bank in respect thereto; (v) Reimburse Bank upon demand
for any and all legal costs, including reasonable attorneys' fees, and
other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby,
enforcing any term or provision of this Security Agreement or otherwise
or in the checking, handling and collection of the Collateral and the
preparation and enforcement of any agreement relating thereto; (vi)
Notify Bank of each location at which the Inventory is or will be kept,
other than for temporary processing, storage or similar purposes, and of
any removal thereof to a new location and of each office of Borrower at
which records of Borrower relating to the Accounts are kept; (vii)
Provide, maintain and deliver to Bank policies insuring the Collateral
against loss or damage by such risks and in such amounts, forms and
companies as Bank may require and with loss payable solely to Bank, and,
in the event Bank takes possession of the Collateral, the Insurance
policy or policies and any unearned or returned premium thereon shall at
the option of Bank become the sole property of Bank, such policies and
the proceeds of any other insurance covering or in any way relating to
the Collateral, whether now in existence or hereafter obtained, being
hereby assigned to Bank; (viii) Do all acts necessary to maintain,
preserve and protect all Inventory, keep all Inventory in good condition
and repair and not to cause any waste or unusual or unreasonable
depreciation thereof, and (ix) In the event the unpaid balance of
Borrower's Loan Account shall exceed the maximum amount of outstanding
loans to which Borrower is entitled under Section 1 hereof, Borrower
shall immediately pay to Bank, from its own funds and not from the
proceeds of Collateral, for credit to Borrower's Loan Account the amount
of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and Inventory proceeds and may give notice of assignment to any
and all account debtors, and Borrower does hereby make, constitute and
appoint Bank its irrevocable, true and lawful attorney with power to
receive, open and dispose of all mail addressed to Borrower, to endorse
the name of Borrower upon any checks or other evidences of payment that
may come into the possession of Bank upon the Accounts or as proceeds of
Inventory; to endorse the name of the undersigned upon any document or
Instrument relating to the Collateral; in its name or otherwise, to
demand, xxx for, collect and give acquittances for any and all moneys
due or to become due upon the Accounts; to compromise, prosecute or
defend any action, claim or proceeding with respect thereto; and to do
any and all things necessary and proper to carry out the purpose herein
contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank,
or execute any financing statements covering the Collateral in favor of
any secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or
breach be made in any warranty, statement, promise, term or condition,
contained herein or hereby secured; (ii) Any statement or representation
made for the purpose of obtaining credit hereunder prove false; (iii)
Bank deem the Collateral inadequate or unsafe or in danger of misuse;
(iv) Borrower become insolvent or make an assignment for the benefit of
creditors; or (v) Any proceeding be commended by or against Borrower
under any bankruptcy, reorganization, arrangement, readjustment of debt
or moratorium law or statute; then in any such event, Bank may, at its
option and without demand first made and without notice to Borrower, do
any one or more of the following: (a) Terminate its obligation to make
loans to Borrower as provided in Section 1 hereof; (b) Declare all sums
secured hereby immediately due and payable; (c) Immediately take
possession of the Collateral wherever it may be found, using all
necessary force so to do, or require Borrower to assemble the Collateral
and make it available to Bank at a place designated by Bank which is
reasonably convenient to Borrower and Bank, and Borrower waives all
claims for damages due to or arising from or connected with any such
taking; (d) Proceed in the foreclosure of Bank's security interest and
sale of the Collateral in any manner permitted by law, or provided for
herein; (e) Sell, lease or otherwise dispose of the Collateral at public
or private sale, with or without having the Collateral at the place of
sale, and upon terms and in such manner as Bank may determine, and Bank
may purchase same at any such sale; (f) Retain the Collateral in full
satisfaction of the obligations secured thereby; (g) Exercise any
remedies of a secured party under the Uniform Commercial Code. Prior to
any such disposition, Bank may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by
Bank shall be repaid by Borrower and secured hereby. Bank shall have
the right to enforce one or more remedies hereunder successively or
concurrently, and any such action shall not estop or prevent Bank from
pursuing any further remedy which it may have hereunder or by law. If a
sufficient sum is not realized from any such disposition of Collateral
to pay all obligations secured by this Security Agreement, Borrower
hereby promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process
be issued against any property of Borrower, or if any assessment for
taxes against Borrower, other than real property, is made by the Federal
or State government or any department thereof, the obligation of Bank to
make loans to Borrower as provided in Section 1 hereof shall immediately
terminate and the unpaid balance of the Loan Account, all other
obligations secured hereby and all other sums due hereunder shall
immediately become due and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: see attached Addendum
Executed this 24th day of July, 1997.
