SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND/OR INVENTORY)
This Agreement is entered into between MONTEREY PASTA
COMPANY, a DELAWARE CORPORATION
(herein called "Borrower") and IMPERIAL BANK (herein called
"Bank").
1. Bank hereby commits, subject to all the terms and conditions
of this Agreement and prior to the termination of its commitment as
hereinafter provided to make loans to Borrower from time to time in
such amounts as may be determined by Bank up to, but not exceeding
in the aggregate unpaid principal balance, the following Borrowing
Base:
70 % of Eligible Accounts
30 % of the Value of Inventory NOT TO
EXCEED $250,000.00 and in no event more than $ 1,500,000.00
2. The amount of each loan made by Bank to Borrower
hereunder shall be debited to the loan ledger account of Borrower
maintained by Bank (herein called "Loan Account") and Bank shall
credit the Loan Account with all loan repayments made by Borrower.
Borrower promises to pay Bank (a) the unpaid balance of Borrower's
Loan Account on demand and (b) on or before the tenth day of each
month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of
ZERO percent ( 0.00 %) per annum in excess of the rate of
interest which Bank has announced as its prime lending rate ("Prime
Rate") which shall vary concurrently with any change in such Prime
Rate. Interest shall be computed at the above rate on the basis of the
actual number of days during which the principal balance of the loan
account is outstanding divided by 360, which shall for interest
computation purposes be considered one year. Bank at its option may
demand payment of any or all of the amount due under the Loan
Account including accrued but unpaid interest at any time. Such
notice may be given verbally or in writing and should be effective
upon receipt by Borrower. The amount of interest payable each
month by Borrower shall not be less than a minimum monthly
charge of $ 250.00 . Bank is hereby authorized to
charge Borrower's deposit account(s) with Bank for all sums due
Bank under this Agreement.
3. Request for loans hereunder shall be in writing duly executed
by Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in Section 1, which
shall disclose that Borrower is entitled to the amount of loan being
requested.
4. As used in this Agreement, the following terms shall have the
following meanings:
A. "Accounts" means any right to payment for goods
sold or leased, or to be sold or to be leased, or for services rendered
or to be rendered no matter how evidenced, including accounts
receivable, contract rights, chattel paper, instruments, purchase
orders, notes, drafts, acceptances, general intangibles and other forms
of obligations and receivables.
B. "Inventory" means all of the borrower's goods,
merchandise and other personal property which are held for sale or
lease. including those held for display or demonstration or out on
lease or consignment or to be furnished under a contract of service or
are raw materials, work in process or materials used or consumed, or
to be used or consumed in Borrower's business, and shall include all
property rights, patents, plans, drawings, diagrams, schematics,
assembly and display materials relating thereto.
C. "Collateral" means any and all personal property of
Borrower which is assigned to hereafter is assigned to Bank as
security or in which Bank now has or hereafter acquires a security
interest.
D. "Eligible Accounts" means all of Borrower's
Accounts excluding, however, (1) all Accounts under which payment
is not received within 90 days from any invoice date, (2) all
Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability represented
by the Account and (3) any Accounts if the account debtor or any
other person liable in connection therewith is insolvent, subject to
bankruptcy or receivership proceedings or has made an assignment for
the benefit of creditors or whose credit standing is unacceptable to
Bank and Bank has so notified Borrower. Eligible Accounts shall
only include such accounts as Bank in its sole discretion shall
determine are eligible from time to time.
E. "Value of Inventory" means the value of Borrower's
Inventory determined in accordance with generally accepted
accounting principles consistently applied excluding, however, the
amount of progress payments, pre-delivery payments, deposits and
any other sums received by Borrower in anticipation of the sale and
delivery of Inventory, all Inventory on consignment or lease to others,
and all property on consignment or lease from others to Borrower.
5. Borrower hereby assigns to Bank all Borrower's present and
future Accounts, including all proceeds due thereunder, all guaranties
and security therefor and all merchandise giving rise thereto, and
hereby grants to Bank a continuing security interest in all Borrower's
Inventory and in all proceeds and products thereof, whether now
owned or hereafter existing or acquired, including all moneys in the
Collateral Account referred to in Section 6 hereof, as security for any
and all obligations of Borrower to Bank, whether now owing or
hereafter incurred and whether direct, indirect, absolute or contingent.
