EXHIBIT 99.1
CREDIT AND SECURITY AGREEMENT
Dated as of February 6, 2004
ZILA NUTRACEUTICALS, INC., an Arizona corporation ("ZN"), ZILA
BIOTECHNOLOGY, INC., an Arizona corporation ("ZB"), ZILA PHARMACEUTICALS, INC.,
a Nevada corporation ("ZP"), XXXX XXXX TECHNOLOGIES, INC., an Arizona
corporation ("ZS"), OXYCAL LABORATORIES, INCORPORATED, an Arizona corporation
("Oxycal") (collectively, jointly and severally the "Borrower"), and XXXXX FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. For all purposes of this Agreement,
except as otherwise expressly provided, the following terms shall have the
meanings assigned to them in this Section or in the Section referenced after
such term:
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including each and every right of the Borrower
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all Liens) which the Borrower may at any time have
by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all
present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Guarantor and any other
Person controlled by, controlling or under common control with the
Borrower, including any Subsidiary of the Borrower. For purposes of
this definition, "control", when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Availability" means the positive difference if any of (i) the
Borrowing Base and (ii) the sum of (A) the outstanding principal
balance of the Revolving Note and (B) the L/C Amount.
"Banking Day" means a day on which the Federal Reserve Bank of
New York is open for business.
"Base Rate" means the rate of interest publicly announced from
time to time by Xxxxx Fargo Bank National Association at its principal
office in San Francisco as its "prime rate", with the understanding
that the "prime rate" is one of Xxxxx Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon
which effective rates of interest are calculated for loans making
reference thereto.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"Borrowing Base" means at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's
sole discretion, the sum of:
(i) the lesser of (A) 85% of Eligible Accounts
or (B) $10,000,000.00, plus
(ii) the lesser of (A) the sum of 40% of Eligible
Inventory or (B) $3,000,000.00.
"Capital Expenditures" means for a period, any expenditure of
money during such period for the lease, purchase or other acquisition
of any capital asset, or for the lease of any other asset whether
payable currently or in the future.
"Collateral" means all of the Borrower's Accounts, chattel
paper, deposit accounts, documents, Equipment, Intangible Assets,
General Intangibles, goods, instruments, Inventory, Investment
Property, letter-of-credit rights, letters of credit, all sums on
deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all collateral described in the XXX documents; (ii)
all substitutions and replacements for and products of any of the
foregoing; (iii) in the case of all goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (v) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; (vi) all collateral subject to the Lien
of any Security Document; (vii) any money, or other assets of the
Borrower that now or hereafter come into the possession, custody, or
control of the Lender; (viii) all sums on deposit in the Special
Account; and (ix) proceeds of any and all of the foregoing.
"Collateral Account" means the "Lender Account" as defined in
the Collection Account Agreement.
"Collection Account Agreement" means the Collection Account
Agreement by and among the Borrower, Xxxxx Fargo Bank and the Lender,
of even date herewith.
"Commitment" means the Lender's commitment to make Advances
to, and to cause the Issuer to issue Letters of Credit for the account
of, the Borrower pursuant to Article II.
"Constituent Documents" means with respect to any Person, as
applicable, such Person's certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of
organization, limited liability company agreement, management
agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such Person's
existence, organization or management or concerning disposition of
ownership interests of such Person or voting rights among such Person's
owners.
"Copyright Security Agreement" means the Copyright Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender under Article II.
"Current Maturities of Long Term Debt" means as of a given
date, the amount of the Borrower's long-term debt and capitalized
leases which became due during the applicable period ending on the
designated date.
"Debt" means of a Person as of a given date, all items of
indebtedness or liability which in accordance with GAAP would be
included in determining total liabilities as shown on the liabilities
side of a balance sheet for such Person and shall also include the
aggregate payments required to be made by such Person at any time under
any lease that is considered a capitalized lease under GAAP.
"Default Period" means any period of time beginning on the day
a Default or Event of Default occurs and ending on the date the Lender
notifies the Borrower in writing that such Event of Default has been
cured or waived.
"Default Rate" means an annual interest rate equal to three
percent (3%) over the Floating Rate, which interest rate shall change
when and as the Floating Rate changes.
"Director" means a director if the Borrower is a corporation,
a manager if the Borrower is a limited liability company, or a general
partner if the Borrower is a partnership.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group which includes the Borrower
and which is treated as a single employer under Section 414 of the IRC.
"Earnings Before Taxes" means from operations but including
extraordinary losses.
"Eligible Accounts" means all unpaid Accounts arising from the
sale or lease of goods or the performance of services, net of any
credits, but excluding any such Accounts having any of the following
characteristics:
(i) That portion of Accounts unpaid 90 days or
more after the invoice date or, if the Lender in its
discretion has determined that a particular dated Account
applicable to Omni Pharmaceuticals may be eligible, that
portion of such Account which is unpaid more than 30 days past
the stated due date or more than 120 days past the invoice
date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by
the final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer, including
progress xxxxxxxx, and that portion of Accounts for which an
invoice has not been sent to the applicable account debtor;
(iv) Accounts constituting (i) proceeds of
copyrightable material unless such copyrightable material
shall have been registered with the United States Copyright
Office, or (ii) proceeds of patentable inventions unless such
patentable inventions have been registered with the United
States Patent and Trademark Office;
(v) Accounts owed by any unit of government,
whether foreign or domestic (provided, however, that there
shall be included in Eligible Accounts that portion of
Accounts owed by such units of government for which the
Borrower has provided evidence satisfactory to the Lender that
(A) the Lender has a first priority perfected security
interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable
laws);
(vi) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, in the Lender's possession or control, and with
respect to which a control agreement concerning the
letter-of-credit rights is in effect, and acceptable to the
Lender in all respects, in its sole discretion, or (B) covered
by a foreign receivables insurance policy acceptable to the
Lender in its sole discretion;
(vii) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(viii) Accounts owed by an Owner, Subsidiary,
Affiliate, Officer or employee of the Borrower;
(ix) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any Lien in favor of any Person other than the Lender;
(x) That portion of Accounts that has been
restructured, extended, amended or modified;
(xi) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xii) Accounts owed by an account debtor (other
than Nutricin Manufacturing, Natures Bounty, Omni
Pharmaceuticals and Associated National Brokerage), regardless
of whether otherwise eligible, to the extent that the balance
of such Accounts exceeds 15% of the aggregate amount of all
Eligible Accounts;
(xiii) Accounts owed by Nutricin Manufacturing,
Natures Bounty, Omni Pharmaceuticals and Associated National
Brokerage, regardless of whether otherwise eligible, to the
extent that the balance of such Accounts exceeds 25% of the
aggregate amount of all Eligible Accounts);
(xiv) An account debtor, regardless of whether
otherwise eligible, if 25% or more of the total amount due
under Accounts from such debtor is ineligible under clauses
(i), (ii)or (xi) above;
(xv) Accounts applicable to Omni Pharmaceuticals
which are in excess of the aggregate of $800,000.00 in value;
and
(xvi) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
GAAP; but excluding any Inventory having any of the following
characteristics:
(i) Inventory that is: in-transit; located at
any warehouse, job site or other premises not approved by the
Lender in writing; covered by any negotiable or non-negotiable
warehouse receipt, xxxx of lading or other document of title;
on consignment from any Person; on consignment to any Person
or subject to any bailment unless such consignee or bailee has
executed an agreement with the Lender;
(ii) Supplies, packaging, maintenance parts or
sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow
moving or not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has returned,
has attempted to return, is in the process of returning or
intends to return to the vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower
pursuant to a license unless the applicable licensor has
agreed in writing to permit the Lender to exercise its rights
and remedies against such Inventory;
(viii) Inventory that is subject to a Lien in favor
of any Person other than the Lender;
(ix) Inventory containing Palmettx products;
(x) Inventory containing Vizilite; and
(xi) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies, and
including specifically the goods described in any equipment schedule or
list herewith or hereafter furnished to the Lender by the Borrower.
"Event of Default" and "Default" have the meanings specified
in Section 7.1.
"Financial Covenants" means the covenants set forth in Section
6.2.
"Floating Rate" means an annual interest rate equal to the
Base Rate, which interest rate shall change when and as the Base Rate
changes.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" means for a given period, the sum of
(i) Net Income, (ii) depreciation and amortization, (iii) deferred
income taxes, and (iv) other non-cash items, each as determined for
such period in accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.6.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including all present and future Intellectual
Property Rights, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use the
Borrower's name, and the goodwill of the Borrower's business.
"Guarantors" means Zila, Inc., a Delaware corporation and any
other Person now or hereafter guarantying the Obligations.
"Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
"XXX Documents" means the following documents by and between
Lender, Xxxxx Fargo Bank, Oxycal and Guarantor:
Letter of Credit in the amount of $3,725,370.00;
Reimbursement Agreement;
Security Agreement;
Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing (the "Deed of Trust");
Pledge Agreement;
Security Agreement for Cash Collateral Account;
Security Agreement for Sinking Fund;
Unconditional Guarantee of all Obligations;
Environmental Indemnity Letter; and
Release, Pay-Off Letter from Bank One on Substitution of LOC.
"IRC" means the Internal Revenue Code of 1986.
"Infringe" means when used with respect to Intellectual
Property Rights means any infringement or other violation of
Intellectual Property Rights.
"Intangible Assets" means all intangible assets as determined
in accordance with GAAP and including Intellectual Property Rights,
goodwill, accounts due from Affiliates, Directors, Officers or
employees, prepaid expenses, deposits, deferred charges or treasury
stock or any securities or Debt of the Borrower or any other securities
unless the same are readily marketable in the US or entitled to be used
as a credit against federal income tax liabilities, non-compete
agreements and any other assets designated from time to time by the
Lender, in its sole discretion.
