LOAN AND SECURITY AGREEMENT
by and between
SUMMIT BANK
and
SEL-LEB MARKETING, INC.
and
ALES SIGNATURE, LTD.
October 22, 1997
TABLE OF CONTENTS
LOAN AND SECURITY AGREEMENT...............................................1
I. DEFINITIONS.........................................................1
1.1 Defined Terms...........................................1
1.2 Accounting Terms.......................................11
1.3 Other Terms............................................11
1.4 Entire Agreement.......................................11
II. FACILITY...........................................................11
2.1 Line of Credit Loan....................................11
2.2 Procedure for Borrowings under the Line of
Credit Loan............................................12
2.3 Line of Credit Note....................................12
2.4 Term Loan..............................................12
2.5 Term Note..............................................12
2.6 Interest Rates.........................................13
2.7 Letter of Credit Fees..................................13
2.8 Optional Prepayment of Line of Credit Note and
Term Note..............................................13
2.9 Mandatory Prepayment of Line of Credit Note............13
2.10 Submission of Reports..................................13
2.11 Method of Payment......................................13
2.12 Reimbursement Obligation...............................14
2.13 Method of Payment......................................14
2.14 Method of Payment......................................15
2.15 Business Day...........................................15
2.16 Automatic Charge.......................................15
2.17 Increased Costs........................................15
2.18 Termination............................................16
2.19 Audit Fees.............................................16
2.20 Late Payment Fee.......................................16
III. SECURITY INTEREST..................................................17
3.1 Grant of Security Interest.............................17
3.2 Rights of the Bank.....................................18
IV. REPRESENTATIONS AND WARRANTIES.....................................19
4.1 Organization; Power; Qualification.....................19
4.2 Authorization of Agreement.............................19
4.3 No Legal Bar...........................................19
4.4 Consent................................................20
4.5 Compliance With Law....................................20
4.6 Title to Properties and Assets; Liens..................20
4.7 No Default.............................................20
4.8 No Litigation..........................................21
4.9 No Burdensome Restrictions.............................21
4.10 Tax Returns and Payments...............................21
4.11 Financial Statements...................................21
4.12 No Adverse Changes.....................................21
4.13 ERISA..................................................22
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4.14 Federal Reserve Regulations............................22
4.15 Collateral.............................................22
4.16 Accuracy and Completeness of Information...............23
V. COVENANTS..........................................................24
5.1 Preservation of Existence..............................24
5.2 Nature of Business.....................................24
5.3 Compliance with Laws...................................24
5.4 Maintenance of Properties..............................24
5.5 Accounting Methods.....................................24
5.6 Payment of Taxes and Claims............................25
5.7 Visits and Inspection; Audits..........................25
5.8 Information Covenants..................................25
5.9 Accuracy and Completeness of Information...............27
5.10 Insurance..............................................27
5.11 Indebtedness...........................................28
5.12 Liens..................................................28
5.13 Sale of Assets; Merger.................................29
5.14 Guaranties.............................................29
5.15 Collateral.............................................29
5.16 Sale and Leaseback.....................................30
5.17 Transactions with Affiliates...........................30
5.18 Operating Accounts.....................................30
5.19 Further Documentation..................................31
5.20 CleanUp Period.........................................31
5.21 Investment Management Account..........................31
5.22 Bank's Appointment as AttorneyinFact...................31
5.23 Performance by Bank of Borrowers' Obligations..........33
VI. CONDITIONS PRECEDENT...............................................33
6.1 Conditions Precedent to Initial Advance................33
6.2 Conditions Precedent to Additional Advances............35
VII. EVENTS OF DEFAULT..................................................36
7.1 Failure to Pay.........................................36
7.2 False Representation or Warranty.......................36
7.3 Failure to Perform.....................................37
7.4 Cross Default..........................................37
7.5 Default on other Indebtedness..........................37
7.6 Petition; Appointment of Receiver......................37
7.7 Judgments; Levys; Liens................................38
7.8 ERISA..................................................38
7.9 Liquidation or Dissolution.............................38
7.10 Change in Condition....................................38
VIII. REMEDIES...........................................................39
8.1 Acceleration Automatic.................................39
8.2 Acceleration; Bank Discretion..........................39
8.3 Proceeds held in Trust.................................39
8.4 Set-Off; Sale..........................................40
8.5 Bank Costs.............................................41
8.6 Waivers................................................41
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8.7 Possession; Receiver...................................41
8.8 Other Remedies.........................................42
IX. INDEMNIFICATION....................................................42
9.1 Indemnification........................................42
X. MISCELLANEOUS......................................................42
10.1 Notice.................................................42
10.2 No Waiver; Cumulative Remedies.........................43
10.3 Survival of Agreements.................................43
10.4 Amendment..............................................43
10.5 Successors and Assigns.................................43
10.6 Agreement and Other Loan Documents
Complementary..........................................43
10.7 Bank's Relationship....................................44
10.8 Participation..........................................44
10.9 WAIVER OF TRIAL BY JURY................................44
10.10 Severability...........................................44
10.11 Counterparts...........................................44
10.12 Governing Law; No Third Party Rights...................44
10.13 Cross Default/Cross Collateral.........................44
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LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated October 22,
1997, and is by and among SEL-LEB MARKETING, INC., a New York corporation
("Sel-Leb"), having its principal executive office located at 000 Xxxxx Xxxxxx,
Xxxxxxxx, Xxx Xxxxxx 00000 and ALES SIGNATURE, LTD., a New York corporation
("ALES") having its principal executive office located at 000 Xxxxx Xxxxxx,
Xxxxxxxx, Xxx Xxxxxx 00000, (ALES and Sel-Leb each a "Borrower" and collectively
the "Borrowers") and SUMMIT BANK, a state banking association organized under
the laws of the State of New Jersey, having an office located at 000 Xxxxx
Xxxxxx, 0xx Xxxxx, Xxxxxxxxxx, Xxx Xxxxxx 00000 (the "Bank").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sel-Leb owns ninety (90%) percent of the issued and
outstanding shares of stock of ALES; and
WHEREAS, the Borrowers have requested that the Bank make (i) a
revolving loan in the principal amount of up to Two Million ($2,000,000) Dollars
for working capital purposes (the "Revolving Loan") and (ii) a term loan in the
principal amount of One Million ($1,000,000) Dollars for the purpose of
purchasing certain Inventory, acquiring the rights to distribute the "Signature"
Line of Cosmetics and for general working capital purposes (the "Term Loan");
and
WHEREAS, the Bank is willing to make the Revolving Loan and the Term
Loan upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
I. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following words and terms shall have the following meanings:
(a) "Account Debtor" shall mean a Person obligated under or
with respect to an Account Receivable.
(b) "Accounts Receivable" shall mean, in addition to the definition of
the term "accounts" contained in the Code, any and all obligations of any kind
at any time due and/or owing to a Borrower (including any such obligation that
might be characterized or classified under the Code as accounts, contract
rights, chattel paper or otherwise), and all rights of a Borrower
to receive payment or any other consideration whether arising from goods sold or
leased by a Borrower or services rendered or otherwise, whether or not such
right has been earned by performance, whether secured or unsecured, including,
without limitation, invoices, contract rights, accounts receivable, notes,
drafts, acceptances, instruments, refunds, including tax refunds, and all other
debts, obligations and liabilities in whatever form owing to a Borrower from any
Person, firm, governmental authority, corporation or any other entity, all
security and guaranties therefor, all of a Borrower's rights in, to and under
all purchase orders heretofore, now or hereafter received by a Borrower for
goods or services, and all of a Borrower's rights to goods sold (whether
delivered, undelivered, in transit or returned), which may be represented
thereby, including all of a Borrower's rights as an unpaid vendor or lienor,
including stoppage in transit, replevin and reclamation, whether now existing or
hereafter arising, and all books, records, ledger cards and other tangible and
intangible property pertaining to same (including printed copies of all
computerized data, electronic machine-readable media of such data, and software
owned or licensed (to the extent it can be freely assigned) by a Borrower).
(c) "Affiliate" shall mean as to any specific Person, (i) any Person
that directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with the specific Person, (ii) any
Person that, directly or indirectly, is the beneficial owner of 10% or more of
any class of equity securities of the specified Person or is the beneficial
owner of a 10% or more interest in the capital profits of the specified Person,
(iii) any Person of which the specified Person is directly or indirectly the
beneficial owner of 10% or more of any class of equity securities or any Person
of which the specified Person is the beneficial owner of a 10% or more interest
in the capital and profits, or (iv) any member of the immediate family of the
specified Person.
(d) "Agreement" shall mean this Loan and Security Agreement together
with any and all exhibits, schedules, amendments, modifications or supplements
hereto.
(e) "Bank" shall mean Summit Bank, a state banking association
organized under the laws of the State of New Jersey.
(f) "Bank Costs" shall mean all taxes and insurance premiums of every
kind and nature of a Borrower paid by the Bank; all filing, recording,
publication, and search fees incurred in connection with and relating to a
Borrower paid by the Bank; all out-of-pocket costs incurred and sums expended by
the Bank, with or without suit, to correct any default, to make advances of
principal and interest or payments to prior secured parties, to enforce any
right or remedy of the Bank, or in connection with
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any other provision of any Loan Document, including, without limitation, any
out-of-pocket costs incurred by the Bank with respect to any other lender in
connection with the Loan Documents and the transactions contemplated thereby;
all out-of-pocket costs incurred and sums expended in gaining possession of,
inspection of, maintaining, handling, preserving, repairing, renovating,
storing, shipping, finishing, selling, preparing for sale, and advertising to
sell the Collateral, whether or not a sale is consummated; out-of-pocket costs
of using, operating, controlling and managing the Collateral including but not
limited to rental and licensing costs; out-of-pocket costs of collecting and
receiving rent, income, revenue, earnings, issues and profits of the Collateral;
out-of-pocket costs of suit incurred by the Bank in enforcing or defending this
Agreement or any other Loan Document or any portion thereof; all out-of-pocket
costs and expenses including appraisal, accounting, consulting and attorneys'
fees and expenses incurred by the Bank in preparing, reviewing, enforcing,
amending, modifying, administering, defending or otherwise concerning this
Agreement or any other Loan Document or any portion hereof or thereof; and
whether or not suit is brought, all out-of-pocket costs of arbitration and
insolvency proceedings.
(g) "Borrowing Base" shall mean at any time, an amount
equal to the sum of:
(i) (A) Eighty (80%) percent of Eligible Accounts Receivable, plus
(B) Thirty-Five (35%) percent of Eligible Inventory, up to a
maximum of the lesser of: (1) One Million Five Hundred Thousand ($1,500,000)
Dollars or (2) an amount equal to eighty (80%) percent of Eligible Accounts
Receivable (provided, however, that (X) subsection 1.1(g)(i)(B)(2) shall not
apply during the three month period from and after the Signature Line Inventory
Purchase Date and during such period subsection 1.1(g)(i)(B)(1) shall be
controlling) and (Y) at no time shall ALES' Eligible Inventory exceed Three
Hundred Fifty Thousand ($350,000) Dollars; less
(ii) the outstanding principal balance of the Term Note.
(h) "Borrowing Base Certificate" shall mean a full and complete
certificate in the form attached hereto as Exhibit 1.1(h), prepared by each
Borrower certified as true and correct by such Borrower's President or Chief
Financial Officer.
(i) "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which State or federally chartered banks in the State of New Jersey
are authorized to close.