So long as Borrower is indebted to Bank or Bank is committed to
extend credit to Borrower, Borrower will execute and deliver to Bank
such assignments, including Bank's standard forms of Specific or
General Assignment covering individual Accounts, notices, financing,
statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of
the Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts and
Inventory proceeds pursuant to paragraph 10, Borrower will collect
with diligence all Borrower's Accounts and Inventory proceeds,
provided that no legal action shall be maintained thereon or in
connection therewith without Bank's prior written consent. Any
collection of Accounts or Inventory proceeds by Borrower, whether in
the form of cash, checks, notes, or other instruments for the payment
of money (properly endorsed or assigned where required to enable
Bank to collect same), shall be in trust for Bank, and Borrower shall
keep all such collection separate and apart from all other funds and
property so as to be capable of identification as the property of Bank
and deliver said collections, together with the proceeds of all cash
sales, daily to Bank in the identical form received. The proceeds of
such collections when received by Bank may be applied by Bank
directly to the payment of Borrower's Loan Account or any other
obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection.
Returned items at Bank's option may be charged to Borrower's
general account. All collections of the Accounts and Inventory
proceeds shall be set forth on an itemized schedule, showing the name
of the account debtor, the amount of each payment and such other
information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts or
Inventory proceeds pursuant to paragraph 10, Borrower may continue
its present policies with respect to returned merchandise and
adjustments. However, Borrower shall immediately notify Bank of all
cases involving returns, repossessions, and loss or damage of or to
merchandise represented by the Accounts or constituting Inventory
and of any credits, adjustments or disputes arising in connection with
the goods or services represented by the Accounts or constituting
Inventory and, in any of such events, Borrower will immediately pay
to Bank from its own funds (and not from the proceeds of Accounts of
Inventory) for application to Borrower's Loan Account or any other
obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the
Accounts. Until payment is made as provided herein or until release
by Bank from its security interest, all merchandise returned to or
repossessed by Borrower shall be set aside and identified as the
property of Bank and Bank shall be entitled to enter upon any
premises where such merchandise is located and take immediate
possession thereof and remove same.
8. Borrower represents and warrants to Bank: (i) If Borrower
is a corporation, that Borrower is duly organized and existing in
the State of its incorporation and the execution, delivery and
performance hereof and within Borrower's corporate powers, have
been duly authorized and are not in conflict with law or the terms of
any charter, by-law or other incorporation papers, or of any
indenture, agreement or undertaking to which Borrower is a party or
by which Borrower is found or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be,
the true and lawful owner of and has, or at the time the Collateral
becomes subject to Bank's security interest will have, good and clear
title to the Collateral, subject only to Bank's rights therein; (iii) Each
Account is, or at the time the Account comes into existence will be, a
true and correct statement of a bona fide indebtedness incurred by the
debtor named therein in the amount of the Account for ether
merchandise sold or delivered (or being held subject to Borrower's
delivery instructions) to, or services rendered, performed and
accepted by, the account debtor; (iv) That there are or will be no
defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including
information relating to the Collateral, submitted by Borrower to Bank,
whether previously or in the future, is or will be true and correct.
9. Borrower will (i) Furnish Bank from time to time such
financial statements and information as Bank may reasonably request
and inform Bank immediately upon the occurrence of a material
adverse change therein; (ii) Furnish Bank periodically, in such form
and detail and at such times as Bank may require, statements showing
aging and reconciliation of the Accounts and collections thereon, and
reports as to the Inventory and sales thereof; (iii) Permit
representatives of Bank to inspect the Inventory and Borrower's books
and records relating to the Collateral and make extracts therefrom at
any reasonable time and to arrange for verification of the Accounts,
under reasonable procedures, acceptable to Bank, directly with the
account debtors or otherwise at Borrower's expense; (iv) Promptly
notify Bank of any attachment or other legal process levied against
any of the Collateral and any information received by Borrower
relative to the Collateral, including the Accounts, the account debtors
or other persons obligated in connection therewith, which may in any
way affect the value of the Collateral or the rights and remedies of
Bank in respect thereto; (v) Reimburse Bank upon demand for any
and all legal costs, including reasonable attorney's fees, and other
expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby,
enforcing any term or provision of this Security Agreement or
otherwise or in the checking, handling and collection of the Collateral
and the preparation and enforcement of any agreement relating
thereto; (vi) Notify Bank of each location at which the Inventory is or
will be kept, other than for temporary processing, storage or similar
purposes, and of any removal thereof to a new location and of each
office of Borrower at which records of Borrower relating to the
Accounts are kept; (vii) Provide, maintain and deliver to Bank
policies insuring the Collateral against loss or damage by such risks
and in such amounts, forms and companies as Bank may require and
with loss payable solely to Bank, and, in the event Bank takes
possession of the Collateral, the insurance policy or policies and any
unearned or returned premium thereon shall at the option of the Bank
become the sole property of Bank, such policies and the proceeds of
any other insurance covering or in any way relating to the Collateral,
whether now in existence or hereafter obtained, being hereby assigned
to Bank; (viii) Do all acts necessary to maintain, preserve and protect
all Inventory, keep all Inventory in good condition and repair and not
to cause any waste or unusual or unreasonable depreciation thereof,
and (ix) In the event the unpaid balance of Borrower's Loan Account
shall exceed the maximum amount of outstanding loans to which
Borrower is entitled under Section 1 hereof, Borrower shall
immediately pay to Bank from its own funds and not from the
proceeds of Collateral, for credit to Borrower's Loan
Account the amount of such excess.