"Intellectual Property Rights" means all actual or prospective
rights arising in connection with any intellectual property or other
proprietary rights, including all rights arising in connection with
copyrights, patents, service marks, trade dress, trade secrets,
trademarks, trade names or mask works.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods,
spare parts or components, supplies or materials, whether acquired,
held or furnished for sale, for lease or under service contracts or for
manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities,
security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market
shares and U.S. Government securities.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit exclusive of the
$3,725,370.00 Letter of Credit which constitutes one of the XXX
Documents and (ii) the unpaid amount of the Obligation of
Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.5.
"Licensed Intellectual Property" has the meaning given in
Section 5.11(c).
"Lien" means any security interest, mortgage, deed of trust,
pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device, including the interest of each lessor
under any capitalized lease and the interest of any bondsman under any
payment or performance bond, in, of or on any assets or properties of a
Person, whether now owned or hereafter acquired and whether arising by
agreement or operation of law.
"Loan Documents" means this Agreement, the Note, the Security
Documents and any L/C Application.
"Maturity Date" means January 31, 2009, provided however, if
but only if the Letter of Credit which constitutes one of the XXX
Documents is terminated and such termination is not a result on an
event of default under the XXX Documents or an Event of Default
hereunder (a "Nondefault Termination"), the Borrower shall have the
right to reduce the Maturity Date to January 31, 2007. Borrower must
exercise such right, if at all, by providing the Lender with written
notice of said election within 30 days of the effective date of the
Nondefault Termination.
"Maximum Line" means $10,000,000.00 unless said amount is
reduced pursuant to Section 2.14, in which event it means such lower
amount.
"Multiemployer Plan" means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA
Affiliate contributes or is obligated to contribute.
"Net Income" means fiscal year-to-date after-tax net income
from continuing operations as determined in accordance with GAAP.
"Net Loss" means fiscal year-to-date after-tax net loss from
continuing operations as determined in accordance with GAAP.
"Note" means the Revolving Note.
"Obligation of Reimbursement" has the meaning given in Section
2.7(a).
"Obligations" means the Note, the Obligation of Reimbursement
and each and every other debt, liability and obligation of every type
and description which any Borrower may now or at any time hereafter owe
to the Lender (including without limitation all of the same arising
under or evidenced by the XXX Documents), whether such debt, liability
or obligation now exists or is hereafter created or incurred, whether
it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of any Borrower, and whether it
is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including all indebtedness of each
Borrower arising under any Credit Document or guaranty between each
Borrower and the Lender, whether now in effect or hereafter entered
into.
"Officer" means with respect to the Borrower, an officer if
the Borrower is a corporation, a manager if the Borrower is a limited
liability company, or a partner if the Borrower is a partnership.
"Owned Intellectual Property" has the meaning given in Section
5.11(a).
"Owner" means with respect to the Borrower, each Person having
legal or beneficial title to an ownership interest in the Borrower or a
right to acquire such an interest.
"Patent and Trademark Security Agreement" means the Patent
Security Agreement by the Borrower in favor of the Lender of even date
herewith.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate and covered by Title IV of ERISA.
"Permitted Lien" has the meaning given in Section 6.3(a).
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including the premises
legally described in Exhibit C attached hereto.
"Reportable Event" means a reportable event (as defined in
Section 4043 of ERISA), other than an event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by the
Pension Benefit Guaranty Corporation.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto.
"Security Documents" means this Agreement, the Collection
Account Agreement, the Patent Security Agreement, the Trademark
Security Agreement, and the Copyright Security Agreement, and any other
document delivered to the Lender from time to time to secure the
Obligations.
"Security Interest" has the meaning given in Section 3.1.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.6.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
Directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Tangible Net Worth" means the difference between (i) Book Net
Worth and (ii) Intangible Assets.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after an
Event of Default pursuant to Section 7.2.
"Trademark Security Agreement" means the Trademark Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"UCC" means the Uniform Commercial Code as in effect in the
state designated in Section 8.13 as the state whose laws shall govern
this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"Xxxxx Fargo Bank" means Xxxxx Fargo Bank, National
Association.
Section 1.2. Other Definitional Terms; Rules of
Interpretation. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. All accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP. All terms defined in the UCC and not otherwise defined
herein have the meanings assigned to them in the UCC. References to Articles,
Sections, subsections, Exhibits, Schedules and the like, are to Articles,
Sections and subsections of, or Exhibits or Schedules attached to, this
Agreement unless otherwise expressly provided. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or". Defined terms
include in the singular number the plural and in the plural number the singular.
Reference to any agreement (including the Loan Documents), document or
instrument means such agreement, document or instrument as amended or modified
and in effect from time to time in accordance with the terms thereof (and, if
applicable, in accordance with the terms hereof and the other Loan Documents),
except where otherwise explicitly provided, and reference to any promissory note
includes any promissory note which is an extension or renewal thereof or a
substitute or replacement therefor. Reference to any law, rule, regulation,
order, decree, requirement, policy, guideline, directive or interpretation means
as amended, modified, codified, replaced or reenacted, in whole or in part, and
in effect on the determination date, including rules and regulations promulgated
thereunder.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1. Revolving Advances. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances to the
Borrower from time to time from the date all of the conditions set forth in
Section 4.1 are satisfied (the "Funding Date") to the Termination Date (the
"Revolving Advances"). The Lender shall have no obligation to make a Revolving
Advance to the extent the amount of the requested Revolving Advance exceeds
Availability. The Borrower's obligation to pay the Revolving Advances shall be
evidenced by the Revolving Note and shall be secured by the Collateral. Within
the limits set forth in this Section 2.1, the Borrower may borrow, prepay
pursuant to Section 2.14 and reborrow.
Section 2.2. Procedures for Requesting Advances. The Borrower
shall comply with the following procedures in requesting Revolving Advances:
(a) TIME FOR REQUESTS. The Borrower shall
request each Advance not later than 11:00 a.m., Phoenix, Arizona time on the
Banking Day which is the date the Advance is to be made. Each such request shall
be effective upon receipt by the Lender, shall be in writing or by telephone or
telecopy transmission, to be confirmed in writing by the Borrower if so
requested by the Lender, shall be by (i) an Officer of the Borrower; or (ii) a
person designated as the Borrower's agent by an Officer of the Borrower in a
writing delivered to the Lender; or (iii) a person whom the Lender reasonably
believes to be an Officer of the Borrower or such a designated agent. The
Borrower shall repay all Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in fact
authorized to do so. Any request for an Advance, whether written or telephonic,
shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.
(b) DISBURSEMENT. Upon fulfillment of the
applicable conditions set forth in Article IV, the Lender shall disburse the
proceeds of the requested Advance by crediting the same to the Borrower's demand
deposit account maintained with Xxxxx Fargo Bank unless the Lender and the
Borrower shall agree in writing to another manner of disbursement.
Section 2.3. [RESERVED].
Section 2.4. Increased Costs; Capital Adequacy. If the Lender
determines at any time that its Return has been reduced as a result of any Rule
Change, such Lender may so notify the Borrower and require the Borrower,
beginning fifteen (15) days after such notice, to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.4:
"Capital Adequacy Rule" means any law, rule,
regulation, guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not having
the force of law, that applies to any Related Lender, including rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
"L/C Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding letters of credit, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the force of
law, that applies to any Related Lender, including those that impose taxes,
duties or other similar charges, or mandate reserves, special deposits or
similar requirements against assets of, deposits with or for the account of, or
credit extended by any Related Lender, on letters of credit.
"Related Lender" includes (but is not
limited to) the Lender, any parent of the Lender, any assignee of any interest
of the Lender hereunder and any participant in the Credit Facility.
"Return", for any period, means the
percentage determined by dividing (i) the sum of interest and ongoing fees
earned by the Lender under this Agreement during such period, by (ii) the
average capital such Lender is required to maintain during such period as a
result of its being a party to this Agreement, as determined by such Lender
based upon its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules, and L/C Rules then in effect,
costs of issuing or maintaining any Advance or Letter of Credit and amounts
received or receivable under this Agreement or the Notes with respect to any
Advance or Letter of Credit. Return may be calculated for each calendar quarter
and for the shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
"Rule Change" means any change in any
Capital Adequacy Rule or L/C Rule occurring after the date of this Agreement, or
any change in the interpretation or
administration thereof by any governmental or regulatory authority, but the term
does not include any changes that at the Funding Date are scheduled to take
place under the existing Capital Adequacy Rules or L/C Rules or any increases in
the capital that the Lender is required to maintain to the extent that the
increases are required due to a regulatory authority's assessment of that
Lender's financial condition.
The initial notice sent by the Lender shall
be sent as promptly as practicable after such Lender learns that its Return has
been reduced, shall include a demand for payment of the amount necessary to
restore such Lender's Return for the quarter in which the notice is sent, and
shall state in reasonable detail the cause for the reduction in its Return and
its calculation of the amount of such reduction. Thereafter, such Lender may
send a new notice during each calendar quarter setting forth the calculation of
the reduced Return for that quarter and including a demand for payment of the
amount necessary to restore its Return for that quarter. The Lender's
calculation in any such notice shall be conclusive and binding absent
demonstrable error.
Section 2.5. Letters of Credit.
(a) The Lender agrees, on the terms and subject
to the conditions herein set forth, to cause an Issuer to issue, from the
Funding Date to the Termination Date, one or more irrevocable standby or
documentary letters of credit (each, a "Letter of Credit") for the Borrower's
account by guaranteeing payment of the Borrower's obligations or being a
co-applicant. The Lender shall have no obligation to cause an Issuer to issue
any Letter of Credit if the face amount of the Letter of Credit to be issued
would exceed the lesser of:
(i) $500,000.00 less the L/C Amount, or
(ii) Availability.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into between the Borrower and the Lender for
the benefit of the Issuer, completed in a manner satisfactory to the
Lender and the Issuer. The terms and conditions set forth in each such
L/C Application shall supplement the terms and conditions hereof, but
if the terms of any such L/C Application and the terms of this
Agreement are inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an
expiry date later than the Termination Date in effect as of the date of
issuance.
