Exhibit 10(ad)
Line of Credit Note dated March 11, 1999
Exhibit 10 (ad)
Line of Credit Note dated March 11, 1999
LOAN AGREEMENT
First Union National Bank
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
(Hereinafter referred to as the "Bank")
Lannett Company, Inc.
0000 Xxxxx Xxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
(Individually and collectively "Borrower")
This loan Agreement ("Agreement") is entered into March 11, 1999, by and
between Bank and Borrower, a Corporation (For profit) organized under the
laws of Delaware.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "Loan") evidenced by one or more promissory notes (whether
one or more, the "Note") as follows:
Line of Credit - in the principal amount of $2,000,000.00 which is evidenced
by the Promissory Note dated March 11, 1999 ("Line of Credit Note"), under
which Borrower may borrow, repay, and reborrow, from time to time, so long as
the total indebtedness outstanding at any one time does not exceed the
principal amount minus the sum of (I) the amount available to be drawn plus
(ii) the amount of unreimbursed drawings under all letters of credit issued
by Bank for the account of Borrower. The Loan proceeds are to be used by
Borrower solely for working capital. Bank's obligation to advance or
readvance under the Line of Credit Note shall terminate if Borrower is in
Default under the Line of Credit Note.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As
used in this Agreement as to Borrower, "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock
is owned directly or indirectly by Borrower. As to Borrower, "Affiliate"
shall have the meaning as defined in 11 U.S.C. ss. 101, except that the term
"debtor" therein shall be substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower
upon the terms and subject to the conditions set forth herein, and Bank and
Borrower agree as follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: Accurate Information. All
information now and hereafter furnished to Bank is and will be true, correct
and complete. Any such information
relating to Borrower's financial condition will accurately reflect Borrower's
financial condition as of the date(s) thereof, (including all contingent
liabilities of every type), and Borrower further represents that its
financial condition has not changed materially or adversely since the date(s)
of such documents. Authorization; Non-Contravention. The execution, delivery
and performance by Borrower and any guarantor, as applicable, of this
Agreement and other Loan Documents to which it is a party are within its
power, have been duly authorized by all necessary action taken by the duly
authorized officers of Borrower and any guarantors and, if necessary, by
making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (I) contravene, or constitute (with or without the
giving of notice or lapse of time or both) a violation of any provision of
applicable law, a violations of the organizational documents of Borrower or
any guarantor, or a default under any agreement, judgment, injunction, order,
decree or other instrument binding upon or affecting Borrower or any
guarantor, (ii) result in the creation or imposition of any lien (other than
the lien(s) created by the Loan Documents) on any of Borrower's or
guarantor's assets, or (iii) give cause for the acceleration of any
obligations of Borrower or any guarantor to any other creditor. Asset
Ownership. Borrower has good and marketable title to all of the properties
and assets reflected on the balance sheets and financial statements supplied
Bank by Borrower, and all such properties and assets are free and clear of
mortgages, security deeds, pledges, liens, charges, and all other
encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under
any Permitted Liens and no claims or interests adverse to Borrower's present
rights in its properties and assets have arisen. Discharge of Liens and
Taxes. Borrower has duly filed, paid and/or discharged all taxes or other
claims which may become a lien on any of its property or assets, except to
the extent that such items are being appropriately contested in good faith
and an adequate reserve for the payment thereof is being maintained.