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(j) "Code" shall mean the Uniform Commercial Code as in effect in any
applicable jurisdiction.
(k) "Collateral" shall have the meaning ascribed to such term in
Section 3.1 hereof.
(l) "Collateral Proceeds Account" shall have the meaning ascribed to
such term in Section 3.2 hereof.
(m) "Default" shall mean any of the events specified in Article VII
hereof which, with the passage of time, or giving of notice, or both, would
constitute an Event of Default.
(n) "Eligible Account Receivable" shall mean an Account Receivable that
meets all of the following requirements on its date of invoice or other
origination date and continuing thereafter until collected:
(i) such Account Receivable represents a complete bona fide
transaction which requires no further act under any circumstances on the part of
a Borrower to make such Account Receivable payable by the Account Debtor;
(ii) such Account Receivable shall not be unpaid more than
ninety (90) days from its date of invoice or other origination date;
(iii) if applicable, the goods, the sale of which gave rise to
such Account Receivable, were shipped or delivered to the Account Debtor on an
absolute sale basis and not on a xxxx and hold sale basis, a consignment sale
basis, a progress basis, a guaranteed sale basis, a sale or return basis, or on
the basis of any other similar understanding, and no part of such goods has been
returned or rejected; provided, however, that in the event any credit is granted
by a Borrower, in the ordinary course of business, with respect to a portion of
an Account Receivable, the amount of such Account Receivable which is not
subject to such credit shall constitute an Eligible Account Receivable if the
Account Receivable is otherwise an Eligible Account Receivable;
(iv) such Account Receivable is not evidenced by chattel paper
or an instrument of any kind;
(v) the Account Debtor, with respect to such Account
Receivable, is not insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action, which might have a
materially adverse effect on the business of such Account Debtor or is not, in
the reasonable discretion of Bank, deemed ineligible for credit for any other
reason;
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(vi) if such Account Receivable arises from the performance of
services, such services have been fully rendered;
(vii) such Account Receivable (or portion thereof determined
under Article 1.1(n)(iii)) is a valid, legally enforceable obligation of the
Account Debtor with respect thereto and is not subject to any present, or
contingent, and no facts exist which are the basis for any future, offset or
counterclaim or other defense on the part of such Account Debtor, including,
without limitation, any account payable owing by the Borrower to such Account
Debtor (collectively referred to as an "Offset Right") provided, however, that a
portion of the amount of an Account Receivable from an Account Debtor which is
not subject to an Offset Right shall constitute an Eligible Account Receivable
if the Account Receivable is otherwise an Eligible Account Receivable;
(viii) such Account Receivable shall be subject to a valid and
perfected first priority security interest in favor of the Bank;
(ix) such Account Receivable is evidenced by an invoice or other
documentation in a form acceptable to the Bank;
(x) such Account Receivable is not subject to any provision
prohibiting its assignment or requiring notice of, or consent to, such
assignment;
(xi) if applicable, the goods giving rise to such Account
Receivable were not, at the time of the sale thereof, subject to any Lien,
except Permitted Liens;
(xii) if the Account Debtor with respect thereto is the United
States or any department, agency or instrumentality thereof, such Account
Receivable shall have been assigned to the Bank in full compliance with all
applicable laws and regulations, including the Assignment of Claims Act of 1940,
as amended;
(xiii) the Account Debtor with respect thereto is domiciled within
the United States of America;
(xiv) such Account Receivable does not arise out of any
transaction with any Affiliate or subsidiary of a Borrower or any Person under
common control of a Borrower;
(xv) such Account Receivable is not due from an Account Debtor
where more than fifty (50%) percent of the total Accounts Receivable from such
Account Debtor are not Eligible Accounts Receivable;
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(xvi) only such portion of an otherwise Eligible Account
Receivable that does not exceed twenty (20%) percent of the aggregate total of
all of the Borrower's Accounts Receivable shall be an Eligible Account
Receivable; and
(xvii) such Account Receivable is otherwise satisfactory to the
Bank in its sole discretion based upon the Bank's normal eligibility
requirements.
(o) "Eligible Inventory" shall mean Inventory which is:
(i) located on the Premises;
(ii) owned by a Borrower and not purchased or acquired on a
consignment, approval or sale or return basis;
(iii) subject to a valid and perfected first priority security
interest in favor of the Bank;
(iv) fully and adequately insured, with the Bank named as an
additional insured and first loss payee as provided herein;
(v) not unsalable, damaged or obsolete as the Bank shall
reasonably determine;
(vi) not classified as work in progress;
(vii) not cartons or packaging materials; and
(viii) otherwise satisfactory to the Bank in its sole discretion
based upon the Bank's normal eligibility requirements.
(p) "Event of Default" shall mean any of the events specified in
Article VII hereof, provided that any requirement for notice or lapse of time or
any other condition has been satisfied.
(q) "Facility" shall mean the Line of Credit Loan and the Term Loan.
(r) "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
(s) "Indebtedness" shall mean: (i) all items (other than capital stock,
capital surplus, retained earnings and general contingencies) which in
accordance with GAAP would be included in determining total liabilities as shown
on the liability side of a balance sheet as at the date on which Indebtedness is
to be determined; and (ii) whether or not so reflected, all
6
indebtedness, obligations and liabilities, whether unsecured or secured by any
Lien, and all capitalized lease obligations.
(t) "Inventory" shall mean "inventory", as such term is defined in the
Code and shall include, without limitation, all goods and other personal
property of a Borrower, whether now owned or hereafter acquired or in which a
Borrower now has or hereafter may acquire any right, title or interest, and
wherever located, whether in transit or otherwise, held for sale or lease, or
furnished or to be furnished under contracts for service, sale or lease,
including all goods returned or reclaimed from customers, and all raw materials,
work in process and materials owned by a Borrower and used or consumed or to be
used or consumed in its business, or in the processing, packaging or shipping of
the same, and all finished goods and all assets of a type classified as
Inventory as reflected, in accordance with GAAP, on the financial statements of
a Borrower.
(u) "Letters of Credit" shall mean a collective reference to all
documentary letters of credit and standby letters of credit issued by the Bank
on account of a Borrower under the Line of Credit Loan.
(v) "Lien" shall mean (i) any lien, judicial lien, assignment, charge,
conditional sale or other title retention agreement, lease constituting a
capital lease, hypothecation, mortgage, pledge, or other security interest,
encumbrance or title retention agreement of any kind, whether legal or
equitable, in respect of any property of a Person, or upon the income, rents or
profits therefrom; (ii) any arrangement, express or implied, under which any
property of a Person is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to the payment of the general unsecured
creditors of such Person; (iii) any Indebtedness for wages or Indebtedness
arising for any other reason which is unpaid more than thirty (30) days after
the same shall have become due and payable and which, if unpaid, might, by
Section 507 of the Bankruptcy Code or any other law (whether or not the events
or conditions (other than the existence of such Indebtedness or the initiation
of legal proceedings available generally to unsecured creditors) set forth in
such law have occurred or been satisfied), be given any priority whatsoever over
general unsecured creditors of such Person; and (iv) the filing of, or any
agreement to give, any financing statement under the Code or its equivalent of
any jurisdiction.
(w) "Line of Credit Loan" shall mean the loan described in Section 2.1
of this Agreement.
(x) "Line of Credit Loan Maximum" shall mean Two Million ($2,000,000)
Dollars.
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(y) "Line of Credit Loan Termination Date" shall mean May 31, 1998.
(z) "Line of Credit Note" shall mean the Line of Credit Note
substantially in the form of Exhibit 1.1(z) attached hereto and by this
reference made a part hereof as fully as if set forth herein, and any promissory
note in renewal thereof or substitution or replacement therefore.
(aa) "Loan Documents" shall collectively mean this Agreement, the Line
of Credit Note, the Term Note, the UCC-1 financing statements, and all other
agreements, documents, instruments and certificates executed and delivered to
the Bank in connection herewith and therewith, including, without limitation, an
Environmental Indemnity Agreement in the form of Exhibit 1.l(aa) attached
hereto.
(bb) "Obligations" shall mean (i) any and all Indebtedness,
obligations, letters of credit, including, liabilities and agreements of every
kind and nature of the Borrowers, or either of them, to or with the Bank, or to
or with any Affiliates of the Bank, or of any guarantor of a Borrower's
Indebtedness, obligations, letters of credit, liabilities and agreements to or
with the Bank, or to or with any Affiliates of the Bank now existing or
hereafter arising, and now or hereafter contemplated, pursuant to this Agreement
and/or any other Loan Document, or otherwise, whether in the form of
refinancing, loans, guarantees, bankers' acceptances, foreign exchange
contracts, options and letters of credit, interest, charges, expenses, fees
(including, without limitation attorneys' fees) or otherwise, direct or
indirect, (including, without limitation, any participation or interest of the
Bank in any obligation of a Borrower to others) acquired outright, conditionally
or as collateral security from another, absolute or contingent, joint and/or
several, liquidated or unliquidated, due or not due, contractual or tortious,
secured or unsecured, arising by operation of law or otherwise, including, but
without limiting the generality of the foregoing, indebtedness, obligations or
liabilities to the Bank by a Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by a Borrower as principal,
surety, endorser, guarantor, accommodation party or otherwise, together with any
extensions, renewals or modifications thereof; (ii) all obligations of a
Borrower for any future advances made by the Bank to a Borrower whether or not
evidenced by a promissory note and all obligations under any renewals,
extensions or changes in form of, or substitutions for, any of said
indebtedness, obligations or liabilities; (iii) all sums and charges to be paid
to the Bank pursuant to this Agreement and the other Loan Documents, including,
but not limited to Bank Costs; (iv) all interest and late changes on any of the
foregoing; and (v) all obligations of a Borrower now or hereafter existing under
this Agreement and the other Loan Documents.
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(cc) "Obligor" or "Obligors" shall refer singularly to a Borrower and
together to the Borrowers.
(dd) "Permitted Indebtedness" shall mean:
(i) Indebtedness owing to the Bank;
(ii) Indebtedness incurred in favor of trade creditors in the
ordinary course of business; and
(iii) Indebtedness in respect of taxes, assessments, governmental
charges, worker's compensation, levies and claims for labor, materials, supplies
and rentals to the extent otherwise permitted under this Agreement to remain
unpaid and undischarged.
(ee) "Permitted Liens" shall mean:
(i) any Lien in favor of the Bank;
(ii) Liens for taxes, assessments or governmental charges or
levies not yet due or which are delinquent and which are being contested in good
faith and by appropriate proceedings, promptly initiated and diligently
conducted, for which reserves have been established in accordance with GAAP with
respect thereto and as to which foreclosure, distraint, sale or other similar
proceedings shall not have been commenced;
(iii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue or which are being contested in good faith and by appropriate
proceedings, promptly initiated and diligently conducted, for which reserves
have been established in accordance with GAAP with respect thereto and as to
which foreclosure, distraint, sale or other similar proceedings shall not have
been commenced;
(iv) pledges or deposits in connection with workers'
compensation, workers' compensation insurance, unemployment insurance and other
social security legislation;
(v) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; or
(vi) Liens created by or existing from any litigation or legal
proceeding; provided that the execution or other enforcement of such Liens is
effectively stayed, the claims secured thereby are being actively contested in
good faith by appropriate proceedings, adequate book reserves have been
established in accordance with GAAP with respect thereto and no
9
Default or Event of Default arises or is created as a result thereof.