(c) Any request to cause an Issuer to issue a
Letter of Credit shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the date of the
request.
(d) The Letters of Credit issued pursuant to the
terms hereof are independent and separate from the Letter of Credit which
constitutes one of the XXX Documents.
Section 2.6. Special Account. If the Credit Facility is
terminated for any reason while any Letter of Credit is outstanding, the
Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an amount equal
to the L/C Amount. The Special Account shall be an interest bearing account
maintained for the Lender by any financial institution acceptable to the Lender.
Any interest earned on amounts deposited in the Special Account shall be
credited to the Special Account. The Lender may apply amounts on deposit in the
Special Account at any time or from time to time to the Obligations in the
Lender's sole discretion. The Borrower may not withdraw any amounts on deposit
in the Special Account as long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to the
Borrower when the Lender is required to release its security interest in the
Special Account under applicable law.
Section 2.7. Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrower acknowledges that the Lender, as
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrower shall pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower shall pay to the Lender on the
day a draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges and
expenses that the Issuer or the Lender may pay or incur relative to such draw
and the applicable L/C Application, plus interest on all such amounts, charges
and expenses as set forth below (the Borrower's obligation to pay all such
amounts is herein referred to as the "Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter
of Credit, the Borrower authorizes the Lender to make a Revolving Advance in the
amount of the Obligation of Reimbursement and to apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving Advance
hereunder.
(c) If a draft is submitted under a Letter of
Credit when the Borrower is unable, because a Default Period exists or for any
other reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in immediately
available funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date of the draft until payment in full at the
Default Rate. Notwithstanding the Borrower's inability to obtain a Revolving
Advance for any reason, the Lender is irrevocably authorized, in its sole
discretion, to make a Revolving Advance in an amount sufficient to discharge the
Obligation of Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any
Revolving Advance made under this Section 2.7, shall be evidenced by the
Revolving Note and shall bear interest as provided in Section 2.10.
Section 2.8. Obligations Absolute. The Borrower's obligations
arising under Section 2.7 shall be absolute, unconditional and irrevocable, and
shall be paid strictly in
accordance with the terms of Section 2.7, under all circumstances whatsoever,
including (without limitation) the following circumstances:
(a) any lack of validity or enforceability of
any Letter of Credit or any other agreement or instrument relating to any Letter
of Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to
departure from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense
or other right which the Borrower may have at any time, against any beneficiary
or any transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other person or
entity, whether in connection with this Agreement, the transactions contemplated
herein or in the Related Documents or any unrelated transactions;
(d) any statement or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer under
any Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.
Section 2.9. [RESERVED].
Section 2.10. Interest; Default Interest; Participations;
Clearance Days; Usury.
(a) NOTE. Except as set forth in Subsections (b)
and (e), the outstanding principal balance of the Note shall bear interest at
the Floating Rate.
(b) DEFAULT INTEREST RATE. Upon notice to the
Borrower from the Lender from time to time, the principal of the Advances
outstanding from time to time shall bear interest at the Default Rate, effective
as of the first day of the fiscal month during which any Default Period begins
through the last day of such Default Period. The Lender's election to charge the
Default Rate shall be in its sole discretion and shall not be a waiver of any of
its other rights and remedies. The Lender's election to charge interest at the
Default Rate for less than the entire period during which the Default Rate may
be charged shall not be a waiver of its right to later charge the Default Rate
for the entire such period.
(c) CLEARANCE DAYS. Notwithstanding Section
2.13(b)(ii), interest at the interest rate applicable under this Section 2.10
shall accrue on the amount of all payments (even if in the form of immediately
available federal funds) for one (1) day for clearance.
(d) PARTICIPATIONS. If any Person shall acquire
a participation in the Advances or the Obligation of Reimbursement, the Borrower
shall be obligated to the Lender to
pay the full amount of all interest calculated under this Section 2.10, along
with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than that calculated under this Section 2.10, or
otherwise elects to accept less than its pro rata share of such fees, charges
and other amounts due under this Agreement.
(e) USURY. In any event no rate change shall be
put into effect which would result in a rate greater than the highest rate
permitted by law. Notwithstanding anything to the contrary contained in any Loan
Document, all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no contingency
or event whatsoever shall the total liability for payments in the nature of
interest, additional interest and other charges exceed the applicable limits
imposed by any applicable usury laws. If any payments in the nature of interest,
additional interest and other charges made under any Loan Document are held to
be in excess of the limits imposed by any applicable usury laws, it is agreed
that any such amount held to be in excess shall be considered payment of
principal hereunder, and the indebtedness evidenced hereby shall be reduced by
such amount so that the total liability for payments in the nature of interest,
additional interest and other charges shall not exceed the applicable limits
imposed by any applicable usury laws, in compliance with the desires of the
Borrower and the Lender. This provision shall never be superseded or waived and
shall control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns.
(f) SAVINGS CLAUSE. The Borrower agrees that the
interest rate contracted for includes the interest rate set forth herein plus
any other charges or fees set forth herein and costs and expenses incident to
this transaction paid by the Borrower to the extent that same are deemed
interest under applicable law.
Section 2.11. Fees.
(a) ORIGINATION FEE. The Borrower shall pay the
Lender a fully earned and non-refundable origination fee of $50,000.00, due and
payable upon the execution of this Agreement.
(b) AUDIT FEES. The Borrower shall pay the
Lender, on demand, audit fees in connection with any audits or inspections
conducted by or on behalf of the Lender of any Collateral or the Borrower's
operations or business at the rates established from time to time by the Lender
as its audit fees (which fees are currently $90 per hour per auditor), together
with all actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection. Provided that there is not a then existing Event of Default
or Default Period, the audit fees shall not exceed $7,500.00 for any one audit.
The Lender currently intends to conduct three such audits per calendar year, so
long as there is not a then existing Event of Default or Default Period, then
and so long as (i) the average excess Availability for the 3 months immediately
preceding any such scheduled audit is not less than $2,500,000.00 or (ii) the
initial Revolving Advance has not yet been made, then the Lender will waive the
requirement for the then current audit, provided however, the Lender shall
conduct not less than two such audits per calendar year. Lender acknowledges
that Borrower has already paid a fee of $20,000.00, which Lender shall apply
toward, among other things, its initial audit fees with the residual (if any)
applied to Borrower's loan closing costs in connection with the execution of
this Agreement.
(c) LETTER OF CREDIT FEES. The Borrower agrees
to pay the Lender a fee with respect to each Letter of Credit, if any, accruing
on a daily basis and computed at the annual rate of one and one-half percent
(1.5%) of the aggregate amount that may then be drawn under it assuming
compliance with all conditions for drawing (the "Aggregate Face Amount"), from
and including the date of issuance of such Letter of Credit until such date as
such Letter of Credit shall terminate by its terms or be returned to the Lender,
due and payable monthly in arrears on the first day of each month and on the
Termination Date; provided, however that during Default Periods, in the Lender's
sole discretion and without waiving any of its other rights and remedies, such
fee shall increase to four and one-half percent (4.5%) of the Aggregate Face
Amount. The foregoing fee shall be in addition to any and all fees, commissions
and charges of any Issuer of a Letter of Credit with respect to or in connection
with such Letter of Credit.
(d) LETTER OF CREDIT ADMINISTRATIVE FEES. The
Borrower shall pay to the Lender, on written demand, the administrative fees
charged by the Issuer in connection with the honoring of drafts under any Letter
of Credit, amendments thereto, transfers thereof and all other activity with
respect to the Letters of Credit at the then-current rates published by the
Issuer for such services rendered on behalf of customers of the Issuer
generally.
(e) TERMINATION AND LINE REDUCTION FEES. If the
Credit Facility is terminated (i) by the Lender during a Default Period that
begins before a Maturity Date, (ii) by the Borrower (A) as of a date other than
a Maturity Date or (B) as of a Maturity Date but without the Lender having
received written notice of such termination at least 90 days before such
Maturity Date, or if the Borrower reduces the Maximum Line, the Borrower shall
pay to the Lender a fee in an amount equal to a percentage of the Maximum Line
(or the reduction of the Maximum Line, as the case may be) as follows: (A) three
percent (3.0%) if the termination or reduction occurs on or before the first
anniversary of the Funding Date; (B) two percent (2.0%) if the termination or
reduction occurs after the first anniversary of the Funding Date but on or
before the second anniversary of the Funding Date; and (C) one percent (1.0%) if
the termination or reduction occurs after the second anniversary of the Funding
Date.
(f) UNUSED FEE. From and after the earlier of
(i) the satisfaction of the conditions precedent detailed in Section 4.1 below
or (ii) September 1, 2004 (the "Outside Payoff Date"), the Borrower agrees to
pay to the Lender an unused fee at the annual rate of 0.25% on the average daily
unused amount of the Maximum Line from the date hereof to and including the date
on which such facility is terminated, due and payable monthly in arrears on the
first day of each month; provided that any such unused fee remaining unpaid upon
the Termination Date shall be due and payable on the Termination Date. Such fee
shall be calculated on the basis of actual days elapsed in a 360-day year.
(g) OVERADVANCE FEES. The Borrower shall pay an
overadvance fee in the amount of $500 for each day or portion thereof that the
Revolving Advances exceed the Borrowing Base, provided however, that if any such
day occurs during a Default Period, the overadvance charge for such day shall be
$1,000.
Section 2.12. Time for Interest Payments; Payment on
Non-Banking Days; Computation of Interest and Fees
(a) TIME FOR INTEREST PAYMENTS. Interest shall
be due and payable in arrears on the last day of each month and on the
Termination Date.