10. Bank may at any time, without prior notice to Borrower,
collect the Accounts and Inventory proceeds and may give notice of
assignment to any and all account debtors, and Borrower does hereby
make, constitute and appoint Bank its irrevocable, true and lawful
attorney with power to receive, open and dispose of all mail addressed
to Borrower, to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank
upon the Accounts or as proceeds of Inventory; to endorse the name
of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, xxx for, collect and
give acquittances for any and all moneys due or to become due upon
the Accounts; to compromise, prosecute or defend any action, claim
or proceeding with respect thereto; and to do any and all things
necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations
secured hereby shall have been repaid in full, Borrower shall not sell,
dispose of or grant a security interest in any of the Collateral other
than to Bank, or execute any financing statements covering the
Collateral in favor of any secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any
obligation, or breach be made in any warranty, statement, promise,
term or condition, contained herein or hereby secured; (ii) Any
statement or representation made for the purpose of obtaining credit
hereunder prove false; (iii) Bank deem the Collateral inadequate or
unsafe or in danger of misuse; (iv) Borrower become insolvent or
make an assignment for the benefit of creditors; or (v) Any
proceeding be commenced by or against Borrower under any
bankruptcy, reorganization, arrangement, readjustment of debt or
moratorium law or statute; then in any such event, Bank may, at its
option and without demand first made and without notice to Borrower,
do any one or more of the following: (a) Terminate its obligation to
make loans to Borrower as provided in Section 1 hereof; (b) Declare
all sums secured hereby immediately due and payable; (c)
Immediately take possession of the Collateral wherever it may be
found, using all necessary force so to do, or require Borrower to
assemble the Collateral and make it available to Bank at a place
designated by Bank which is reasonably convenient to Borrower and
Bank, and Borrower waives all claims for damages due to or arising
from or connected with any such taking; (d) Proceed in the
foreclosure of Bank's security interest and sale of the Collateral in any
manner permitted by law, or provided for herein; (e) Sell, lease or
otherwise dispose of the Collateral at public or private sale, with or
without having the Collateral at the place of sale, and upon terms and
in such manner as Bank may determine, and Bank may purchase same
at any such sale; (f) Retain the Collateral in full satisfaction of the
obligations secured thereby; (g) Exercise any remedies of a secured
party under the Uniform Commercial Code. Prior to any such
disposition, Bank may, at as option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor
by bank shall be repaid by Borrower and secured hereby. Bank shall
have the right to enforce one or more remedies hereunder successively
or concurrently, and any such action shall not estop or prevent Bank
from pursuing any further remedy which it may have hereunder or by
law. If a sufficient sum is not realized from any such disposition of
Collateral to pay all obligations secured by this Security Agreement,
Borrower hereby promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other
legal process be issued against any property of Borrower, or if any
assessment for taxes against Borrower, other than real property, is
made by the Federal or State government or any department thereof,
the obligation of Bank to make loans to Borrower as provided in
Section 1 hereof shall immediately terminate and the unpaid
balance of the Loan Account, all other obligations secured hereby and
all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery
receipts, reports and other types of documents and records submitted
to Bank in connection with the transactions contemplated herein at any
time subsequent to four months from the time such items are delivered
to Bank.
15. Nothing herein shall in any way limit the effect of the
conditions set forth in any other security or other agreement executed
by Borrower, but each and every condition hereof shall be in addition
thereto.
16. Should default be made in the payment of principal or
interest when due, or in the performance or observance, when due, of
any item, covenant or condition of this Agreement, any deed
of trust, security agreement or other agreement (including
amendments or extensions thereof) securing or pertaining to this
Agreement, at the option of the holder hereof and without notice or
demand, the entire balance of principal and accrued interest then
remaining unpaid shall (a) become immediately due and payable, and
(b) thereafter bear interest, until paid in full, at the increased rate of
5% per year in excess of the rate provided for above, as it may vary
from time to time.