(ff) "Person" shall mean any individual, corporation, partnership,
limited liability company association, joint stock company, trust,
unincorporated organization, joint venture, court or government or political
subdivision or agency thereof.
(gg) "Premises" shall mean and refer to (i) 000 Xxxxx Xxxxxx, Xxxxxxxx,
Xxx Xxxxxx 00000 and (ii) 00 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxx 00000.
(hh) "Prevailing Base Rate of Bank" means the fluctuating Prevailing
Base Rate of interest established by Bank from time to time whether or not such
rate shall be otherwise published. The Prevailing Base Rate is established for
the convenience of Bank. It is not necessarily Bank's lowest rate. In the event
that there should be a change in the Prevailing Base Rate of Bank, such change
shall be effective on the date of such change without notice to Borrower. Any
such change will not effect or alter any other terms or conditions of this
Agreement or the other Loan Documents.
(ii) "Proceeds" and "Products" shall have the meaning ascribed to
such terms in the Code and shall include in any event (i) whatever is received
upon any collection, exchange, sale or other disposition or refinancing of any
of the Collateral and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds; (ii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to a Borrower from time to
time with respect to any of the Collateral; (iii) any and all payments (in any
form whatsoever) made or due and payable to a Borrower from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any Person acting under color of governmental
authority); and (iv) any and all other amounts, from time to time, paid or
payable under or in connection with any of the Collateral.
(jj) "Asset Purchase Agreement" shall mean the Asset Purchase Agreement
between ALES and SBC Corporation, Inc. for the purchase of the Signature Line
Inventory and related tradenames and trademarks.
(kk) "Signature Line Inventory Purchase Date" shall mean the date of
ALES's initial purchase of the Signature Line Inventory.
(ll) "Signature Line Inventory" shall mean any and all non-obsolete
salable finished cosmetics and non-obsolete work-in-process bearing the related
signature and trademarks.
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(mm) "Term Loan" shall mean the term loan described in
Section 2.4 of this Agreement.
(nn) "Term Note" shall mean the promissory note substantially in the
form of Exhibit 1.1(nn) attached hereto and by this reference made a part hereof
as fully as if set forth herein, and any promissory note in renewal thereof or
substitution or replacement therefore.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meaning customarily
given thereto in accordance with GAAP.
1.3 Other Terms. Terms such as "accounts", "contract rights", "letters
of credit", "advices", "confirmations", "instruments", "chattel paper",
"documents of title", and the like, shall, unless otherwise specifically defined
herein, have the meanings applicable to them for the purposes of Article 9
(Secured Transactions) of the Uniform Commercial Code in force and effect in the
State of New Jersey at the date of this Agreement.
1.4 Entire Agreement. 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, and
section, subsection, schedule and exhibit references are to this Agreement,
unless otherwise specified.
II. FACILITY
2.1 Line of Credit Loan. From time to time, during the period from the
date all conditions precedent set forth in Article VI of this Agreement are
satisfied in full until the Line of Credit Loan Termination Date, in the manner
hereinafter set forth, the Borrowers may borrow, repay and reborrow from the
Bank and, upon request of both Borrowers and upon the terms and conditions
contained herein, the Bank shall lend and relend to the Borrowers a sum or sums
or, subject to the limitations set forth below, issue Letters of Credit (the
"Advances") which, when added to the outstanding principal amount of the
Advances theretofore made pursuant to the Line of Credit Loan, will not exceed
in the aggregate, at any time, the lesser of: (i) the Line of Credit Loan
Maximum; or (ii) the Borrowing Base. The proceeds of each Advance under the Line
of Credit Loan shall only be used for general working capital purposes of the
Borrowers. In addition, upon request of both Borrowers to the Bank, the
Borrowers may request Advances, within the limits set forth above, in the form
of Letters of Credit; provided, however, that: (x) Borrowers shall not be
permitted to request Letters of Credit if the aggregate undrawn amount of
Letters of Credit outstanding shall exceed Three Hundred Thousand ($300,000)
Dollars and (y)
11
such letters of credit must be applied for and issued in accordance with the
Bank's standard terms and conditions. The Bank shall not be obligated to make
any Advances unless all of the conditions set forth in Article VI are satisfied
in full, as of the date of each Advance.
2.2 Procedure for Borrowings under the Line of Credit Loan. Each
Advance shall be made upon prior written notice from the Borrowers to the Bank
(which notice shall be received by the Bank prior to 11:00 a.m. with respect to
any Advance to be made on the same date). Such notice shall include (i) the
principal amount of the Advance, (ii) the requested borrowing date, (iii) the
type of the Advance, (iv) in the case of Letters of Credit, a completed and
fully executed application for Letter of Credit on a form prescribed by the Bank
from time to time to customers of the Bank and (v) fulfillment of the conditions
precedent set forth in Article VI. Provided all of the terms, conditions and
provisions of this Agreement and the other Loan Documents are satisfied by the
Borrowers, the Bank shall make the requested Advance to the Borrowers, in the
case of an Advance which is not a Letter of Credit, in immediately available
funds, by depositing said funds in the Borrowers' demand deposit account
maintained with the Bank.
2.3 Line of Credit Note; Payment in Full. The Indebtedness of the
Borrowers to the Bank with respect to the Advances made, from time to time,
hereunder shall be evidenced by the Line of Credit Note, made payable to the
Bank, dated the date of execution thereof, signed by the Borrowers, on a joint
and several basis, completed in accordance with Paragraph 2.6 below and
delivered to the Bank concurrently with, and as a condition precedent to, the
making of the first Advance. The Line of Credit Note shall be paid in full by
the Borrowers to the Bank on the Line of Credit Loan Termination Date.
2.4 Term Loan. On the date all conditions precedent set forth in
Article VI of this Agreement are satisfied in full, the Borrowers shall borrow
from the Bank, and the Bank shall lend to the Borrowers, a sum in the principal
amount of One Million ($1,000,000) Dollars (the "Term Loan"). The Term Loan
shall be repaid by the Borrowers in accordance with the terms of the Term Note.
The proceeds of the Term Loan shall be used exclusively to satisfy ALES'
obligations under the Asset Purchase Agreement; provided, however, to the extent
there are any excess proceeds of the Term Loan remaining after satisfaction of
the obligations set forth above, such excess shall be used by the Borrowers for
general working capital purposes. The Bank shall not be obligated to make the
Term Loan unless all of the conditions set forth in Article VI are satisfied as
of the date the Term Loan is to be made. The Borrowers shall not have the right
to reborrow any amounts repaid under the Term Note.
12
2.5 Term Note. The Term Loan shall be evidenced by the Term Note,
dated the date of execution thereof, executed by the Borrowers, on a joint and
several basis, completed in accordance with Paragraph 2.6 below and delivered to
the Bank concurrently with, and as a condition precedent to, the making of the
Term Loan.
2.6 Interest Rates. The Line of Credit Note shall bear interest from
the date thereof on the outstanding daily principal amount thereof, which
interest shall be payable on the first day of the first month following the date
of the Line of Credit Note and on the first day of each and every month
thereafter and upon payment of the Line of Credit Note in full, at a fluctuating
rate per annum equal to the Prevailing Base Rate. The Term Note shall bear
interest from the date thereof on the outstanding principal balance thereof,
which interest shall be payable on the first day of the first month following
the date of the Term Note and on the first day of each and every month
thereafter and upon payment of the Term Note in full, at a fluctuating rate per
annum equal to the Prevailing Base Rate plus one-quarter of one (.25%) percent.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed, unless prohibited by law. The rate of interest on the
Line of Credit Note and the Term Note shall be adjusted automatically as of the
opening of business on each day on which any change in the Prevailing Base Rate
is announced by the Bank at its principal office.
2.7 Letter of Credit Fees. The Borrowers shall pay to the Bank, on or
before the issuance date of each Letter of Credit the customary fees and charges
as are required by the Bank in accordance with its general practice relating to
the issuance, maintenance, transfer and payment of Letters of Credit.
2.8 Optional Prepayment of Line of Credit Note and Term Note. The
Borrowers shall have the right to prepay, in whole or in part and without
premium or penalty, the Line of Credit Note and/or the Term Note at any time and
from time to time.
2.9 Mandatory Prepayment of Line of Credit Note. If at any time and
for whatever reason the sum of the aggregate outstanding principal amount of
Advances hereunder exceeds the lesser of the Line of Credit Loan Maximum or the
Borrowing Base, then such excess, together with accrued interest thereon, shall
be immediately due and payable.
2.10 Submission of Reports. The Borrowers shall each submit to the Bank
on a monthly basis a Borrowing Base Certificate and an Accounts Receivable
listing and aging report.
2.11 Method of Payment. The Borrowers shall make each payment to be
made by it hereunder and under the Line of Credit Note and the Term Note
(including, without limitation, all
13
principal, interest and optional and mandatory prepayments and fees), without
set-off or counterclaim, not later than 2:00 p.m. (New York City time) on the
day when due in lawful money of the United States of America and in immediately
available funds to the Bank at its principal office set forth on the first page
of this Agreement.
2.12 Reimbursement Obligation. The Borrowers absolutely, irrevocably
and unconditionally agrees to pay to the Bank an amount equal to, and in
reimbursement for, each amount which the Bank pays under any Letters of Credit
on or before the earlier of: (a) the date specified for payment, if any, of such
amount by the Bank in the Letters of Credit or (b) the actual date of payment by
the Bank of such amount. The Borrowers hereby authorize the Bank to make from
time to time, pursuant to Section 2.2 above, one or more Advances in an amount
equal to the Borrowers' reimbursement obligation as set forth herein and to
distribute such Advance to the Bank to be applied to payment of such
reimbursement obligation. The Borrowers expressly agree that all Advances so
made shall be deemed to have been requested by it and direct that all proceeds
thereof shall be applied to payment of such reimbursement obligation as
aforesaid.
2.13 Method of Payment. The Borrowers agree to indemnify and save
harmless the Bank from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable attorneys'
fees) which the Bank may incur or be subject to as a consequence, directly or
indirectly, of the issuance of any Letters of Credit or any action or proceeding
relating to a court order, injunction, or other process or decree restraining or
seeking to restrain the Bank from paying any amount under any Letters of Credit.
In furtherance and not in limitation of the foregoing, the obligations of the
Borrowers hereunder shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms hereof under all circumstances, including,
without limitation, any of the following circumstances:
(a) any lack of validity or enforceability of any Letters of
Credit or any agreement or instrument relating thereto;
(b) the existence of any claim, setoff, defense or other right
which the Borrowers may have at any time against the beneficiary or any
transferee of any Letters of Credit;
(c) any draft, certificate, or other document presented under
any Letters of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
14
(d) any lack of validity, effectiveness, or sufficiency or any
instrument transferring or assigning or purporting to transfer or assign any
Letters of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part;
(e) any loss or delay in the transmission or otherwise of any
documents required in order to make a drawing under any Letters of Credit or of
the proceeds thereof;
(f) any failure of the beneficiary of a Letter of Credit to
strictly comply with the conditions required in order to draw upon any Letters
of Credit;
(g) any misapplication by the beneficiary of any Letters of
Credit of the proceeds of any drawing under such Letters of Credit; or
(h) any other circumstance or happening whatsoever, whether
or not similar to the foregoing;
Provided, however, that notwithstanding the foregoing, the Bank
shall not be relieved of any liability it may otherwise have as a result of its
gross negligence, willful misconduct or wrongful refusal to honor any Letters of
Credit.