(b) PAYMENT ON NON-BANKING DAYS. Whenever any
payment to be made hereunder shall be stated to be due on a day which is not a
Banking Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
(c) COMPUTATION OF INTEREST AND FEES. Interest
accruing on the outstanding principal balance of the Advances and fees hereunder
outstanding from time to time shall be computed on the basis of actual number of
days elapsed in a year of 360 days.
Section 2.13. Lockbox; Collateral Account; Application of
Payments.
(a) LOCKBOX AND COLLATERAL ACCOUNT.
(i) From and after the date that the
Borrower requests that the Lender make the initial Advance or cause the initial
Letter of Credit to be issued (the "Initial Request Date"), the Borrower shall
deposit all cash proceeds of Collateral (including proceeds on Accounts)
directly into the Collateral Account. During the existence of an Event of
Default or Default Period, at the Lender's request, the Borrower shall instruct
all account debtors to pay all Accounts directly to a lockbox to be established
with Xxxxx Fargo Bank. If, notwithstanding such instructions, the Borrower
receives any payments on Accounts, the Borrower shall deposit such payments into
the Collateral Account. Until deposited in the Collateral Account, the Borrower
shall hold all such payments and cash proceeds in trust for and as the property
of the Lender and shall not commingle such property with any of its other funds
or property. All deposits in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations.
All items deposited in the Collateral
Account shall be subject to final payment. If any such item is returned
uncollected, the Borrower will immediately pay the Lender, or, for items
deposited in the Collateral Account, the bank maintaining such account, the
amount of that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The Borrower shall
be liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
(b) APPLICATION OF PAYMENTS.
(i) The Borrower may, from time to
time, in accordance with the Collection Account Agreement, cause funds in the
Collateral Account to be transferred to the Lender's general account for payment
of the Obligations. Except as provided in the preceding sentence, amounts
deposited in the Collateral Account shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all Obligations.
(ii) All payments to the Lender shall be
made in immediately available funds and shall be applied to the Obligations upon
receipt by the Lender. Funds received from the Collateral Account shall be
deemed to be immediately available. The Lender may hold all payments not
constituting immediately available funds for three (3) additional days before
applying them to the Obligations.
Section 2.14. Voluntary Prepayment; Reduction of the Maximum
Line; Termination of the Credit Facility by the Borrower. Except as otherwise
provided herein, the Borrower may prepay the Advances in whole at any time or
from time to time in part. The Borrower may terminate the Credit Facility or
reduce the Maximum Line at any time if it (i) gives the Lender at least 30 days'
prior written notice and (ii) pays the Lender termination or Maximum Line
reduction fees in accordance with Section 2.11(c). Any reduction in the Maximum
Line must be in an amount of not less than $1,000,000.00 or an integral multiple
thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately due and payable. Subject to termination of the Credit Facility
and payment and performance of all Obligations, the Lender shall, at the
Borrower's expense, release or terminate the Security Interest and the Security
Documents to which the Borrower is entitled by law.
Section 2.15. Mandatory Prepayment. Without notice or demand,
if the sum of the outstanding principal balance of the Revolving Advances plus
the L/C Amount shall at any time exceed the Borrowing Base, the Borrower shall
(i) first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.15 or
under Section 2.14 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.16. Revolving Advances to Pay Obligations.
Notwithstanding anything in Section 2.1, the Lender may, in its discretion at
any time or from time to time, without the Borrower's request and even if the
conditions set forth in Section 4.2 would not be satisfied, make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time
due and payable. In addition, the Lender shall have the right (but not the
obligation) to make Revolving Advances directly to the sinking fund account
maintained with Xxxxx Fargo Bank to satisfy the obligations of Oxycal to fund a
sinking fund account pursuant to the terms of the XXX Documents.
Section 2.17. Use of Proceeds. The Borrower shall use the
proceeds of Advances and each Letter of Credit for ordinary working capital
purposes as well as advances from Borrower to Guarantor in connection with
Guarantor's working capital needs.
Section 2.18. Liability Records. The Lender may maintain from
time to time, at its discretion, records as to the Obligations. All entries made
on any such record shall be presumed correct until the Borrower establishes the
contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1. Grant of Security Interest. The Borrower hereby
pledges, assigns and grants to the Lender a lien and security interest
(collectively referred to as the "Security Interest") in the Collateral, as
security for the payment and performance of the Obligations. Upon request by the
Lender, the Borrower will grant the Lender a security interest in all commercial
tort claims it may have against any Person.
Section 3.2. Notification of Account Debtors and Other
Obligors. During a Default Period, from and after the Initial Request Date, the
Lender may notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
xxx for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3. Assignment of Insurance. As additional security
for the payment and performance of the Obligations effective on the earlier of
(i) the Initial Request Date or (ii) the date upon which all of the Conditions
Precedent detailed in Section 4.1 are satisfied or waived, the Borrower hereby
assigns to the Lender any and all monies (including proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of the Borrower with respect to, any and all policies of insurance now or at any
time hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in the Borrower's name, execute and deliver proof
of claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy. In such event, the Lender shall
keep the Borrower apprised as to the status of the prosecution of any of the
same.
Section 3.4. Occupancy.
(a) From and after the Initial Request Date, the
Borrower hereby irrevocably grants to the Lender the right to take exclusive
possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to
hold, process, manufacture, sell, use, store, liquidate, realize upon or
otherwise dispose of goods that are Collateral and for other purposes that the
Lender may in good xxxxx xxxx to be related or incidental purposes.
(c) The Lender's right to hold the Premises
shall cease and terminate upon the earlier of (i) payment in full and discharge
of all Obligations and termination of the Credit Facility, and (ii) final sale
or disposition of all goods constituting Collateral and delivery of all such
goods to purchasers.
(d) The Lender shall not be obligated to pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time incurred
by or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5. License. Without limiting the generality of any
other Security Document, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all Intellectual Property Rights of the Borrower for the purpose of: (a)
completing the manufacture of any in-process materials during any Default Period
so that such materials become saleable Inventory, all in accordance with the
same quality standards previously adopted by the Borrower for its own
manufacturing and subject to the Borrower's reasonable exercise of quality
control; and (b) selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6. Financing Statement. The Borrower authorizes the
Lender to file from time to time where permitted by law, such financing
statements against collateral described as "all personal property" or describing
specific items of collateral including commercial tort claims as the Lender
deems necessary or useful to perfect the Security Interest. A carbon,
photographic or other reproduction of this Agreement or of any financing
statements signed by the Borrower is sufficient as a financing statement and may
be filed as a financing statement in any state to perfect the security interests
granted hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Zila Nutraceuticals, Inc.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Federal Employer Identification No. 00-0000000
Zila Biotechnology, Inc.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Federal Employer Identification No. 00-0000000
Zila Pharmaceuticals, Inc.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Federal Employer Identification No. 00-0000000
Xxxx Xxxx Technologies, Inc.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Federal Employer Identification No. 00-0000000
Oxycal Laboratories, Incorporated
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Federal Employer Identification No. 00-0000000
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
Xxxxx Xxxxx Xxxxx, XXX X0000-000
000 Xxxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Federal Employer Identification No. 00-0000000
Section 3.7. Setoff. The Lender may at any time or from time
to time, at its sole discretion and without demand and without notice to anyone,
setoff any liability owed to the Borrower by the Lender, whether or not due,
against any Obligation, whether or not due. In addition, each other Person
holding a participating interest in any Obligations shall have the right to
appropriate or setoff any deposit or other liability then owed by such Person to
the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.
Section 3.8. Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may
have against prior parties, to realize on the Collateral at all or in any
particular manner or order or to apply any cash proceeds of the Collateral in
any particular order of application. The Lender has no obligation to clean-up or
otherwise prepare the Collateral for sale. The Borrower waives any right it may
have to require the Lender to pursue any third person for any of the
Obligations.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1. Conditions Precedent to the Initial Revolving
Advance and Letter of Credit. The Lender's obligation to make the initial
Advance hereunder or to cause any Letters of Credit to be issued shall be
subject to the condition precedent that the Lender shall have received all of
the following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the
Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all
leases pursuant to which the Borrower is leasing the Premises, together with a
landlord's disclaimer and consent with respect to each such lease.
(d) A true and correct copy of any and all
mortgages pursuant to which the Borrower has mortgaged the Premises, together
with a mortgagee's disclaimer and consent with respect to each such mortgage.
(e) A true and correct copy of any and all
agreements pursuant to which the Borrower's property is in the possession of any
Person other than the Borrower, together with, in the case of any goods held by
such Person for resale, (i) a consignee's acknowledgment and waiver of Liens,
(ii) UCC financing statements sufficient to protect the Borrower's and the
Lender's interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement against such Person and covering
property similar to the Borrower's other than the Borrower, or if there exists
any such secured party, evidence that each such secured party has received
notice from the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such secured
party.
(f) An acknowledgment and waiver of Liens from
each warehouse in which the Borrower is storing Inventory.
(g) A true and correct copy of any and all
agreements pursuant to which the Borrower's property is in the possession of any
Person other than the Borrower, together with, (i) an acknowledgment and waiver
of Liens from each subcontractor who has possession of the Borrower's goods from
time to time, (ii) UCC financing statements sufficient to protect the Borrower's
and the Lender's interests in such goods, and (iii) UCC searches showing that no
other secured party has filed a financing statement covering such Person's
property other than the Borrower, or if there exists any such secured party,
evidence that each such secured
party has received notice from the Borrower and the Lender sufficient to protect
the Borrower's and the Lender's interests in the Borrower's goods from any claim
by such secured party.
(h) The Collection Account Agreement, properly
executed by the Borrower and Xxxxx Fargo Bank.
(i) Control agreements, properly executed by the
Borrower and each bank at which the Borrower maintains deposit accounts.
(j) The Patent and Trademark Security Agreement,
properly executed by the Borrower.
(k) The Patent and Trademark Security Agreement,
properly executed by the Guarantor.
(l) The Security Agreement, properly executed by
the Guarantor.
(m) The Copyright Security Agreement, properly
executed by the Borrower.