MONTEREY PASTA COMPANY
-----------------------------------------
(Name of Borrower)
IMPERIAL BANK BY: /s/ Xxxxxxx X. Steel, Jr. CEO
--------------------------------------
(Authorized Signature and Title)
BY: /s/ Xxxxxxx X. Xxxxx BY: /s/ Xxxxx X. Xxxxxx, CFO
--------------------------------- --------------------------------------
Vice-President (Authorized Signature and Title)
*If none, insert "None"
Page 2 of 2
ADDENDUM TO SECURITY AND LOAN AGREEMENT (ACCOUNTS RECEIVABLE AND/OR
INVENTORY) ("SECURITY AND LOAN AGREEMENT") BETWEEN MONTEREY PASTA COMPANY AND
IMPERIAL BANK DATED: JULY 24, 1997
This Addendum is made and entered into July 24, 1997 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 23, 1998, 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. If
Bank decides to terminate this line of credit prior to July 23, 1998, Bank
shall give Borrower 90 days prior written notice of termination. In the event
of default, however, Bank shall give five (5) days prior notice. It is
further agreed that the full commitment amount of $1,500,000 shall only be
available upon receipt by Bank of an unanimous written request from the Board
of Directors of Borrower. Prior to receipt of said request, the commitment
shall be limited to $1,000,000.
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. The interest rate cited in paragraph 2 of the Security and Loan
Agreement shall be reduced by one and one half percent (1.5%) per annum ten
calendar days after receipt by Bank of (i) Borrower's audited financial
statement for the year ending December 31, 1997, evidencing net profit after
taxes in an amount equal to or greater than $400,000 and (ii) a certification
from an officer of Borrower that it is in full and complete compliance with
all terms and conditions of the Security and Loan Agreement and this
Addendum. In addition, interest shall accrue on advances hereunder, in an
amount not to exceed the total amount of Imperial Bank Time Certificates of
Deposit, at
1
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 2
the rate of two (2) percent over the interest rate (if more than one Time
Certificate of Deposit, then the weighted average thereof) paid on said Time
Certificate of Deposit.
4. 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.
5. 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
property stored, and readily salable and shall not include Inventory
consisting of unused packaging, work in progress, ingredients which have been
mixed with others or finished goods.
6. 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.
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 3
b. The balance sheet of Borrower dated as of May 31, 1997, 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.
7. Borrower agrees that so long as it is indebted to Bank, it will not,
without 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 31, 1997, 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.
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 4
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.
f. 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, except that a cash or stock dividend of up to
twenty five percent (25%) of net profit after tax may be paid on Borrower's
preferred stock issued and outstanding as of the date of this Security and
Loan Agreement.
g. Make, or incur obligations for, capital expenditures in excess of
$40,000.00 for any one project, or $100,000.00 in the period from the date
hereof to December 31, 1997, or in excess of $100,000.00 in any one fiscal
year thereafter. Bank will not consider any request to exceed these
limitations 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 $40,000.00, and personal property in excess of
$40,000.00, in any one fiscal year. Bank will not consider any request to
exceed these limitations 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, 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, over its
liabilities, less subordinated debt) of not less than $6,600,000.00. The
minimum tangible net worth
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 5
shall increase by $250,000.00 by December 31, 1997 and $200,000.00 each
fiscal quarter thereafter.
b. At all times maintain a maximum ratio of total debt to tangible net
worth not to exceed 0.75 to 1.00.
c. At all times maintain a minimum working capital (Borrower's current
assets minus current liabilities) of not less than $2,200,000.00.
d. Maintain profitable operations on a fiscal year end basis in the
minimum amount of $250,000.00.
e. 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.
f. 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 (in the form of Exhibit 9.f., attached) together with supporting
schedules in form satisfactory to Bank, and certified by an officer of
Borrower.
g. As soon as it is available, but not later than thirty (30) days
after and as of the end of each fiscal month (which is not a fiscal quarter,
or fiscal year, end), 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 in the form of Exhibit 9.g. (attached) certified by
an officer of Borrower.
h. 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 in the form of Exhibit 8.g. (attached) certified by an officer of
Borrower.
i. 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 in the form of Exhibit 8.g
(attached) certified by an officer of Borrower.
j. 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.
k. 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.