2.14 Method of Payment. The Uniform Customs and Practice for
Documentary Credits, as most recently published by the International Chamber of
Commerce, shall in all respects be deemed a part of this Agreement as if set
forth at length herein and shall apply to the Letters of Credit.
2.15 Business Day. Whenever any payment hereunder or under the Line of
Credit Note or the Term Note shall be stated as due on any day other than a
Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day and interest and all other fees shall accrue during such
extension.
2.16 Automatic Charge. Without in any way limiting any right of offset,
counterclaim or banker's lien which the Bank may otherwise have at law, the
Borrowers hereby irrevocably authorize and direct the Bank, if and to the extent
payment of any amount due hereunder is not otherwise made on any day when due,
to charge against any of the Borrowers' joint or single account or accounts at
the Bank, an amount or amounts equal in the aggregate to such aforesaid sums as
are due and payable from time to time to the Bank.
2.17 Increased Costs. If as the result of any enactment or issuance of,
or any change in, any law or regulation, or in the interpretation thereof by any
court or administrative or governmental authority having jurisdiction thereto,
there shall be any increase in the cost of the Bank of agreeing to make or
15
making available the Facility, including without limitation, any increase in
cost arising from the imposition or modification of any reserve, special deposit
or other requirement or arising from any increase in capital required to be
maintained by the Bank, then the Borrowers shall from time to time, upon demand
by the Bank, pay to the Bank such additional amount as may be necessary to
reimburse the Bank for such increased cost. In any such case of increased cost,
the Bank shall provide the Borrowers with a detailed certificate setting forth
the amount of such increased cost and the calculation thereof, which certificate
shall be conclusive and binding for all purposes, absent manifest error.
2.18 Termination. The obligation of the Bank to make any Advance
hereunder may be terminated:
(a) by the Bank at any time after the occurrence of an Event of
Default;
(b) by the Bank on the Line of Credit Loan Termination Date
of the Line of Credit Loan;
(c) by the Bank if all conditions precedent set forth in
Article
VI are not satisfied in full on or before October 31, 1997; or
(d) by Borrowers at any time upon 30 days' prior written
notice to the Bank.
Borrowers acknowledge that the Bank has no obligation to renew the Line
of Credit Loan beyond the Line of Credit Loan Termination Date regardless of the
financial condition of the Borrowers at such time.
2.19 Audit Fees. The Borrowers agree to reimburse the Bank for all Bank
Costs associated with the Bank's audits of each Borrower's books and records as
more fully set forth, required and permitted pursuant to this Agreement,
including, without limitation, any audit conducted pursuant to Section 5.7 of
this Agreement. So long as there is no adverse change in a Borrower's financial
position, as determined by the Bank in its sole discretion, and no Default or
Event of Default exists, then (a) the Bank shall not conduct more than one such
audit a year and (b) the cost of each such audit of a Borrower shall not exceed
$3,000.
2.20 Late Payment Fee. If the Borrowers fail to make any payments of
any amounts due to the Bank under the Loan Documents within ten (10) days after
the date when due, then the Borrowers shall pay to the Bank, to the extent
permitted by law, a late payment fee on all amounts overdue equal to five (5%)
percent of the overdue payment (but in no event less than $25.00 nor more
16
than $2,500.00). Any such late charge assessed is immediately
due and payable.
2.21 Bank Fee. In consideration for the Bank's making the Term Loan to
the Borrowers, the Borrowers are concurrently herewith paying to the Bank a fee
in the amount of Five Thousand ($5,000) Dollars.
III. SECURITY INTEREST
3.1 Grant of Security Interest.
(a) As general and continuing collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of all Obligations and in order to induce the Bank
to enter into this Agreement and, among other things, make the Advances and the
Term Loan as provided herein, each Borrower hereby, assigns, conveys, mortgages,
pledges, hypothecates, transfers and grants to the Bank a security interest in
and first lien (except for Permitted Liens) on all of the Borrower's right,
title and interest in and to all of the Borrower's following assets, whether now
owned or hereafter acquired (all of which being hereinafter collectively called
the "Collateral"):
(i) all Accounts Receivable;
(ii) all Inventory;
(iii) the Collateral Proceeds Account;
(iv) any and all moneys, securities, drafts, notes, and other
property of any kind of a Borrower, now or hereafter held or received by or in
transit to the Bank from or for a Borrower (including, without limitation, all
moneys held or deposited in any lock box maintained at any office of the Bank),
or which may now or hereafter be in the possession of the Bank, or as to which
the Bank may now or hereafter be in the control or possession of, by documents
of title or otherwise, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and any and all deposits, general or special, balances,
sums, proceeds and credits of the Borrower, and all rights and remedies which a
Borrower might exercise with respect to any of the foregoing but for this
Agreement; and
(v) all Proceeds and Products of the foregoing.
(b) All Collateral heretofore, herein or hereafter given or
granted to the Bank by the Borrowers shall secure payment of all of the
Obligations. The Bank shall be under no obligation to proceed against any or all
of the Collateral before proceeding directly against either or both of the
Borrowers. The
17
Bank shall be under no obligation to proceed against both Borrowers before
proceeding against one Borrower.
3.2 Rights of the Bank.
(a) Each Borrower is authorized to collect amounts owing to such
Borrower with respect to the Collateral, provided that the Bank may, at any time
curtail or terminate said authority upon prior written notice. Any Proceeds,
when collected by a Borrower, whether consisting of checks, notes, drafts, bills
of exchange, money orders, commercial paper of any kind whatsoever, or other
documents, received as payment in respect of any Collateral, shall, at the
option of the Bank upon serving written notice to the Borrower, be promptly
deposited by the Borrower in precisely the form received, except for endorsement
when required, in a special bank account maintained by the Bank (the "Collateral
Proceeds Account"), subject to withdrawal as hereinafter provided, and until so
turned over, shall be deemed to be held in trust by the Borrower for and as the
Bank's property and shall not be commingled with any of the Borrower's other
funds. Such Proceeds, when deposited, shall continue to be Collateral for all of
the Obligations and shall not constitute payment thereof until applied as
hereinafter provided. In the event the Bank elects to require a Collateral
Proceeds Account, on every Business Day, the Bank shall apply all or any part of
the funds on deposit in the Collateral Proceeds Account on account of the
principal of and/or interest on the Line of Credit Note and/or the Term Note.
For purposes of the preceding sentence, funds shall be deemed on deposit in the
Collateral Proceeds Account on the third Business Day after the actual date of
deposit of said funds in the Collateral Proceeds Account. The Borrowers shall
pay to the Bank a fee on the Collateral Proceeds Account in an amount equal to
three (3) days of interest expense on all amounts on deposit in the Collateral
Proceeds Account at a fluctuating rate equal to the interest rate set forth in
the Line of Credit Note. Such fee shall be payable on the fifteenth (15th) day
of each month.
(b) The Bank may at any time following the occurrence of an Event
of Default, notify Account Debtors to the effect that the Accounts Receivable
have been assigned to the Bank and that payments shall be made directly to the
Collateral Proceeds Account or as the Bank shall otherwise direct. Upon the
request of the Bank at any time following the occurrence of an Event of Default,
the Borrowers will so notify such Account Debtors and will indicate on all bills
that payments shall be made directly to the Collateral Proceeds Account or as
the Bank shall otherwise direct. The Bank may, in its own name or in the name of
others, communicate with Account Debtors in order to verify with them, to the
Bank's satisfaction, the existence, amount and terms of any Accounts Receivable.
18
(c) The Bank shall have the right to make test verifications of
the Accounts Receivable in any manner and through any medium that it considers
advisable, and the Borrowers agree to furnish all such assistance and
information as the Bank may require in connection therewith.
(d) Without limiting any of the foregoing, at the option of the
Bank upon serving written notice to the Borrowers, each Borrower agrees to
establish a lock-box at the Bank in accordance with the Bank's customary
procedures which shall include each Borrower entering into a lock-box agreement
in favor of the Bank.
(e) The Bank agrees to release the Collateral promptly upon
satisfaction of each of the following: (i) the receipt by the Bank of a written
request therefor from each Borrower; (ii) payment in full of all Obligations;
(iii) the termination of the Bank's obligation to make any Advances hereunder as
provided in Section 2.1 hereof; and (iv) the payment by the Borrowers of all
reasonable costs and expenses incurred by the Bank in connection with such
release of the Collateral.
IV. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and, among
other things, make the Facility available and make the Advances and Term Loan as
provided herein, the Borrowers hereby, jointly and severally, represent, warrant
and agree that:
4.1 Organization; Power; Qualification. Each Borrower: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York; (ii) has the full power and authority to own and
operate its properties and assets and to carry on the business now conducted by
it; and (iii) is qualified or authorized to do business and is in good standing
in the State of New Jersey and all other jurisdictions wherein the character of
the property owned or the nature of the business conducted by it makes such
qualification or authorization necessary.
4.2 Authorization of Agreement. Each Borrower has full power and
authority to execute, deliver and perform any action which may be necessary or
advisable to carry out the terms of the Loan Documents; and each Loan Document
to which the Borrower is a party has been duly authorized, executed and
delivered by each Borrower and is the legal, valid and binding obligation of
each Borrower enforceable in accordance with its terms.
4.3 No Legal Bar. The execution, delivery and performance of the Loan
Documents will not: (a) violate any provision of any existing law, statute,
rule, regulation or ordinance; (b)
19
conflict with, result in a breach of or constitute a default under (i) the
certificate of incorporation or by-laws of either Borrower; (ii) any order,
judgment, award or decree of any court, governmental authority, bureau or
agency; or (iii) any mortgage, lease, material contract or other material
agreement or undertaking to which either Borrower is a party or by which either
Borrower or any of its properties or assets may be bound; or (c) result in the
creation or imposition of any Lien upon or with respect to any property or asset
now or hereafter acquired by either Borrower, other than the Liens created by
the Loan Documents.
4.4 Consent. No consent, license, permit, approval or authorization
of, exemption by, notice to, report to, or registration, filing or declaration
with any Person is required in connection with the execution, delivery,
performance or validity of the Loan Documents or the transactions contemplated
thereby, other than filing or recordation of financing statements, mortgages and
like documents in connection with the Liens being granted in favor of the Bank.
4.5 Compliance With Law. Neither Borrower is in violation of any
applicable law, rule, regulation, statute, ordinance, or any order, judgment,
award or decree of any court, governmental authority, bureau or agency, the
violation of which might have a materially adverse effect on its business,
assets, liabilities, financial condition, results of operation or business
prospects.
4.6 Title to Properties and Assets; Liens. Sel-Leb has good,
marketable and legal title to, the properties and assets as reflected on the
balance sheet of Sel-Leb as of March 31, 1997, delivered to the Bank, except
such properties or assets as have been disposed of by Sel-Leb subsequent to the
date thereof in the ordinary course of business. All of said properties and
assets are in good working order. The Borrowers do not own, or have any interest
in, any real property other than a leaseholder interest in the offices set forth
in Exhibit 4.15 attached hereto. Except for financing statements naming the Bank
as secured party and those financing statements set forth on Exhibit 4.6
attached hereto, no financing statement under the Code, is in effect in any
jurisdiction, which names a Borrower as debtor and the Borrowers have not signed
any such financing statement or any security agreement authorizing any secured
party thereunder to file any such financing statement in any such jurisdiction.