(n) There is not a then existing event of
default under the Credit Agreement, the Loan Documents or any of the XXX
Documents.
(o) Current searches of appropriate filing
offices showing that (i) no Liens have been filed and remain in effect against
the Borrower except Permitted Liens or Liens held by Persons who have agreed in
writing that upon receipt of proceeds of the initial Advances, they will
satisfy, release or terminate such Liens in a manner satisfactory to the Lender,
and (ii) the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable of being
perfected by filing.
(p) A certificate of each of the Borrower's
Secretaries or Assistant Secretaries certifying that attached to such
certificate are (i) the resolutions of the Borrower's Directors and, if
required, Owners, authorizing the execution, delivery and performance of the
Loan Documents, (ii) true, correct and complete copies of the Borrower's
Constituent Documents, and (iii) examples of the signatures of the Borrower's
Officers or agents authorized to execute and deliver the Loan Documents and
other instruments, agreements and certificates, including Advance requests, on
the Borrower's behalf.
(q) A current certificate issued by the
Secretary of State or Corporation Commission of each state in which any Borrower
was formed, certifying that said Borrower is in compliance with all applicable
organizational requirements of said State.
(r) Evidence that each Borrower is duly licensed
or qualified to transact business in all jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(s) A certificate of an Officer of each Borrower
confirming, in his personal capacity, the representations and warranties set
forth in Article V.
(t) An opinion of counsel to each Borrower,
addressed to the Lender.
(u) Certificates of the insurance required
hereunder, with all hazard insurance containing a lender's loss payable
endorsement in the Lender's favor and with all liability insurance naming the
Lender as an additional insured.
(v) A guaranty, properly executed by Guarantor,
pursuant to which Guarantor unconditionally guarantees the full and prompt
payment of all Obligations.
(w) All indebtedness owed by Borrower to
Congress Financial Corporation ("Congress") under any document or agreement by
and between any Borrower and Congress ("Congress Documents") shall have been
paid in full.
(x) An opinion of counsel to Guarantor,
addressed to the Lender.
(y) Payment of the fees and commissions due
under Section 2.11 through the date of the initial Advance or Letter of Credit
and expenses incurred by the Lender through such date and required to be paid by
the Borrower under Section 8.5, including all legal expenses incurred through
the date of this Agreement.
(z) Evidence that the Borrower has satisfied all
trade payables older than 60 days from invoice date (unless such vendor has
negotiated terms in excess of 60 days (not to exceed 90 days) in which case such
term shall be increased to the negotiated term), book overdrafts and closing
costs. Notwithstanding the foregoing, Borrower shall have the right to contest
in good faith and with reasonable diligence the payment of any trade payable,
provided Borrower has delivered to Lender (i) evidence satisfactory to Lender
that such contest is valid, and (ii) Borrower shall resolve such contest prior
to the filing of any action or lien by such vendor in violation of this
Agreement.
(aa) Such other documents as the Lender in its
sole discretion may require.
Section 4.2. Conditions Precedent to All Advances and Letters
of Credit The Lender's obligation to make each Advance and to cause each Letter
of Credit to be issued shall be subject to the further conditions precedent
that:
(a) the representations and warranties contained
in Article V are correct on and as of the date of such Advance or issuance of a
Letter of Credit as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or
would result from such Advance or issuance of a Letter of Credit which
constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1. Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Federal Employer Identification
Number. Each Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is duly
licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. Each Borrower
has all requisite power and authority to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, each Borrower has done business
solely under the names set forth in Schedule 5.1 and all of the Borrower's
records relating to its business or the Collateral are kept at that location.
Each Borrower's chief executive office and principal place of business is
located at the address set forth in Schedule 5.1. All Inventory and Equipment is
located at that location or at one of the other locations listed in Schedule
5.1. Each Borrower's federal employer identification number is correctly set
forth in Section 3.6.
Section 5.2. Capitalization. Schedule 5.2 constitutes a
correct and complete list of all Persons holding ownership interests and rights
to acquire ownership interests which if fully exercised would cause such Person
to hold more than five percent (5%) of all ownership interests of the Borrower
on a fully diluted basis, and an organizational chart showing the ownership
structure of all Subsidiaries of the Borrower.
Section 5.3. Authorization of Borrowing; No Conflict as to Law
or Agreements. The execution, delivery and performance by each Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of any Borrower's Owners; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including Regulation X of the
Board of Governors of the Federal Reserve System) or of any order, writ,
injunction or decree presently in effect having applicability to each Borrower
or of each Borrower's Constituent Documents; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which each Borrower is a party
or by which it or its properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by each Borrower.
Section 5.4. Legal Agreements. This Agreement constitutes and,
upon due execution by each Borrower, the other Loan Documents will constitute
the legal, valid and binding obligations of each Borrower, enforceable against
each Borrower in accordance with their respective terms.
Section 5.5. Subsidiaries. Except as set forth in Schedule 5.5
hereto, the Borrower has no Subsidiaries.
Section 5.6. Financial Condition; No Adverse Change. The
Borrower has furnished to the Lender its audited financial statements for its
fiscal year ended July 31, 2003 and unaudited financial statements for the
fiscal-year-to-date period ended December 31, 2003, and those statements fairly
present each Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.7. Litigation. Except as disclosed in Schedule 5.7
attached hereto, there are no actions, suits or proceedings pending or, to the
Borrower's knowledge, threatened against or affecting any Borrower or any of its
Affiliates or the properties of any Borrower or any of their Affiliates before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to any
Borrower or any of their Affiliates, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or any of its
Affiliates.
Section 5.8. Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.9. Taxes. Each Borrower and its Affiliates have paid
or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. Each Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the Officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and each Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.10. Titles and Liens. Each Borrower has good and
absolute title to all Collateral free and clear of all Liens other than
Permitted Liens. No financing statement naming any Borrower as debtor is on file
in any office except to perfect only Permitted Liens.
Section 5.11. Intellectual Property Rights.
(a) OWNED INTELLECTUAL PROPERTY. Schedule 5.11
is a complete list of all patents, applications for patents, trademarks,
applications for trademarks, service marks, applications for service marks, mask
works, trade dress and copyrights for which each Borrower is the registered
owner (the "Owned Intellectual Property"). Except as disclosed on Schedule 5.11,
(i) each Borrower owns the Owned Intellectual Property free and clear of all
restrictions (including covenants not to xxx a third party), court orders,
injunctions, decrees, writs or Liens, whether by written agreement or otherwise,
(ii) no Person other than the Borrower owns or has been granted any right in the
Owned Intellectual Property, (iii) all Owned
Intellectual Property is valid, subsisting and enforceable and (iv) the Borrower
has taken all commercially reasonable action necessary to maintain and protect
the Owned Intellectual Property.
(b) AGREEMENTS WITH EMPLOYEES AND CONTRACTORS.
Each Borrower has entered into a legally enforceable agreement with each of its
employees and subcontractors obligating each such Person to assign to each
Borrower, without any additional compensation, any Intellectual Property Rights
created, discovered or invented by such Person in the course of such Person's
employment or engagement with each Borrower (except to the extent prohibited by
law), and further requiring such Person to cooperate with each Borrower, without
any additional compensation, in connection with securing and enforcing any
Intellectual Property Rights therein; provided, however, that the foregoing
shall not apply with respect to employees and subcontractors whose job
descriptions are of the type such that no such assignments are reasonably
foreseeable.
(c) INTELLECTUAL PROPERTY RIGHTS LICENSED FROM
OTHERS. Schedule 5.11 is a complete list of all agreements under which the
Borrower has licensed Intellectual Property Rights from another Person
("Licensed Intellectual Property") other than readily available, non-negotiated
licenses of computer software and other intellectual property used solely for
performing accounting, word processing and similar administrative tasks
("Off-the-shelf Software") and a summary of any ongoing payments the Borrower is
obligated to make with respect thereto. Except as disclosed on Schedule 5.11 and
in written agreements copies of which have been given to the Lender, the
Borrower's licenses to use the Licensed Intellectual Property are free and clear
of all restrictions, Liens, court orders, injunctions, decrees, or writs,
whether by written agreement or otherwise. Except as disclosed on Schedule 5.11,
the Borrower is not obligated or under any liability whatsoever to make any
payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights.
(d) OTHER INTELLECTUAL PROPERTY NEEDED FOR
BUSINESS. Except for Off-the-shelf Software and as disclosed on Schedule 5.11,
the Owned Intellectual Property and the Licensed Intellectual Property
constitute all Intellectual Property Rights used or necessary to conduct the
Borrower's business as it is presently conducted or as the Borrower reasonably
foresees conducting it.
(e) INFRINGEMENT. Except as disclosed on
Schedule 5.11, the Borrower has no knowledge of, and has not received any
written claim or notice alleging, any Infringement of another Person's
Intellectual Property Rights (including any written claim that the Borrower must
license or refrain from using the Intellectual Property Rights of any third
party) nor, to the Borrower's knowledge, is there any threatened claim or any
reasonable basis for any such claim.
Section 5.12. Plans. Except as disclosed to the Lender in
writing prior to the date hereof, neither the Borrower nor any ERISA Affiliate
(i) maintains or has maintained any Pension Plan, (ii) contributes or has
contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required under Section 601 of ERISA,
Section 4980B of the IRC or applicable state law). Neither the Borrower nor any
ERISA Affiliate has received any notice
or has any knowledge to the effect that it is not in full compliance with any of
the requirements of ERISA, the IRC or applicable state law with respect to any
Plan. No Reportable Event exists in connection with any Pension Plan. Each Plan
which is intended to qualify under the IRC is so qualified, and no fact or
circumstance exists which may have an adverse effect on the Plan's tax-qualified
status. Neither the Borrower nor any ERISA Affiliate has (i) any accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
IRC) under any Plan, whether or not waived, (ii) any liability under Section
4201 or 4243 of ERISA for any withdrawal, partial withdrawal, reorganization or
other event under any Multiemployer Plan or (iii) any liability or knowledge of
any facts or circumstances which could result in any liability to the Pension
Benefit Guaranty Corporation, the Internal Revenue Service, the Department of
Labor or any participant in connection with any Plan (other than routine claims
for benefits under the Plan).