17. If any installment payment, interest payment, principal
payment or principal balance payment due hereunder is delinquent
twenty (20) or more days, Borrower agrees to pay Bank a late charge
in the amount of 5% of the payment so due and unpaid, in
addition to the payment; but nothing is this paragraph is to be
construed as any obligation on the part of the Bank to accept payment
of any payment past due or less than the total unpaid principal balance
after maturity.
All payments shall be applied first to any late charges owing,
then to interest and the remainder, if any, to principal.
18. Reference Provision.
A. Other than (i) non-judicial foreclosure and all
matters in connection therewith regarding security interests in real or
personal property; or (ii) the appointment of a receiver, or
the exercise of other provisional remedies (any and all of which may
be initiated pursuant to applicable law), each controversy, dispute or
claim between the parties arising out of or relating to this document
("Agreement"), which controversy, dispute or claim is not settled in
writing within thirty (30) days after the "Claim Date" (defined as the
date on which a party subject to the Agreement gives written notice to
all other parties that a controversy, dispute or claim exists), will be
settled by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute
the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such
controversy, dispute or claim is subject to the reference proceeding
and except as set forth above, the parties waive their rights to initiate
any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property,
if any, is located or Los Angeles County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected
by the Presiding Judge of the Court (or his representative). The
referee shall be appointed to sit as a temporary judge, with all of the
powers of a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided
for in Rule 244 of the California Rules of Court (or any subsequently
enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP 170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the Claim Date and (b)
try any and all issues of law or fact and report a statement of decision
upon them, if possible, within ninety (90) days of the Claim Date.
Any decision rendered by the referee will be final, binding and
conclusive and judgment shall be entered pursuant to CCP 644 in any
court in the State of California having jurisdiction. Any party may
apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy,
dispute or claim, by filing a petition for hearing and/or trial. All
discovery permitted by this Agreement shall be completed no later
than fifteen (15) days before the first hearing date established by the
referee. The referee may extend such period in the event of a party's
refusal to provide requested discovery for any reason whatsoever,
including, without limitation, legal objections raised to such discovery
or unavailability of a witness due to absence or illness. No party shall
be entitled to "priority" in conducting discovery. Depositions may be
taken by either party upon seven (7) days written notice, and request
for production or inspection of documents shall be responded to within
ten (10) days after service. All disputes relating to discovery which
cannot be resolved by the parties shall be submitted to the referee
whose decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Superior Court is
empowered to issue temporary and/or provisional remedies,
as appropriate.
B. Except as expressly set forth in this Agreement, the
referee shall determine the manner in which the reference proceeding
is conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding. All proceedings
and hearings conducted before the referee, except for trial, shall be
conducted without a court reporter, except that when any party so
requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the
obligation to arrange for and pay for the court reporter. The costs of
the court reporter at the trial shall be borne equally by the parties.
C. The referee shall be required to determine all issues
in accordance with existing case law and the statutory laws of
the State of California. The rules of evidence applicable to
proceedings at law in the State of California will be applicable to the
reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding
upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the
claims of the parties that are the subject of the reference. The parties
hereto expressly reserve the right to contest or appeal from the final
judgment or any appealable order or appealable judgment entered by
the referee. The parties hereto expressly reserve the right to findings
of fact, conclusions of law, a written statement of decision, and the
right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this provision.
D. In the event that the enabling legislation which
provides for appointment of a referee is repealed (and no successor
statute is enacted), any dispute between the parties that would
otherwise be determined by the reference procedure herein described
will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge of the Court, in accordance with the
California Arbitration Act, 1280 through 1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery
as set forth hereinabove shall apply to any such arbitration
proceeding.
19. Additional Provisions:
X If checked, the Addendum or Exhibit "A" attached (and all
amendments thereto and replacements therefor) is incorporated herein
by this reference.
Executed this 23RD day of JULY , 1998
IMPERIAL BANK
BY: /s/ Xxxxx X. Xxxxxx
XXXXX X. XXXXXX, VICE PRESIDENT
MONTEREY PASTA COMPANY
(Name of Borrower)
BY: /s/ R. Xxxxx Xxxxxx
(Authorized Signature and Title)
R. XXXXX XXXXXX, CEO
BY: /s/ Xxxxxxx X. Xxxxxxxx
(Authorized Signature and Title)
XXXXXXX XXXXXXXX, CFO/SECRETARY