4.7 No Default. Neither Borrower is in default in the payment or
performance of any of its obligations or in the performance of any mortgage,
indenture, lease, contract or other agreement or undertaking to which it is a
party or by which it or any of its properties or assets may be bound, which
default may materially affect its business, assets, liabilities, results of
operations or financial condition, and no Default or Event of
20
Default has occurred and is continuing. Neither Borrower is in default under any
order, award or decree of any court, arbitrator, or governmental authority
binding upon or affecting it or by which any of their properties or assets may
be bound or affected, and no such order, award or decree, if any, materially and
adversely affects the ability of the Borrower to carry on business as presently
conducted or to perform its obligations under the Loan Documents.
4.8 No Litigation. No litigation, investigation or proceeding of or
before any court, arbitrator or governmental authority is currently pending,
nor, to the knowledge of the Borrowers, is threatened, against either of the
Borrowers or any of its properties and revenues, which, if adversely determined,
would materially and adversely affect its business, operations, financial
condition or results of operations.
4.9 No Burdensome Restrictions. Neither Borrower is a party to, or
bound by, any contract or agreement or instrument nor subject to any restriction
materially and adversely affecting its business, operations, properties or
financial or other condition.
4.10 Tax Returns and Payments. All federal, state and other tax returns
of each Borrower required by law to be filed have been duly filed or extensions
obtained, and all federal, state and other taxes, assessments and governmental
charges or levies upon a Borrower or any of its properties, income, profits or
assets which are due and payable have been paid or provided for, except for such
taxes and assessments which a Borrower is disputing in good faith and for which
a Borrower has established adequate reserves on its books for the payment of
such disputed taxes or assessments in accordance with GAAP.
4.11 Financial Statements. Sel-Leb has furnished to the Bank copies of
its balance sheets as of December 31, 1996 and the related statements of income
and retained earnings and cash flows for the years then ended, as certified by
Goldstein, Golub, Xxxxxxx & Co., along with Goldstein, Golub, Xxxxxxx & Co.,
interim financial statements prepared by such Borrower. Such financial
statements are true, correct and complete in all material respects and reflect
all material direct and contingent liabilities of every kind and fairly present
the financial position and results of operations of such Borrower on the dates
and for the periods then ended, in accordance with GAAP, consistently applied
throughout the periods involved.
4.12 No Adverse Changes. Since March 31, 1997, no material adverse
change has occurred in the business, assets, liabilities, financial condition,
results of operations or business prospects of Sel-Leb, and no event has
occurred or failed to occur which has had or is likely to have a material
adverse effect on the
21
business, assets, liabilities, financial condition, results of operations or
business prospects of either Borrower.
4.13 ERISA.
(a) The Borrowers are in compliance in all material respects
with the applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all regulations issued thereunder; and
(b) No "employee benefit plan", as defined in Section 3 of
ERISA, maintained and administered by the Borrower (and including any
multi-employer plan in which a Borrower participates but does not administer),
as from time to time in effect (the "Plans"), nor any trusts created thereunder,
nor any trustee or administrator thereof, has engaged in a "prohibited
transaction", as defined in Section 4975 of the Internal Revenue Code of 1986,
as amended, which could subject a Borrower, any Plan or any such trust, or any
trustee or administrator thereof, or any party dealing with any Plan or any such
trust to the tax or penalty on prohibited transactions imposed by said Section
4975. Neither any of the Plans nor any such trusts have been terminated, nor has
there been any "reportable event", as defined in Section 4043 of ERISA, or
"accumulated funding deficiency", as defined in Section 4971 of the Internal
Revenue Code of 1986, as amended. Neither Borrower has incurred any liability to
the Pension Benefit Guaranty Corporation.
4.14 Federal Reserve Regulations. Neither Borrower has engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulations U and X of the Board of Governors of the Federal Reserve
System). No part of any of the Facility hereunder shall be used to purchase or
carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
4.15 Collateral.
(a) Each Borrower is (or, in the case of after acquired
property, will be) the sole owner of each item of Collateral, as the case may
be, and has good and marketable title thereto, free and clear of any and all
Liens except for Permitted Liens.
(b) No security agreement, financing statement, mortgage, deed
of trust, equivalent security or instrument or continuation statement covering
all or any part of the Collateral is on file or of record in any public office,
except for Permitted Liens.
22
(c) This Agreement constitutes a valid and continuing first
lien on, and first perfected security interest in, the Collateral in favor of
the Bank, prior to all other liens, encumbrances, security interests and rights
of others (except for Permitted Liens), and is enforceable as such or against
creditors of and purchasers from the Borrowers. All action necessary or
desirable to protect and perfect such security interest in each item of
Collateral has been duly taken.
(d) Exhibit 4.15 attached hereto and by this reference made a
part hereof, sets forth the location of each Borrower's places of business.
Exhibit 4.15 also sets forth the place where records concerning each Borrower's
Collateral is kept. Exhibit 4.15 also sets forth the various locations at which
any Collateral may be found (except for items in transit), including any
Inventory which may be held on consignment or under any field warehousing
arrangement. Exhibit 4.15 further sets forth whether any of such locations are
owned by a Borrower or leased from any other Person, and if leased, the name and
address of the lessor thereunder.
(e) Neither Borrower has not within the past six (6) months,
and does not presently, conduct any business under, or use, any trade name,
alternate name or fictitious name in any manner.
(f) Each Account Receivable is a bona fide, valid and legally
enforceable obligation of the Account Debtor in respect thereof and does not
represent a sale on consignment, sale or return, or other similar understanding,
and no facts exist which are the basis for any future offset or counterclaim or
other defense on the part of such Account Debtor, including, without limitation,
any account payable owing by a Borrower to such Account Debtor, nor will any of
the foregoing, whether or not arising in the ordinary course of business, have a
material and adverse effect on the business, financial condition or results of
operations of a Borrower or the aggregate value of the Eligible Accounts
Receivable. The amount represented by the Borrowers to the Bank as owing by each
Account Debtor in respect of the Accounts Receivable is the correct amount
actually and unconditionally owing by such Account Debtor thereunder.
4.16 Accuracy and Completeness of Information. All information, reports
and other papers and data furnished to the Bank were, at the time the same were
so furnished, complete and correct in all material respects. No document
furnished or statement made to the Bank in connection with the negotiation,
preparation or execution of the Loan Documents contains or will contain any
untrue statement of fact or omits or will omit to state a material fact
necessary in order to make the statements contained therein not misleading. No
fact is known to a Borrower which has had, or may in the future have, a material
adverse
23
effect upon the Borrowers' business, assets, liabilities, condition, financial
or otherwise, or results of operations, that has not been set forth in the
financial statements furnished to the Bank or other reports or other papers or
data otherwise disclosed in writing to the Bank.
V. COVENANTS
The Borrowers, jointly and severally, covenant and agree that until all
the Obligations have been satisfied and paid in full, the Borrowers will comply
with the following covenants:
5.1 Preservation of Existence. The Borrowers will do or cause to be
done all things necessary to preserve and maintain in full force and effect
their corporate existence and all contracts, rights, licenses, permits,
franchises and trade names, which in its judgment are necessary or useful to the
proper conduct of its business and shall qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization.
5.2 Nature of Business. The Borrowers will continue to be engaged only
in the business of distributing and marketing consumer merchandise.
5.3 Compliance with Laws. The Borrowers will comply with all laws,
ordinances, governmental rules and regulations to which it or its properties or
assets are, or might become subject, including but not limited to all
environmental law rules and regulations (unless the same shall be contested in
good faith and by appropriate proceedings and such contest shall operate to stay
any such noncompliance), the noncompliance with which might interfere with the
performance of its obligations under the Loan Documents or with the proper
conduct of its business.
5.4 Maintenance of Properties. The Borrowers will maintain or cause to
be maintained in working order and good condition, ordinary wear and tear
excepted, all of its assets and properties which are material to the conduct of
its business, and from time to time, make or cause to be made all necessary
repairs, replacements, additions, betterments and improvements thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
5.5 Accounting Methods. The Borrowers will maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made in
accordance with GAAP, make provision in its accounts in accordance with GAAP for
reserves for depreciation, obsolescence and amortization and all other
24
proper reserves and accruals which in accordance with GAAP should
be established.
5.6 Payment of Taxes and Claims. The Borrowers will pay and discharge
promptly: (a) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or upon any of its properties or assets
before the same shall become delinquent; (b) all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords, and other similar persons for
labor, materials, supplies and rentals which, if unpaid, might by law become a
Lien or charge upon its property; and (c) all of its Indebtedness and other
obligations of whatever nature when due (subject, where applicable, to grace
periods, normal credit terms and to other forbearance in the ordinary course of
business); provided, however, that none of the foregoing need be paid while
being contested in good faith and by appropriate proceedings, so long as
adequate book reserves have been established in accordance with GAAP with
respect thereto.
5.7 Visits and Inspection; Audits. The Borrowers will permit the Bank
and its agents and representatives, during business hours to: (a) visit and
inspect their properties; (b) inspect and make extracts from their books and
records; (c) discuss with its principal officers, employees and independent
public accountants any and all matters with respect to their business, assets,
liabilities, financial condition, results of operations and business prospects;
and (d) audit all their Accounts Receivable, general ledgers, Inventory, and
corporate records.
5.8 Information Covenants. The Borrowers will furnish the following
information to the Bank (which shall be in such form and in such detail as shall
be satisfactory to the Bank):
(a) As soon as practicable, and, in any case, within forty-five
(45) days after the last day of the third, sixth and ninth month of each fiscal
year of each Borrower, a balance sheet of each Borrower as at the end of such
month and the related statement of income and retained earnings of each Borrower
for the elapsed portion of the fiscal year ended with the last day of such
month, setting forth in comparative form the elapsed portion of the fiscal
figures for the corresponding periods of the previous fiscal year, which shall
be certified by the chief financial officer of such Borrower, on such form as is
customarily required by the Bank, which shall set forth in his or her opinion,
as presenting fairly in accordance with GAAP, the financial position for such
period and for the elapsed portion of the fiscal year ended with the last day of
such period, subject only to normal year-end auditing adjustments;
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(b) As soon as practicable, and, in any case, within ninety (90)
days after the end of each fiscal year of each Borrower a balance sheet for such
Borrower as of the end of such fiscal year and the related statements of income,
retained earnings and cash flows for such Borrower for such fiscal year, setting
forth in comparative form the figures as at the end of and for the previous
fiscal year, audited by Goldstein, Golub, Xxxxxxx & Co., or other independent
certified public accountants reasonably satisfactory to the Bank;
(c) At the time the financial statements and reports are
furnished pursuant to Subsections 5.8 (a) and (b) above, each Borrower shall
also furnish a statement attestation certificate in the form attached hereto as
Exhibit 5.8(c) and stating that no event has occurred which constitutes a
Default or an Event of Default under any of the Loan Documents or if such an
event has occurred, disclosing each such event or failure and its nature, when
it occurred, whether it is continuing and the steps being taken by such Borrower
with respect to such event or failure.
(d) Within five (5) days of the end of each month (A) an Accounts
Receivable listing and aging report (with progress xxxxxxxx, foreign accounts
receivable, maintenance xxxxxxxx, test and evaluation xxxxxxxx and governmental
receivables broken out), (B) an Inventory listing and (C) a Borrowing Base
Certificate.