Section 5.13. Default. Each Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.14. Environmental Matters.
(a) To the Borrower's best knowledge, there are
not present in, on or under the Premises any Hazardous Substances in such form
or quantity as to create any material liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under any
Environmental Law, and no Hazardous Substances have ever been stored, buried,
spilled, leaked, discharged, emitted or released in, on or under the Premises in
such a way as to create any such material liability.
(b) To the Borrower's best knowledge, the
Borrower has not disposed of Hazardous Substances in such a manner as to create
any material liability under any Environmental Law.
(c) There are not and there never have been any
requests, claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the Borrower,
alleging material liability under, violation of, or noncompliance with any
Environmental Law or any license, permit or other authorization issued pursuant
thereto. To the Borrower's best knowledge, no such matter is threatened or
impending.
(d) To the Borrower's best knowledge, the
Borrower's businesses are and have in the past always been conducted in
accordance with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary for the
lawful and efficient operation of such businesses are in the Borrower's
possession and are in full force and effect. No permit required under any
Environmental Law is scheduled to expire within 12 months and there is no threat
that any such permit will be withdrawn, terminated, limited or materially
changed.
(e) To the Borrower's best knowledge, the
Premises are not and never have been listed on the National Priorities List, the
Comprehensive Environmental Response,
Compensation and Liability Information System or any similar federal, state or
local list, schedule, log, inventory or database.
(f) The Borrower has delivered to Lender all
environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.15. Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is (i)
true and correct in all material respects, (ii) does not omit any material fact
necessary to make such information not misleading and, (iii) as to projections,
valuations or proforma financial statements, present a good faith opinion as to
such projections, valuations and proforma condition and results.
Section 5.16. Financing Statements. The Borrower hereby
authorizes, on or before the Outside Payoff Date, the filing of financing
statements sufficient when filed to perfect the Security Interest and the other
security interests created by the Security Documents. When such financing
statements are filed in the offices noted therein, the Lender will have a valid
and perfected security interest in all Collateral which is capable of being
perfected by filing financing statements. None of the Collateral is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.
Section 5.17. Rights to Payment. Each right to payment and
each instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or, in the case of all future Collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.18. Financial Solvency. Both before and after giving
effect to all of the transactions contemplated in the Loan Documents, none of
the Borrower or their Affiliates:
(a) was or will be insolvent, as that term is
used and defined in Section 101(32) of the United States Bankruptcy Code and
Section 2 of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged
or about to engage in a business or a transaction for which any remaining assets
of the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its
obligations under the Loan Documents or other documents to which it is a party
or by taking any action with respect thereto, intends to, nor believes that it
will, incur debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its
obligations under the Loan Documents or other documents to which it is a party
or by taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; and
(e) at this time contemplates filing a petition
in bankruptcy or for an arrangement or reorganization or similar proceeding
under any law any jurisdiction, nor, to the best knowledge of the Borrower, is
the subject of any actual, pending or threatened bankruptcy, insolvency or
similar proceedings under any law of any jurisdiction.
ARTICLE VI
COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1. Reporting Requirements. The Borrower will
deliver, or cause to be delivered, to the Lender each of the following, which
shall be in form and detail acceptable to the Lender:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as
available, and in any event within 90 days after the end of each fiscal year of
the Borrower, the Borrower will deliver, or cause to be delivered, to the
Lender, the Guarantor's audited and consolidated financial statements with the
unqualified opinion of independent certified public accountants selected by the
Borrower and acceptable to the Lender, which annual financial statements shall
include the Guarantor's balance sheet as at the end of such fiscal year and the
related statements of the Guarantor's income, retained earnings and cash flows
for the fiscal year then ended, prepared, if the Lender so requests, on a
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) copies of all management
letters prepared by such accountants; (ii) a report signed by such accountants
stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or Event of
Default and all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
Financial Covenants; and (iii) a certificate of the Borrower's chief financial
officer stating that such financial statements have been prepared in accordance
with GAAP, fairly represent the Borrower's financial position and the results of
its operations, and whether or not such officer has knowledge of the occurrence
of any Default or Event of Default and, if so, stating in reasonable detail the
facts with respect thereto.
(b) MONTHLY FINANCIAL STATEMENTS. As soon as
available and in any event within 25 days after the end of each month, the
Borrower will deliver to the Lender an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the end of and
for such month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidated basis to include any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of the Borrower's chief financial Officer, substantially in the form
of Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments and
fairly represent the Borrower's financial position and the results of its
operations, (ii) whether or not such officer has knowledge of the occurrence of
any Default or Event of Default not theretofore reported and remedied and, if
so,
stating in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the Financial Covenants.
(c) COLLATERAL REPORTS. Within 25 days after the
end of each month or more frequently if the Lender so requires, the Borrower
will deliver to the Lender agings of the Borrower's accounts receivable and its
accounts payable, an inventory certification report, and a calculation of the
Borrower's Accounts, Eligible Accounts, Inventory and Eligible Inventory as at
the end of such month or shorter time period.
(d) PROJECTIONS. At least 30 days before the
beginning of each fiscal year of the Borrower, the Borrower will deliver to the
Lender the projected balance sheets and income statements for each month of such
year, each in reasonable detail, representing the Borrower's good faith
projections and certified by the Borrower's chief financial Officer as being the
most accurate projections available and identical to the projections used by the
Borrower for internal planning purposes, together with a statement of underlying
assumptions and such supporting schedules and information as the Lender may in
its discretion require.
(e) LITIGATION. Immediately after the
commencement thereof, the Borrower will deliver to the Lender notice in writing
of all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower (i) of the type described in Section 5.14(c) or
(ii) which seek a monetary recovery against the Borrower in excess of
$500,000.00.
(f) DEFAULTS. As promptly as practicable (but in
any event not later than five business days) after an Officer of the Borrower
obtains knowledge of the occurrence of any Event of Default, the Borrower will
deliver to the Lender notice of such occurrence, together with a detailed
statement by a responsible Officer of the Borrower of the steps being taken by
the Borrower to cure the effect thereof.
(g) PLANS. As soon as possible, and in any event
within 30 days after the Borrower knows or has reason to know that any
Reportable Event with respect to any Pension Plan has occurred, the Borrower
will deliver to the Lender a statement of the Borrower's chief financial Officer
setting forth details as to such Reportable Event and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation. As
soon as possible, and in any event within 10 days after the Borrower fails to
make any quarterly contribution required with respect to any Pension Plan under
Section 412(m) of the IRC, the Borrower will deliver to the Lender a statement
of the Borrower's chief financial Officer setting forth details as to such
failure and the action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be provided to
the Pension Benefit Guaranty Corporation. As soon as possible, and in any event
with 10 days after the Borrower knows or has reason to know that it has or is
reasonably expected to have any liability under Section 4201 or 4243 of ERISA
for any withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan, the Borrower will deliver to the Lender a statement of the
Borrower's chief financial Officer setting forth details as to such liability
and the action which Borrower proposes to take with respect thereto.
(h) DISPUTES. Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice of any (i) disputes or claims by
the Borrower's customers; (ii) credit memos; or (iii) goods returned to or
recovered by the Borrower.
(i) OFFICERS AND DIRECTORS. Promptly upon
knowledge thereof, the Borrower will deliver to the Lender notice any change in
the persons constituting the Borrower's Officers and Directors.
(j) COLLATERAL. Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice of any loss of or material damage
to any Collateral or of any substantial adverse change in any Collateral or the
prospect of payment thereof.
(k) COMMERCIAL TORT CLAIMS. Promptly upon
knowledge thereof, the Borrower will deliver to the Lender notice of any
material commercial tort claims it may bring against any person, including the
name and address of each defendant, a summary of the facts, an estimate of the
Borrower's damages, copies of any complaint or demand letter submitted by the
Borrower, and such other information as the Lender may request.
(l) INTELLECTUAL PROPERTY.
(i) The Borrower will give the Lender
30 days prior written notice of its intent to acquire material Intellectual
Property Rights; except for transfers permitted under Section 6.17, the Borrower
will give the Lender 30 days prior written notice of its intent to dispose of
material Intellectual Property Rights; and upon request shall provide the Lender
with copies of all applicable documents and agreements.
(ii) Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice of (A) any Infringement of its
Intellectual Property Rights by others, (B) claims that the Borrower is
Infringing another Person's Intellectual Property Rights and (C) any threatened
cancellation, termination or material limitation of its Intellectual Property
Rights.
(iii) Promptly upon receipt, the Borrower
will give the Lender copies of all registrations and filings with respect to its
Intellectual Property Rights.
(m) REPORTS TO OWNERS. Promptly upon their
distribution, the Borrower will deliver to the Lender copies of all financial
statements including income statement and balance sheets, which the Borrower
shall have sent to its Owners.
(n) SEC FILINGS. Promptly after the sending or
filing thereof, the Borrower will cause to be delivered to the Lender copies of
all regular and periodic reports which the Guarantor shall file with the
Securities and Exchange Commission or any national securities exchange.
(o) VIOLATIONS OF LAW. Promptly upon knowledge
thereof, the Borrower will deliver to the Lender notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
materially and adversely affect the Borrower's business or its financial
condition.
(p) OTHER REPORTS. From time to time, with
reasonable promptness, the Borrower will deliver to the Lender any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may request.
Section 6.2. Financial Covenants.