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 6
I. 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.
m. Maintain a standard and modern system of accounting in accordance
with generally accepted accounting principles on a basis consistently
maintained; permit Banks'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.
b. An initial loan fee of $5,000.00 or at Borrower's option, deliver
to Bank a warrant to purchase shares of common stock in Borrower in an amount
equal to five percent of the total commitment amount ($100,000) at an
exercise price of $2.00 per share or the most recent offering price received
(in an offering of at least one thousand shares) prior to consummation of
this transaction, if higher. Should Borrower choose the warrant option,
Borrower agrees to execute a warrant agreement in form and substance
acceptable to Bank.
c. An unused line fee in an amount of one quarter of one percent
(0.25%) per annum times the monthly average unused Line, payable quarterly.
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 7
d. Documentation fee of $250.00 in connection with this Line of
Credit.
e. The reimbursement of all out of pocket expenses incurred by
Bank in connection with this Security and Loan 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. In the
event of a default under this Agreement or any other agreement or instrument
with Bank, Bank at its option without demand after notice may charge interest
at the "Default Rate" equal to five percent (5%) in excess of the rate
otherwise applicable.
14. If any installment payment, interest payment, principal payment, or
principal balance payment due hereunder is delinquent ten or more days,
Borrower agrees to pay Bank a late charge in the amount of 5% of the payment
so due unpaid, in addition to the payment, but nothing in this paragraph is
to be construed as any obligation on the part of the holder of this Loan and
Security Agreement to accept payment of any payment past due or less than the
total unpaid principal balance after maturity. All payments shall be applied
first to any late charges owing, then to interest and the remainder, if any,
to principal.
15. a. Other than (i) non-judicial foreclosure and all matters in
connection therewith regarding security interests in real or personal
property; or personal property; or (ii) the appointment of a receiver, or the
exercise of other provisional remedies (any and all of which may be initiated
pursuant to applicable law), each controversy, dispute or claim between the
parties arising out of or relating to this Note ("Agreement"), which
controversy, dispute or claim is not settled in writing within thirty (30)
days after the "Claim Date" (defined as the date on which a party subject to
the Agreement gives written notice to all other parties that a controversy,
dispute or claim exists), will be settled by a reference proceeding in
California in accordance with the provisions of Section 638 ET SEQ. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such
controversy, dispute or claim is subject to the reference proceeding and
except as set forth above, the parties waive their rights to initiate any
legal proceedings against each other in any court or jurisdiction other than
the
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 8
Superior Court in the County where the real property securing this Agreement,
if any, is located or Los Angeles County if none (the "Court"). The referee
shall be a retired Judge of the Court selected by mutual agreement of the
parties, and if they cannot so agree within forty-five (45) days after the
Claim Date, the referee shall be promptly selected by the Presiding Judge of
the Court (or his representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as authorized
by law, and upon selection should take and subscribe to the oath of the
office as provided for in Rule 244 of the California Rules of Court (or any
subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP Section 170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the Claim Date and (b) try
any and all issues of law or fact and report a statement of decision upon
them, if possible, within ninety (90) days of the Claim Date. Any decision
rendered by the referee will be final, binding and conclusive and judgment
shall be entered pursuant to CCP Section 644 in any court in the State of
California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a
petition for a hearing and/or trial. All discovery permitted by this
Agreement shall be completed no later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such period
in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions
may be taken by either party upon seven (7) days written notice, and request
for production or inspection of documents shall be responded to within ten
(10) days after service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision
shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
b. Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of
the reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter,
except that when any party so requests, a court reporter will be used at any
hearing conducted before the referee. The party making such a request shall
have the obligation to arrange for and pay for the court reporter. The costs
of the court reporter at the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 9
applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to
enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon
the parties. The referee shall issue a single judgment at the close of the
reference proceeding which shall dispose of all of the claims of the parties
that are the subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of law, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the
Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding."
16. This Security and Loan Agreement and Addendum extends to all
obligations of Borrower to Bank.
"BORROWER" IMPERIAL BANK "BANK"
BY /s/ Xxxxxxx X. Steel, Jr. BY /s/ Xxxxx Xxxxxx
-------------------------------- ------------------------------
TITLE CEO TITLE Vice President
----------------------------- ---------------------------
BY /s/ Xxxxx X. Xxxxxx BY /s/ Xxxxx Xxxxxx
-------------------------------- ------------------------------
TITLE CFO TITLE
----------------------------- ---------------------------