(e) From time to time and promptly upon each request, such
existing reports and other information regarding the business, assets,
liabilities, financial condition, results of operations or business prospects of
each Borrower as the Bank may reasonably request including, but not limited to,
copies of each Borrower's filed tax returns, machinery and equipment appraisals,
real property appraisals, environmental assessments and reports, invoices, bills
of lading and shipping documents;
(f) Prompt notice of:
(i) the commencement of any proceeding or investigation by
or before any governmental body and any action or proceeding in any court or
before any arbitrator against or in any other way relating adversely to a
Borrower or any of its properties, assets or business, which, if adversely
determined, would singly or when aggregated with all other proceedings,
investigations or actions, materially and adversely affect the business,
results of operations or financial condition of a Borrower;
(ii) any notice received from any administrative official or
agency relating to any order, ruling, statute or other law or information which
would materially and adversely affect the operations of each Borrower;
26
(iii) any amendment of the certificate of incorporation or
by-laws of each Borrower;
(iv) any material adverse change with respect to the
business, assets, liabilities, financial condition, business prospects or
results of operations of each Borrower; and
(v) any Default or Event of Default hereunder or any event
of default under any other material agreement to which of a Borrower is a party
or by which any of its properties may be bound;
(g) As soon as possible, and, in any event, within thirty (30)
days after any executive officer of a Borrower knows or has reason to know that
any reportable event (as defined in Section 4043 of ERISA) with respect to any
Plan has occurred, a statement of the chief financial officer setting forth
details as to such reportable event and the action that a Borrower proposes to
take with respect thereto, together with a copy of the notice of such reportable
event given to the Pension Benefit Guaranty Corporation;
(h) Promptly after receipt thereof, a copy of any notice a
Borrower may receive from the Pension Benefit Guaranty Corporation relating to
their intention to terminate any Plan or to appoint a trustee to administer any
Plan;
(i) As soon as available, but in any event within one hundred
twenty (120) days after the close of its fiscal year, a copy of Sel-Leb's
complete 10-K Report filed with the Securities and Exchange Commission;
(j) As soon as available, but in any event within sixty (60) days
after the end of each quarterly fiscal period of Sel-Leb, a copy of Sel-Leb's
complete 10-Q Report filed with the Securities and Exchange Commission; and
(k) As soon as available, but in any case within five (5) days of
filing, copies of any other reports or statements required to be filed with the
Securities and Exchange Commission.
5.9 Accuracy and Completeness of Information. Each Borrower covenants
that all information, reports, statements, and other papers and data furnished
to the Bank pursuant to any provision or term of any of the Loan Documents shall
be, at the time the same is so furnished, complete and correct in all material
respects.
5.10 Insurance. (a) Each Borrower will maintain with financially sound
and reputable insurance companies, insurance policies: (i) insuring the
Collateral against loss by fire,
27
explosion, vandalism, malicious mischief, theft and such other casualties as are
usually insured against by companies engaged in the same or similar businesses;
(ii) insuring such Borrower and the Bank against liability for personal injury
and property damage relating to the Collateral; and (iii) providing for business
interruption coverage, such policies to be in such form and in such amounts and
coverage as may be reasonably satisfactory to the Bank, with losses payable to
the Bank as additional insured, mortgagee and as lender loss payee, as its
interest may appear under standard non-contributory "mortgagee", "lender" or
"secured party" clauses. A Borrower shall, if so requested by the Bank, deliver
to the Bank, as often as the Bank may reasonably request, a report of a
reputable insurance broker with respect to the insurance on the Collateral. All
insurance with respect to the Collateral shall: (i) provide that no
cancellation, reduction in amount or change in coverage thereof shall be
effective until at least thirty (30) days after receipt by the Bank of written
notice thereof; and (ii) be reasonably satisfactory in all material respects to
the Bank. In the event of a partial or total destruction of any of the
Collateral by fire or other insured casualty, the Bank shall not unreasonably
withhold any such insurance proceeds received by the Bank, provided, that such
Borrower is in compliance with all the terms and conditions of the Loan
Documents and provided further that any such insurance proceeds released by the
Bank to a Borrower shall be used solely for the purchase or replacement of
Collateral. In the event that a Borrower is not in compliance with all the terms
and conditions of the Loan Documents or if any of the insurance proceeds
released to a Borrower are used for any other purpose other then as set forth
above, then at the option of the Bank, the remaining insurance proceeds may be
utilized by the Bank to reduce the Obligations.
(b) The Borrowers shall give the Bank prompt notice of any and all
insurance claims made by a Borrower with respect to the Collateral which are in
excess of twenty-five thousand ($25,000) dollars and are in dispute or unpaid,
unless such dispute is resolved or such claim is paid within thirty (30) days of
the date of the claim.
5.11 Indebtedness. Neither Borrower will create, assume, incur,
guarantee or in any manner become liable, contingently or otherwise, in respect
of any Indebtedness except for Permitted Indebtedness; provided, however, that
the foregoing provision shall not apply if, concurrently with the incurrence of
such Indebtedness, the proceeds thereof are applied to the complete satisfaction
and payment in full of all Obligations.
5.12 Liens. Neither Borrower will create, assume or incur or cause to
be created, assumed or incurred, or permit to exist, any Liens on its properties
or assets except for Permitted Liens, and the Borrowers will defend the right,
title and interest of
28
the Bank in and to each Borrower's rights to the Collateral and in and to the
Proceeds and Products thereof against the claims and demands of all Persons
whosoever.
5.13 Sale of Assets; Merger. Neither Borrower shall, without the prior
written consent of the Bank: (a) sell, transfer, assign, lease or otherwise
dispose of (whether in one transaction or a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired); or
(b) consolidate with or merge into any other corporation or permit any
corporation to merge into it.
5.14 Guaranties. Neither Borrower shall guaranty, endorse, become
surety for, or otherwise in any way become or be responsible for, the
obligations of any other Person, whether by agreement to purchase the
indebtedness of any other Person, or agreement for the furnishing of funds,
directly or indirectly, for the purpose of payment of indebtedness of any other
Person, other than in connection with Permitted Indebtedness and endorsements of
negotiable instruments for deposit or collection in the ordinary course of its
business.
5.15 Collateral.
(a) The Borrowers will keep and maintain at their own cost and
expense satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral. The
Borrowers will xxxx their books and records pertaining to the Collateral to
evidence the security interest therein granted hereby as the Bank may reasonably
request. For the Bank's further security, the Borrowers agree that the Bank
shall have a security interest in and a Lien upon all of a Borrowers' books and
records (including all computer programs, software, discs, drives, printouts and
similar items) pertaining to the Collateral, and if any Event of Default shall
have occurred and be continuing, each Borrower shall promptly deliver and turn
over any such books and records to the Bank or its representatives at any time
upon demand.
(b) Except as otherwise expressly permitted herein, the Borrowers
will not sell, transfer, lease or otherwise dispose of any or all of the
Collateral, or attempt, offer or contract to do so, without the express prior
written consent of the Bank, except for sales or other dispositions of Inventory
in the ordinary course of business.
(c) The Borrowers will perform and comply in all material
respects with all obligations under all Contracts and all other material
agreements to which it is a party or by which it is bound relating to the
Collateral.
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(d) Except in the ordinary course of a Borrower's business
consistent with its past business practice, neither Borrower will grant any
extension of the time of payment of any of the Accounts Receivable, or
compromise, compound or settle the same for less than the full amount thereof,
or release, wholly or partly, any person liable for the payment thereof.
(e) The Borrowers will furnish to the Bank, from time to time,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Bank may reasonably
request, all in reasonable detail.
(f) The Borrowers will immediately advise the Bank, in complete
detail: (i) of any Lien asserted or claim made against any of the Collateral;
(ii) of any material change in the composition of the Collateral; and (iii) of
the occurrence of any other event which would have a material adverse effect on
the aggregate value of the Collateral or on the security interest created
hereunder.
(g) Neither Borrower will change its name, identity or corporate
structure in any manner which might make any financing or continuation statement
filed hereunder misleading, nor will either Borrower change its principal place
of business, record-keeping location or remove any of their books and records or
the Inventory to any location other than the Premises (except as otherwise
permitted in Subsection 5.15(b) hereof) unless, in each case with respect to the
Inventory, the Borrowers shall have given the Bank at least thirty (30) days'
prior written notice thereof or shall have delivered to the Bank acknowledgment
copies of financing statements recording such change, duly executed and duly
filed in each jurisdiction in which financing statements on form UCC-1 are
required to be filed in order to perfect the security interest granted by a
Borrower in favor of the Bank as set forth in this Agreement in the Collateral,
and shall have taken all action necessary or reasonably requested by the Bank to
amend such financing statement or continuation statement so that it is not
misleading.
5.16 Sale and Leaseback. Neither Borrower shall directly or indirectly
enter into any arrangement with any Person providing for the leasing by the
Borrower of any asset (real or personal) which has been, or is to be, sold or
transferred by the Borrower to such Person or to any other Person to whom funds
have been, or are to be, advanced by such Person on the security of such asset
or rental obligations of the Borrower.
5.17 Transactions with Affiliates. Neither Borrower shall enter into
any transaction with any Affiliate of the Borrowers on terms which are less
favorable than if such transaction were a bona-fide arms-length transaction
between unaffiliated parties.
30
5.18 Operating Accounts. Each Borrower shall establish and maintain its
primary operating accounts with the Bank.
5.19 Further Documentation. At any time, and from time to time, upon
the Bank's written request and at the Borrowers' sole expense, the Borrowers
will promptly and duly execute and deliver such further documents and
instruments and do such further acts and things as the Bank may reasonably
request in order to obtain the full benefits of this Agreement and the Loan
Documents and the rights and powers herein and therein granted, including the
filing of any financing or continuation statements and amendments thereto under
the Code in effect in any jurisdiction and any and all other documents including
but not limited to all certificates of title and any assignments necessary in
connection therewith with respect to the Liens and security interests granted to
the Bank pursuant to the Loan Documents. The Borrowers also hereby authorize the
Bank to file any such financing or continuation statement without the signature
of a Borrower to the extent permitted by applicable law. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or other instrument shall
be immediately pledged to the Bank hereunder, duly endorsed in a manner
satisfactory to the Bank and delivered to the Bank.
5.20 Clean-Up Period. During each twelve (12) month period, commencing
on the date of execution of this Agreement, the Borrowers shall reduce the
principal amount outstanding under the Line of Credit Loan to zero ($0) dollars
for a period of thirty (30) continuous and consecutive days.
5.21 Investment Management Account. The Borrowers shall establish and
maintain an investment management account with the Bank for the purpose of
creating a source of funds to immediately pay to the Bank any amount outstanding
under the Line of Credit Loan in excess of the Line of Credit Loan Maximum.
5.22 Bank's Appointment as Attorney-in-Fact.
(a) The Borrowers hereby irrevocably constitute and appoint the
Bank, and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Borrowers and in the name of the Borrowers or in their
own name, from time to time in the Bank's discretion for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives the Bank the power and right, on
behalf of the Borrowers, without notice to or assent by the Borrowers, to do the
following:
31
(i) upon the occurrence and continuance of an Event of
Default, to ask, demand, collect, receive and give acquittances and receipts for
any and all monies due and to become due under or in connection with any
Collateral and, in the name of a Borrower or its own name or otherwise, to take
possession of and endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Collateral and to file
any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Bank for the purpose of collecting
any and all such monies due under any Collateral whenever payable; and
(ii) upon the occurrence and continuance of any Event of
Default: (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all monies due and to become due
thereunder directly to the Bank or as the Bank shall direct; (B) to receive,
open and dispose of all mail addressed to the Borrowers and to notify postal
authorities to change the address for delivery thereof to such address as may be
designated by the Bank; (C) to receive payment of and receipt for any and all
monies, claims and other amounts due and to become due at any time in respect of
or arising out of any Collateral; (D) to sign and endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts and
other documents relating to the Collateral; (E) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (F) to defend any suit, action or
proceeding brought against the Borrowers with respect to any Collateral; (G) to
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, to give such discharges or releases as the Bank may
deem appropriate; and (H) generally, to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Bank were the absolute owner thereof for all
purposes, and to do, at the Bank's option and the Borrowers' expense, at any
time or from time to time, all acts and things which the Bank deems necessary to
protect, preserve or realize upon the Collateral and the Bank's security
interest therein, in order to effect the intent of this Agreement.