(a) QUARTERLY NET WORTH. The Borrower covenants
that as of December 31, 2003, the Borrower had a Book Net Worth of not less than
$50,000,000.00. The Borrower covenants that, commencing with the fiscal quarter
ending January 31, 2004 and continuing each quarter thereafter, the Borrower
shall not achieve a Book Net Worth decrease of more than the amounts set forth
below as measured from the last day of the immediately preceding fiscal year.
Quarter Ending Maximum Net Worth Decrease
-------------- --------------------------
January 31, 2004 $4,000,000.00
April 30, 2004 $6,000,000.00
July 31, 2004 $6,000,000.00
(b) MONTHLY NET WORTH. The Borrower covenants
that commencing with the month ending January 31, 2004 and continuing each month
thereafter, the Borrower Book Net Worth as of the last day of each such month
shall not be less than $47,000,000.00.
(c) CAPITAL EXPENDITURES. The Borrower will not
incur or contract to incur Capital Expenditures of more than $1,500,000.00 in
the aggregate during any fiscal year.
(d) NEW COVENANTS. On or before July 31, 2004
and continuing on or before each July 1 thereafter, thereafter the Lender and
the Borrower shall agree on new covenant levels for Section 6.2(a) through
6.2(c).
Section 6.3. Permitted Liens; Financing Statements.
(a) The Borrower will not create, incur or
suffer to exist any Lien upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the operation of
the foregoing, the following (collectively, "Permitted Liens"):
(i) in the case of any of the
Borrower's property which is not Collateral, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the Borrower's business or operations as presently conducted;
(ii) Liens in existence on the date
hereof and listed in Schedule 6.3 hereto, securing indebtedness for borrowed
money permitted under Section 6.4;
(iii) the Security Interest and Liens
created by the Security Documents; and
(iv) purchase money Liens relating to
the acquisition of machinery and equipment of the Borrower not exceeding the
lesser of cost or fair market value thereof, and so long as no Default Period is
then in existence and none would exist immediately after such acquisition.
(b) The Borrower will not amend any financing
statements in favor of the Lender except as permitted by law. Any authorization
by the Lender to any Person to amend financing statements in favor of the Lender
shall be in writing.
Section 6.4. Indebtedness. From and after the Initial Request
Date, the Borrower will not incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any indebtedness
for borrowed money or letters of credit issued on the Borrower's behalf, or any
other indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on
the date hereof and listed in Schedule 6.4 hereto;
(c) indebtedness relating to Permitted Liens;
and
(d) indebtedness evidenced by the XXX Documents.
Section 6.5. Guaranties. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by
the Borrower for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 6.4 hereto.
Section 6.6. Investments and Subsidiaries. The Borrower will
not purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture, except:
(a) investments in direct obligations of the
United States of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Xxxxx'x Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of deposit or bankers'
acceptances are fully insured by the Federal Deposit Insurance Corporation);
(b) travel advances or loans to the Borrower's
Officers and employees not exceeding at any one time an aggregate of $50,000.00;
(c) advances in the form of progress payments,
prepaid rent not exceeding two months or security deposits; and
(d) current investments in the Subsidiaries in
existence on the date hereof and listed in Schedule 5.5 hereto.
Section 6.7. Dividends and Distributions. The Borrower will
not declare or pay any dividends (other than dividends payable solely in stock
of the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 6.8. Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation (collectively "Compensation") to any Director, Officer or
consultant, or any member of their families. All of such Compensation paid shall
be consistent with the Guarantor's and applicable Borrower's compensation
committee.
Section 6.9. Books and Records; Inspection and Examination.
The Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower's business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all company and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its Directors, Officers, employees or
agents. The Borrower hereby irrevocably authorizes all accountants and third
parties to disclose and deliver to Lender, at the Borrower's expense, all
financial information, books and records, work papers, management reports and
other information in their possession regarding the Borrower. The Borrower will
permit the Lender, or its employees, accountants, attorneys or agents, to
examine and inspect any Collateral or any other property of the Borrower at any
time during ordinary business hours.
Section 6.10. Account Verification. From and after the Initial
Request Date, the Lender may at any time and from time to time send or require
the Borrower to send requests for verification of accounts or notices of
assignment to account debtors and other obligors. The Lender may also at any
time and from time to time telephone account debtors and other obligors to
verify accounts.
Section 6.11. Compliance with Laws.
(a) The Borrower will (i) comply with the
requirements of applicable laws and regulations, the non-compliance with which
would materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance.
(b) Without limiting the foregoing undertakings,
the Borrower specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and similar
approvals required by any Environmental Laws, and will not generate, use,
transport, treat, store or dispose of any Hazardous Substances in such a manner
as to create any material liability or obligation under the common law of any
jurisdiction or any Environmental Law.
Section 6.12. Payment of Taxes and Other Claims. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a Lien upon any properties of
the Borrower; provided, that the Borrower shall not be required to pay any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which proper
reserves have been made.
Section 6.13. Maintenance of Properties.
(a) The Borrower will keep and maintain the
Collateral and all of its other properties necessary or useful in its business
in good condition, repair and working order (normal wear and tear excepted) and
will from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.13 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Borrower's judgment, desirable in the conduct of
the Borrower's business and not disadvantageous in any material respect to the
Lender. The Borrower will take all commercially reasonable steps necessary to
protect and maintain its Intellectual Property Rights.
(b) The Borrower will defend the Collateral
against all Liens, claims or demands of all Persons (other than the Lender)
claiming the Collateral or any interest therein. The Borrower will keep all
Collateral free and clear of all Liens except Permitted Liens. The Borrower will
take all commercially reasonable steps necessary to prosecute any Person
Infringing its Intellectual Property Rights and to defend itself against any
Person accusing it of Infringing any Person's Intellectual Property Rights.
Section 6.14. Insurance. The Borrower will obtain and at all
times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general areas in
which the Borrower operates. Without limiting the generality of the foregoing,
the Borrower will at all times maintain business interruption insurance
including coverage for force majeure and keep all tangible Collateral insured
against risks of fire (including so-called extended coverage), theft, collision
(for Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lender may reasonably request, with any loss payable to the
Lender to the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.15. Preservation of Existence. The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.16. Delivery of Instruments, etc. Upon request by
the Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel paper constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.17. Sale or Transfer of Assets; Suspension of
Business Operations. With the exception of the sale of all or substantially all
of the assets of ZS, Borrower will not sell, lease, assign, transfer or
otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial
part of its assets, or (iii) any Collateral or any interest therein (whether in
one transaction or in a series of transactions) to any other Person other than
the sale of Inventory in the ordinary course of business and the sale of
obsolete equipment or equipment no longer used or being replaced by other
equipment in Borrower's ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not transfer any part
of its ownership interest in any Intellectual Property Rights and will not
permit any agreement under which it has licensed Licensed Intellectual Property
to lapse, except that the Borrower may transfer such rights or permit such
agreements to lapse if it shall have reasonably determined that the applicable
Intellectual Property Rights are no longer useful in its business. If the
Borrower transfers any Intellectual Property Rights for value, the Borrower will
pay over the proceeds to the Lender for application to the Obligations. The
Borrower will not license any other Person to use any of the Borrower's
Intellectual Property Rights, except that the Borrower may grant licenses in the
ordinary course of its business in connection with sales of Inventory or
provision of services to its customers.
Section 6.18. Consolidation and Merger; Asset Acquisitions.
The Borrower will not consolidate with or merge into any Person, or permit any
other Person to merge into it, or acquire (in a transaction analogous in purpose
or effect to a consolidation or merger) all or substantially all the assets of
any other Person.
Section 6.19. Sale and Leaseback. The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 6.20. Restrictions on Nature of Business. The Borrower
will not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 6.21. Accounting. The Borrower will not adopt any
material change in accounting principles other than as required by GAAP. The
Borrower will not adopt, permit or consent to any change in its fiscal year.
Section 6.22. Discounts, etc. During a Default Period and
after notice from the Lender, the Borrower will not grant any discount, credit
or allowance to any customer of the Borrower or accept any return of goods sold.
The Borrower will not at any time modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower.
Section 6.23. Plans. Unless disclosed to the Lender pursuant
to Section 5.12, neither the Borrower nor any ERISA Affiliate will (i) adopt,
create, assume or become a party to any Pension Plan, (ii) incur any obligation
to contribute to any Multiemployer Plan, (iii) incur any obligation to provide
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required by law) or (iv) amend any Plan in
a manner that would materially increase its funding obligations.
Section 6.24. Place of Business; Name. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name or jurisdiction of organization.
Section 6.25. Constituent Documents; S Corporation Status. The
Borrower will not amend its Constituent Documents. The Borrower will not become
an S Corporation.