(b) The Borrowers hereby ratify all that said attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is a power coupled with an interest and shall be irrevocable.
32
(c) The powers conferred on the Bank hereunder are solely to
protect the interests of the Bank in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Bank shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, employees or agents shall be responsible
to the Borrowers for any act or failure to act.
(d) The Borrowers also authorize the Bank at any time, and from
time to time, following an Event of Default: (i) to communicate with Account
Debtors and any party to any Contract with regard to the assignment of Accounts
Receivable hereunder and other matters relating thereto; and (ii) to execute any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
5.23 Performance by Bank of Borrowers' Obligations. If the Borrowers
fail to perform or comply with any of their agreements contained herein
following written demand therefor by the Bank, and the Bank, as provided for by
the terms of this Agreement, shall perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Bank
incurred in connection with such performance or compliance (together with
interest thereon at the interest rate set forth in Paragraph 2 of the Line of
Credit Note plus five (5%) percent per annum) shall be payable by the Borrowers
to the Bank on demand and shall constitute Obligations secured hereby.
VI. CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Advance. The obligation of the
Bank to make the initial Advance and the Term Loan is subject to the condition
precedent that the Bank shall have received each and every one of the following
in form and substance satisfactory to the Bank:
(a) Each of the Loan Documents shall be in full force and effect;
(b) The representations and warranties of the Borrowers set forth
herein shall be true and correct as of the date of the first Advance and the
date the Term Loan is made as if made on and as of such date, and the request
for an Advance by the Borrowers and the making of the Term Loan shall be deemed
a representation and warranty by the Borrowers to such effect;
(c) No Default or Event of Default has occurred and is continuing
as of the date of the first Advance or the date the Term Loan is made;
33
(d) There is and has been no material adverse change in the
either Borrower's financial condition, results of operations, business prospects
or otherwise which would, in the judgment of the Bank, impair such Borrower's
ability to repay all or any portion of the Notes;
(e) No further action, including any filing or recording of any
agreement, document or instrument, is necessary to establish and perfect the
Bank's lien and priority in the Collateral;
(f) The Borrowers shall submit to the Bank, all reports and
documents required to be submitted to the Bank by the Borrowers pursuant to
Section 5.8 of this Agreement;
(g) An originally executed copy of this Agreement, the Line of
Credit Note, the Term Note and each of the other Loan Documents;
(h) A copy of the certificate of incorporation and by-laws of
each Borrower, certified as a true copy by the Secretary of each Borrower and
the Secretary of State of each Borrower's state of incorporation;
(i) A good standing certificate with respect to each Borrower
issued as of a recent date by the Secretary of State of each state in which such
Borrower is required to be authorized to do business;
(j) A certificate of the Secretary of each Borrower certifying
the names and true signatures of the officers of such Borrower authorized to
sign each of the Loan Documents to which such Borrower is a party and a true and
complete copy of each Borrower's by-laws;
(k) A copy of the resolutions approved by the Board of Directors
of each Borrower authorizing the execution, delivery and performance by such
Borrower of each of the Loan Documents to which such Borrower is a party,
certified as a true copy by the Secretary of the Borrower and such other
resolutions and authorizations as the Bank may reasonably request;
(l) A written opinion of counsel to the Borrowers with respect to
such matters as the Bank shall request;
(m) An originally executed copy of a Borrowing Base Certificate
from each Borrower dated as of a date not more than three (3) days prior to the
date of the initial Advance;
34
(n) Evidence reasonably satisfactory to the Bank that the
Collateral is properly insured in accordance with the provisions of this
Agreement and that the Collateral is not subject to any Lien other than
Permitted Liens;
(o) Evidence reasonably satisfactory to the Bank that all
filings, recordings and other actions that are necessary or desirable in order
to establish and perfect the Bank's security interest in the Collateral as a
valid perfected first priority security interest shall have been duly effected,
including, without limitation, the filing of UCC-1 financing statements, and the
filing or recordation of such other documents as the Bank shall deem necessary
or desirable, all in form and substance satisfactory to the Bank, and all fees,
taxes and other charges relating to such filings and recordings shall have been
paid by the Borrowers;
(p) The Bank shall have performed to its satisfaction, an audit
of all Accounts Receivable, general ledgers, Inventory and corporate records of
the Borrowers;
(q) A fully executed copy of the Asset Purchase Agreement, in
form and substance satisfactory to the Bank;
(r) Evidence satisfactory to the Bank that the United States
Bankruptcy Court for the Southern District of Florida has issued a final and
nonappealable order approving the Asset Purchase Agreement and the transactions
contemplated thereby;
(s) Payment in full of all obligations outstanding under the Loan
and Security Agreement between Sel-Leb and the Bank, dated November 6, 1995, as
amended (the "Original Loan Agreement"), and the Line of Credit Note executed
and delivered in connection therewith, as amended;
(t) Evidence satisfactory to the Bank that its obligation to make
Advances (as defined in the Original Loan Agreement) under the Original Loan
Agreement has been terminated; and
(u) Such other documents and information as the Bank shall
reasonably request, including without limitation UCC, judgment, tax lien and
franchise tax searches, leases for all locations at which the Borrowers operate
and landlord waivers for all locations at which Collateral is located, in form
and substance reasonably satisfactory to the Bank, and all legal matters and
documents with respect to the transactions contemplated by this Agreement shall
be satisfactory to counsel for the Bank.
35
In the event each and every condition precedent set forth in this
Paragraph 6.1 is not satisfied in full on or before October 31, 1997, then the
Bank may, in it sole and absolute discretion, terminate this Agreement and if
this Agreement is so terminated the Bank shall have no further obligation to
make the Revolving Loan or the Term Loan.
6.2 Conditions Precedent to Additional Advances. The Bank shall have
no obligation to make (a) any additional Advance subsequent to the initial
Advance or (b) the Term Loan, unless each of the following conditions precedent
has been either satisfied or waived prior to or concurrently with the making of
such Advance:
(a) Each of the Loan Documents shall be in full force and effect;
(b) The representations and warranties of the Borrowers set forth
herein shall be true and correct as of the date of each Advance as if made on
and as of such date, and each request for an Advance by the Borrowers shall be
deemed a representation and warranty by the Borrowers to such effect;
(c) No Default or Event of Default has occurred and is continuing
as of the date of each Advance;
(d) There is and has been no material adverse change in the
either Borrower's financial condition, results of operations, business prospects
or otherwise which would, in the judgment of the Bank, impair such Borrower's
ability to repay all or any portion of the Notes;
(e) No further action, including any filing or recording of any
agreement, document or instrument, is necessary to establish and perfect the
Bank's lien and priority in the Collateral; and
(f) The Borrowers shall submit to the Bank, all reports and
documents required to be submitted to the Bank by the Borrowers pursuant to
Section 5.8 of this Agreement.
VII. EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default, whatever
the reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any governmental body:
36
7.1 Failure to Pay. The Borrowers fail to make any payment of
principal, interest or any other fee or amount payable under the Line of Credit
Note, the Term Note or hereunder within five (5) days after the date when due;
7.2 False Representation or Warranty. Any warranty or representation
made by or on behalf of the Borrowers contained herein or in any of the Loan
Documents or in any document furnished in compliance or connection with the Loan
Documents is false or incorrect in any material respect when made and such
warranty or representation remains false or incorrect fifteen (15) days after
notice from the Bank of such false or incorrect warranty or representation;
7.3 Failure to Perform. The Borrowers shall default in the performance
or observance of any covenant or agreement contained in this Agreement or the
Loan Documents and such default is not cured within fifteen (15) days after
notice from the Bank of such default;
7.4 Cross Default. Any Event of Default shall occur under any of the
other Loan Documents;
7.5 Default on other Indebtedness. A Borrower shall:
(a) default in any payment of the principal of or interest on any
Indebtedness (other than the Line of Credit Note and the Term Note), beyond the
grace period, if any, owing to the Bank;
(b) default in any payment of the principal of or interest on any
other Indebtedness, beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created; or
(c) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur, the effect of which default or other event is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity and as
the result of such default or event such indebtedness has been accelerated and
become due and payable prior to its stated maturity;
7.6 Petition; Appointment of Receiver. (a) Either Borrower shall
commence any case, proceeding or other action (i) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered
37
with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to it or its debts; or
(ii) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or such
Borrower shall make a general assignment for the benefit of its creditors;
(b) there shall be commenced against either Borrower, any case,
proceeding or other action of a nature referred to in Subsection 7.6(a) above
which: (i) results in the entry of an order for relief or any such adjudication
or appointment; or (ii) remains undismissed, undischarged or unbonded for a
period of thirty (30) days;
(c) there shall be commenced against either Borrower, any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets, which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the entry thereof; or
(d) either of the Borrowers shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in this Section 7.6;
7.7 Judgments; Levys; Liens. A final judgment shall be entered against
a Borrower by any court for the payment of money which, together with all other
outstanding judgments against either of the Borrowers, exceeds twenty five
thousand ($25,000) dollars in the aggregate, which judgment is not fully covered
by insurance, or a warrant of attachment or execution or similar process shall
be issued or levied against property such Borrower which warrant of attachment,
execution or similar process exceeds in value twenty five thousand ($25,000)
dollars in the aggregate and, if within sixty (60) days after the entry, issue
or levy thereof, such judgment, warrant or process shall not have been
discharged or stayed pending appeal, or, if within sixty (60) days after the
expiration of any such stay, such judgment, warrant or process shall not have
been discharged;
7.8 ERISA.
(a) A reportable event (as defined in Section 4043 of Title IV of
ERISA) shall have occurred with respect to any Plans or any Plans of a Borrower
shall have been voluntarily terminated as provided in Section 4041(a) of ERISA;
(b) A trustee shall be appointed by a United States District
Court to administer any Plan; or
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(c) the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any Plan;
7.9 Liquidation or Dissolution. If a Borrower shall commence any
action or step with respect to, or shall approve any plan of, any winding up,
liquidation or dissolution of a Borrower; or
7.10 Change in Condition. If there occurs any material adverse change
in the condition or affairs, financial, business prospects or otherwise, of a
Borrower, which in the opinion of the Bank increases its risk.
VIII. REMEDIES
8.1 Acceleration Automatic. Upon the occurrence of an Event of Default
set forth in Section 7.6, the Bank shall have no obligation to make any further
Advance, and all amounts outstanding (with accrued interest thereon), including
without limitation, all other amounts owing under the Line of Credit Note, the
Term Note and the other Loan Documents shall immediately become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrowers, to the fullest extent permitted by
applicable law.
8.2 Acceleration; Bank Discretion. Upon the occurrence of any Event of
Default, other than an Event of Default as set forth in Section 7.6, the Bank
shall have no obligation to make any further Advance and the Bank may declare
all amounts outstanding (with accrued interest thereon), including without
limitation, all other amounts owing to it under the Line of Credit Note, the
Term Note and the other Loan Documents to be due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers, to the fullest extent permitted by
applicable law.
8.3 Proceeds held in Trust. Upon the occurrence of any Event of
Default:
(a) All payments received by a Borrower under or in connection
with any of the Collateral shall be held by a Borrower in trust for the Bank,
shall be segregated from funds of such Borrower and shall forthwith upon receipt
by a Borrower be turned over to the Bank, in the same form as received by such
Borrower (duly endorsed by such Borrower to the Bank, if required);
(b) Any and all such payments so received by the Bank (whether
from a Borrower or otherwise) may, in the sole discretion of the Bank, be held
by the Bank as collateral security for, and/or then or at any time thereafter
applied in whole or in part by the Bank against, all or any part of the
39
Obligations in such order as the Bank shall determine in its sole discretion.
Any balance of such payments held by the Bank and remaining after payment in
full of all such Obligations shall be paid over to the Borrowers or, if the Bank
has knowledge that another Person is lawfully entitled to receive the same, to
such other Person.
(c) The Borrowers shall, upon demand, pay interest, to the extent
permitted by applicable law, on all unpaid Obligations upon the occurrence of an
Event of Default until paid (before or after judgment) at a fluctuating rate
equal to (i) in the case of Obligations under the Line of Credit Note, the
interest rate set forth in Paragraph 2 of the Line of Credit Note plus five (5%)
percent per annum, and (ii) in the case of Obligations under the Term Note, the
rate of interest set forth in Paragraph 2 of the Term Note plus five (5%)
percent per annum.
8.4 Set-Off; Sale. If any Event of Default shall occur, the Bank may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code, to the fullest extent permitted by law. Without limiting the
generality of the foregoing, the Bank may, to the fullest extent permitted by
law, without any requirement of notice, setoff any and all amounts owing by a
Borrower to it against any deposit account maintained in the Bank (or any
Affiliate or subsidiary of the Bank) by a Borrower or any other property of a
Borrower which may now or hereafter be in the Bank's (or any Affiliate or
subsidiary of the Bank) possession or control, and such right of setoff shall be
deemed to have been exercised immediately upon such stated or accelerated
maturity as aforesaid even though such setoff is not noted on the Bank's records
until a later time. Without limiting the generality of the foregoing, the
Borrowers expressly agree that in any such event the Bank, without demand of
performance or other demand, advertisement or notice of any kind (except any
notice provisions otherwise contained in this Agreement and the notice specified
below of time and place of public or private sale) to or upon the Borrowers or
any other Person (all and each of which demands, advertisements and/or notices
are hereby expressly waived), may, to the fullest extent permitted by law,
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or sell or otherwise dispose of and deliver the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange, broker's board or at any of the Bank's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Bank shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private
40
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in a Borrower which shall be released. The
Borrowers further agree, at the Bank's request, to assemble the Collateral and
make it available to the Bank at places which the Bank shall reasonably select,
whether at a Borrower's premises or elsewhere. The Bank shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care, safekeeping or otherwise of any or
all of the Collateral or in any way relating to the rights of the Bank
hereunder, including reasonably attorneys' fees and legal expenses, to the Bank
for payment in whole or in part of the Obligations, in such order as hereinafter
provided, the Borrowers remaining liable for any deficiency remaining unpaid
after such application. To the extent permitted by applicable law, the Borrowers
waive all claims, damages, and demands against the Bank arising out of the
repossession, retention or sale of the Collateral. The Borrowers agree that, to
the fullest extent permitted by law, the Bank need not give more than ten (10)
days' notice (which notification shall be deemed given when mailed, postage
prepaid, addressed to A Borrower at its address set forth in Subsection 10.1
hereof) of the time and place of any public sale or of the time upon which a
private sale may take place and that such notice is reasonable notification of
such matters. The Borrowers shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which the Bank is entitled, the Borrowers also being liable for
the reasonable fees of any attorneys employed by the Bank to collect such
deficiency.
8.5 Bank Costs. The Borrowers also agree, jointly and severally, to
pay all Bank Costs incurred with respect to the collection of any of the
obligations and the enforcement of any of the Bank's rights hereunder.
8.6 Waivers. The Borrowers hereby waive: (a) presentment, demand,
protest or any notice of any kind in connection with this Agreement or any
Collateral, except as otherwise provided herein; (b) all rights to seek from any
court any bond or security prior to the exercise by the Bank of any remedy
described herein; (c) the benefit of all valuation, appraisement and exemption
laws; and (d) all rights to demand or to have any marshalling of assets upon any
power of sale granted herein or pursuant to judicial proceedings or upon any
foreclosure or any enforcement of this Agreement.
8.7 Possession; Receiver. Without limiting the generality of any of
the rights and remedies conferred upon the Bank in this Agreement, the Bank may,
after the occurrence of an Event of Default: (a) take immediate possession of
the Collateral, either personally or by means of a receiver appointed by a court
of
41
competent jurisdiction; (b) at the Bank's option, use, operate, manage and
control the Collateral in any lawful manner; (c) collect and receive all rents,
income, revenue, earnings, issues and profits therefrom; (d) maintain, repair,
renovate, alter or remove the Collateral as the Bank may determine in its sole
discretion; and (e) to the fullest extent permitted by applicable law, appoint
any person to be a receiver, manager, receiver-manager or receiver and manager
(a "Receiver") of the Collateral and to remove any Receiver so appointed and
appoint another in its stead, such Receiver to have all of the rights, remedies,
powers and privileges of the Bank hereunder.
8.8 Other Remedies. The remedies granted to Bank herein upon an Event
of Default are not restrictive or exclusive of any and all other rights and
remedies of Bank provided for by this Agreement, any of the Loan Documents and
applicable law.
IX. INDEMNIFICATION
9.1 Indemnification. The Borrowers agree to, jointly and severally,
pay, reimburse, indemnify and hold harmless, the Bank, its directors, officers,
employees, agents and representatives from and against any and all actions,
costs, damages, disbursements, expenses (including attorneys' fees), judgments,
liabilities, losses, obligations, penalties and suits of any kind or nature
whatsoever with respect to:
(a) the development, negotiation, preparation, execution,
enforcement, amendment or modification of any of the Loan Documents;
(b) the exercise of any right or remedy granted in any of the
Loan Documents, the collection or enforcement of any of the Obligations and the
proof or allowability of any claim arising under any of the Loan Documents,
whether in any bankruptcy or receivership proceeding or otherwise;
(c) any claim of third parties, and the prosecution or defense
thereof, arising out of or in any way connected with any of the Loan Documents;
and
(d) any and all recording and filing fees and taxes, and any and
all liabilities with respect thereto, or resulting from any delay in paying
stamp and other taxes, if any, which may be payable or determined to be payable
in connection with the Loan Documents.
X. MISCELLANEOUS
10.1 Notice. All notices and other communications given to or made upon
any party hereto in connection with this Agreement shall, except as otherwise
expressly herein provided, be in
42
writing and mailed, postage prepaid by registered or certified mail, return
receipt requested, addressed to the respective parties, as follows:
Bank: Summit Bank
000 Xxxxx Xxxxxx
0xx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx Xxxx, Vice President
Borrowers: Sel-Leb Marketing, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxx Xxxxxxxxx, Chairman
ALES Signatures Ltd.
000 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxx Xxxxxx, Chief Financial Officer
or to such changed address as may be fixed by notice. All such notices and other
communications shall, except as otherwise expressly herein provided, be
effective when received by the party to whom properly addressed, in the case of
a Borrower, the written receipt by any employee of a Borrower constituting
sufficient evidence of such receipt.
10.2 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
10.3 Survival of Agreements. All agreements, representations and
warranties made herein, and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement and the Notes and the
making of any Advances.
10.4 Amendment. No modification, amendment or waiver of any provision
of this Agreement or the Notes, nor consent to any departure by a Borrower,
shall in any event be effective unless the same shall be in writing and signed
by the party granting such modification, amendment or waiver, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
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10.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Bank, all future holders of the Notes
and their respective successors and assigns, except that the Borrowers may not
assign or transfer any of its rights under this Agreement without the prior
written consent of the Bank.
10.6 Agreement and Other Loan Documents Complementary. The provisions
of this Agreement shall be in addition to those of any guaranty, security
agreement, note or other evidence of liability held by the Bank, all of which
shall be construed as complementary to each other. In the event of ambiguity or
inconsistency between this Agreement, and any other Loan Document, then the
terms of this Agreement will govern.
10.7 Bank's Relationship. The Bank and the Borrowers expressly agree
that the relationship of the Bank to the Borrowers is that of a lender only. The
intent of this provision is to clarify and stipulate that the Bank is not a
partner or a co-venturer of the Borrowers and that the Bank's sole interest in
the Collateral is for the purpose of security for repayment of the Obligations
of the Borrowers.
10.8 Participation. Without limitation of the Bank's rights at law, the
Borrowers hereby agree that the Bank shall have the right to sell participations
in any Obligation in the sole discretion of the Bank and that the Borrowers
shall provide all required assistance to the Bank in selling and closing any
participation, including permitting any prospective participant to inspect any
of a Borrower's books, records, Collateral and Premises.
10.9 WAIVER OF TRIAL BY JURY. THE BANK AND BORROWER'S HEREBY WAIVE ALL
RIGHT TO A TRIAL BY JURY IN ANY LITIGATION RELATING TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT.
10.10 Severability. In case any one or more of the provisions contained
in this Agreement or the other Loan Documents should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
10.11 Counterparts. This Agreement may be executed by the parties
hereto on any number of separate counterparts and all such counterparts taken
together shall constitute one and the same instrument.
10.12 Governing Law; No Third Party Rights. This Agreement and the
other Loan Documents and the rights and obligations of the parties hereunder and
thereunder shall be governed by and
44
construed and interpreted in accordance with the law of the State of New Jersey.
This Agreement is solely for the benefit of the parties hereto and their
respective successors and assigns, and no other person shall have any right,
benefit, priority or interest in, under or because of the existence of, this
Agreement.
10.13 Cross Default/Cross Collateral. All other agreements between
Borrowers, or either of them, and Bank and/or any of its Affiliates or
subsidiaries are hereby amended so that an Event of Default under this Agreement
is a default under all other agreements and a default under any one of those
agreements is an Event of Default under this Agreement. All such agreements are
further amended so that the Collateral under this Agreement secures the
obligations now or hereafter outstanding under all other agreements with Bank
and/or its Affiliates or subsidiaries, and the collateral which serves as
security under any other agreement with Bank and/or its Affiliates or
subsidiaries secures the Obligations under this Agreement.
45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ATTEST: SEL-LEB MARKETING, INC.
By: /s/ Xxxx Xxxxxx By: /s/ Xxx Xxxxxx
XXXX XXXXXX, XXX XXXXXX, Executive Vice
Assistant Secretary President of Finance
ATTEST: ALES SIGNATURE LTD.
By: /s/ Xxxx Xxxxxx By: /s/ Xxx Xxxxxx
XXXX XXXXXX, Secretary XXX XXXXXX, Chief Financial
Officer
SUMMIT BANK
By: /s/ Xxxxxxx Xxxx
XXXXXXX XXXX, Vice President
46