Section 6.26. Performance by the Lender. If the Borrower at
any time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.13 and 6.15,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including the payment of taxes, the satisfaction of Liens, the performance of
obligations owed to account debtors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments); and the Borrower
shall thereupon pay to the Lender on demand the amount of all monies expended
and all costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Lender in connection with or as a result of the
performance or observance of such agreements or the taking of such action by the
Lender, together with interest thereon from the date expended or incurred at the
Default Rate. To facilitate the
Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.26.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1. Events of Default. "Event of Default" and
"Default", wherever used herein, means any one of the following events:
(a) Default in the payment of any of the
Obligations when they become due and payable;
(b) Default in the performance, or breach, of
any covenant or agreement of the Borrower contained in this Agreement;
(c) Any Financial Covenant shall become
inapplicable due to the lapse of time and the failure to amend any such covenant
to cover future periods as required pursuant to Section 6.2(d) above;
(d) Any Borrower or any Guarantor shall be or
become insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of creditors; or any
Borrower or any Guarantor shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or him or for all or any
substantial part of its or his property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of any Borrower or
such Guarantor, as the case may be; or any Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against any Borrower or any such Guarantor;
or any judgment, writ, warrant of attachment or execution or similar process
shall be issued or levied against a substantial part of the property of any
Borrower or any Guarantor;
(e) A petition shall be filed by or against any
Borrower or any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor and such petition is not dismissed within
sixty (60) days;
(f) Any representation or warranty made by the
Borrower in this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its Officers) or any Guarantor in any
agreement, certificate, instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in connection
with this Agreement or any such guaranty shall prove to have been incorrect in
any material respect when deemed to be effective;
(g) The rendering against any Borrower of an
arbitration award, final judgment, decree or order for the payment of money in
excess of $500,000.00 and the continuance of such arbitration award, judgment,
decree or order unsatisfied and in effect for any period of 30 consecutive days
without a stay of execution;
(h) A default under any bond, debenture, note or
other evidence of indebtedness of any Borrower owed to any Person other than the
Lender in excess of $500,000.00, or under any indenture or other instrument
under which any such evidence of indebtedness has been issued or by which it is
governed, or under any material lease or other contract, and the expiration of
the applicable period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument, lease or contract;
(i) Any Reportable Event, which the Lender
determines in good faith might constitute grounds for the termination of any
Pension Plan or for the appointment by the appropriate United States District
Court of a trustee to administer any Pension Plan, shall have occurred and be
continuing 30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by an
appropriate United States District Court to administer any Pension Plan; or the
Pension Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan; or the Borrower or any ERISA Affiliate shall have filed for a distress
termination of any Pension Plan under Title IV of ERISA; or the Borrower or any
ERISA Affiliate shall have failed to make any quarterly contribution required
with respect to any Pension Plan under Section 412(m) of the IRC, which the
Lender determines in good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in the future, result
in the imposition of a Lien on the Borrower's assets in favor of the Pension
Plan; or any withdrawal, partial withdrawal, reorganization or other event
occurs with respect to a Multiemployer Plan which results or could reasonably be
expected to result in a material liability of the Borrower to the Multiemployer
Plan under Title IV of ERISA;
(j) An event of default shall occur under any
Security Document;
(k) Any Borrower shall liquidate, dissolve,
terminate or suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell or attempt to sell all or substantially
all of its assets, without the Lender's prior written consent;
(l) Default in the payment of any amount owed by
any Borrower to the Lender other than any indebtedness arising hereunder;
(m) Any Guarantor or person signing a support
agreement in favor of the Lender shall repudiate, purport to revoke or fail to
perform his obligations under his guaranty or support agreement in favor of the
Lender, any individual Guarantor shall die or any other Guarantor shall cease to
exist;
(n) Any event or circumstance with respect to
any Borrower shall occur such that the Lender shall believe in good faith that
the prospect of payment of all or any
part of the Obligations or the performance by any Borrower under the Loan
Documents is impaired or any material adverse change in the business or
financial condition of the Borrower shall occur;
(o) Any event of default shall occur under the
Congress Documents or under the XXX Documents;
(p) Any and all indebtedness owed by Borrower to
Congress is not paid in full on or before August 31, 2004; or
(q) Any breach, default or event of default by
or attributable to any Affiliate under any agreement between such Affiliate and
the Lender shall occur.
Section 7.2. Rights and Remedies. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower,
declare the Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower,
declare the Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which the
Borrower hereby expressly waives;
(c) the Lender may, without notice to the
Borrower and without further action, apply any and all money owing by the Lender
to the Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and
all rights and remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, or any evidence thereof,
proceeding without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Borrower hereby expressly waives) and the
right to sell, lease or otherwise dispose of any or all of the Collateral (with
or without giving any warranties as to the Collateral, title to the Collateral
or similar warranties), and, in connection therewith, the Borrower will on
demand assemble the Collateral and make it available to the Lender at a place to
be designated by the Lender which is reasonably convenient to both parties;
(e) the Lender may make demand upon the Borrower
and, forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant to
Section 2.15 an amount equal to the aggregate maximum amount available to be
drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder;
(f) the Lender may exercise and enforce its
rights and remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and
remedies available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 7.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind. If the Lender sells any of the Collateral on credit, the
Obligations will be reduced only to the extent of payments actually received. If
the purchaser fails to pay for the Collateral, the Lender may resell the
Collateral and shall apply any proceeds actually received to the Obligations.
Section 7.3. Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. No Waiver; Cumulative Remedies; Compliance with
Laws. No failure or delay by the Lender in exercising any right, power or remedy
under the Loan Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law. The Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.
Section 8.2. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 8.3. Addresses for Notices; Requests for Accounting.
Except as otherwise expressly provided herein, all notices, requests, demands
and other communications provided for under the Loan Documents shall be in
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below next to its signature or, as to each party, at such other address or
telecopier number as may hereafter be designated by such party in a written
notice to the other party complying as to delivery with the terms of this
Section. All such notices, requests, demands and other communications shall be
deemed to have been given on (a) the date received if personally delivered, (b)
when deposited in the mail if delivered by mail, (c) the date sent if sent by
overnight courier, or (d) the date of transmission if
delivered by telecopy, except that notices or requests to the Lender pursuant to
any of the provisions of Article II shall not be effective until received by the
Lender. All requests under Section 9-210 of the UCC (i) shall be made in a
writing signed by a person authorized under Section 2.2(b), (ii) shall be
personally delivered, sent by registered or certified mail, return receipt
requested, or by overnight courier of national reputation (iii) shall be deemed
to be sent when received by the Lender and (iv) shall otherwise comply with the
requirements of Section 9-210. The Borrower requests that the Lender respond to
all such requests which on their face appear to come from an authorized
individual and releases the Lender from any liability for so responding. The
Borrower shall pay Lender the maximum amount allowed by law for responding to
such requests. Any notice given pursuant to this Agreement to one entity
constituting the Borrower shall be deemed to have also been given to each and
every other entity constituting the Borrower. Any notice given pursuant to this
Agreement to Lender on behalf of any one entity constituting the Borrower shall
be deemed to have also been given on behalf of each and every other entity
constituting the Borrower.
Section 8.4. Further Documents. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements, control
agreements and other agreements and writings that the Lender may reasonably
request in order to secure, protect, perfect or enforce the Security Interest or
the Lender's rights under the Loan Documents (but any failure to request or
assure that the Borrower executes, delivers or endorses any such item shall not
affect or impair the validity, sufficiency or enforceability of the Loan
Documents and the Security Interest, regardless of whether any such item was or
was not executed, delivered or endorsed in a similar context or on a prior
occasion).
Section 8.5. Costs and Expenses. The Borrower shall pay on
demand all costs and expenses, including reasonable attorneys' fees, incurred by
the Lender in connection with the Obligations, this Agreement, the Loan
Documents, any Letter of Credit and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 8.6. Indemnity. In addition to the payment of expenses
pursuant to Section 8.5, the Borrower shall indemnify, defend and hold harmless
the Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(a) any and all transfer taxes, documentary
taxes, assessments or charges made by any governmental authority by reason of
the execution and delivery of the Loan Documents or the making of the Advances;
(b) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty contained in
Section 5.14 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.11(b); and
(c) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel)
in connection with the foregoing and any other investigative, administrative or
judicial proceedings, whether or not such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended use of the
proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.6 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 8.7. Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 8.8. Execution in Counterparts; Telefacsimile
Execution. This Agreement and other Loan Documents may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same instrument. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
Section 8.9. Retention of Borrower's Records. The Lender shall
have no obligation to maintain any electronic records or any documents,
schedules, invoices, agings, or other papers delivered to the Lender by the
Borrower or in connection with the Loan Documents for more than four months
after receipt by the Lender.
Section 8.10. Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
To the extent permitted by law, the Borrower waives and will not assert against
any assignee any claims, defenses or set-offs which the Borrower could assert
against the Lender. This Agreement shall also bind all Persons who become a
party to this Agreement as a
borrower. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding the
Borrower and its Affiliates with the Lender's participants, accountants, lawyers
and other advisors, the Lender, Xxxxx Fargo & Company, and all direct and
indirect subsidiaries of Xxxxx Fargo & Company, may exchange any and all
information they may have in their possession regarding the Borrower and its
Affiliates, and the Borrower waives any right of confidentiality it may have
with respect to such exchange of such information.
Section 8.11. Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.12. Headings. Article, Section and subsection
headings in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.
Section 8.13. Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Arizona.
The parties hereto hereby (i) consent to the personal jurisdiction of the state
and federal courts located in the State of Arizona in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other Loan
Documents may be venued in either the State or Federal courts located in
Maricopa County, Arizona; and (iv) agree that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
Zila Nutraceuticals, Inc. ZILA NUTRACEUTICALS, INC.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: 000-000-0000 By /s/ Xxxxxx X Xxxxxxx
Attention: Xxxxxx X. Xxxxxxx --------------------
000-000-0000
Attention: Xxxxxx X. Xxxxxxx
Its Vice President
Zila Biotechnology, Inc. ZILA BIOTECHNOLOGY, INC.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx By /s/ Xxxxxx X Xxxxxxx
--------------------
Its Vice President
Zila Pharmaceuticals, Inc. ZILA PHARMACEUTICALS, INC.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx By /s/ Xxxxxx X Xxxxxxx
--------------------
Its Vice President
Xxxx Xxxx Technologies, Inc. XXXX XXXX TECHNOLOGIES, INC.
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx By /s/ Xxxxxx X Xxxxxxx
--------------------
Its Vice President
Oxycal Laboratories, Incorporated OXYCAL LABORATORIES,
0000 X. 0xx Xxxxxx XXXXXXXXXXXX
Xxxxxxx, Xxxxxxx 00000
Telecopier: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx By /s/ Xxxxxx X Xxxxxxx
--------------------
Its Vice President
Xxxxx Fargo Business Credit, Inc. XXXXX FARGO BUSINESS CREDIT, INC.
Xxxxx Xxxxx Xxxxx, XXX X0000-000
000 Xxxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Telecopier: 000-000-0000
Attention: Xx. Xxxxx Xxxxx Xxxxx By /s/ Xxxxxxx X. Xxxxxxxx
-----------------------
Its Vice President