Sufficiency of Capital. Borrower is not, and after consummation of this
Agreement and after giving effect to all indebtedness incurred and liens
created by Borrower in connection with the Loan, will not be, insolvent
within the meaning of 11 U.S.C. ss. 101(32). Compliance with Laws. Borrower
is in compliance in all respects with all federal, state and local laws,
rules and regulations applicable to its properties, operations, business, and
finances, including, without limitation, any federal or state laws relating
to liquor (including 18 U.S.C. ss. 3617, et seq.) or narcotics (including 21
U.S.C. ss. 801, et seq.) and/or any commercial crimes; all applicable
federal, state and local laws and regulations intended to protect the
environment; and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), if applicable. Organization and Authority. Each corporate
or limited liability company Borrower and any guarantor, as applicable, is
duly created, validly existing and in good standing under the laws of the
state of its organization, and has all powers, governmental licenses,
authorizations, consents and approvals required to operate its business as
now conducted. Each corporate or limited liability company Borrower and any
guarantor, if any, is duly qualified, licensed and in good standing in each
jurisdiction where qualification or licensing is required by the nature of
its business or the character and location of its property, business or
customers, and in which the failure to so qualify or be licensed, as the case
may be, in the aggregate, could have a material adverse effect on the
business, financial position, results of operations, properties or prospects
of Borrower or any such guarantor. No Litigation. There are no pending or
threatened suits, claims or demands against Borrower or any guarantor that
have not been disclosed to Bank by Borrower in writing. ERISA. Each employee
pension benefit plan, as defined in ERISA,
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maintained by Borrower meets, as of the date hereof, the minimum funding
standards of ERISA and all applicable regulations thereto and requirements
thereof, and of the Internal Revenue Code of 1954, as amended. No "Prohibited
Transaction" or "Reportable Event" (as both terms are defined by ERISA) has
occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement
and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower will: Business Continuity. Conduct its
business in substantially the same manner and locations as such business is
now and has previously been conducted. Maintain Properties. Maintain,
preserve and keep its property in good repair, working order and condition,
making all needed replacements, additions and improvements thereto, to the
extent allowed by this Agreement. Access to Books & Records. Allow Bank, or
its agents, during normal business hours, access to the books, records and
such other documents of Borrower as Bank shall reasonably require, and allow
Bank to make copies thereof at Bank's expense. Insurance. Maintain adequate
insurance coverage with respect to its properties and business against loss
or damage of the kinds and in the amounts customarily insured against by
companies of established reputation engaged in the same or similar businesses
including, without limitation, commercial general liability insurance,
workers compensation insurance, and business interruption insurance; all
acquired in such amounts and from such companies as Bank may reasonably
require. Notice of Default and Other Notices. (a) Notice of Default. Furnish
to Bank immediately upon becoming aware of the existence of any condition or
event which constitutes a Default (as defined in the Loan Documents) or any
event which, upon the giving of notice or lapse of time or both, may become a
Default, written notice specifying the nature and period of existence thereof
and the action which Borrower is taking or proposes to take with respect
thereto. (b) Other Notices. Promptly notify Bank in writing of (I) any
material adverse change in its financial condition or its business; (ii) any
default under any material agreement, contract or other instrument to which
it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any indebtedness owing by Borrower; (iii) any
material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental
agency or unit affecting Borrower; and (v) at least 30 days prior thereto,
any change in Borrower's name or address as shown above, and/or any change in
Borrower's structure. Compliance with Other Agreements. Comply with all terms
and conditions contained in this Agreement, and any other Loan Documents, and
swap agreements, if applicable, as defined in the Note. Payment of Debts. Pay
and discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts,
taxes, and liabilities of whatever nature or amount, except those which
Borrower in good faith disputes. Reports and Proxies. Deliver to Bank,
promptly, a copy of all financial statements, reports, notices, and proxy
statements, sent by Borrower to stockholders, and all regular or periodic
reports required to be filed by Borrower with any governmental agency or
authority. Other Financial Information. Deliver promptly such other
information regarding the operation, business affairs, and financial
condition of Borrower which Bank may reasonably request. Non-Default
Certificate From Borrower. Deliver to Bank, with the Financial Statements
required herein, a certificate signed by Borrower, if Borrower is an
individual, or by a principal financial officer of Borrower warranting that
no "Default" as specified in the Loan Documents nor any event which, upon the
giving of notice or lapse of time or both, would constitute such a Default,
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has occurred. Estoppel Certificate. Furnish, within 15 days after request by
Bank, a written statement duly acknowledged of the amount due under the Loan
and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: Cross Default. Default in payment or
performance of any obligation under any other loans, contracts or agreements
of Borrower, any Subsidiary or Affiliate of Borrower ("Affiliate" shall have
the meaning as defined in 11 U.S.C. ss. 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein; "Subsidiary"
shall mean any corporation of which more than 50% of the issued and
outstanding voting stock is owned directly or indirectly by Borrower), any
general partner of or the holder(s) of the majority ownership interests of
Borrower with Bank or its affiliates. Default on Other Contracts or
Obligations. Default on any material contract with or obligation when due to
a third party or default in the performance of any obligation to a third
party incurred for money borrowed. Judgment Entered. Permit the entry of any
monetary judgment or the assessment against, the filing of any tax lien
against, or the issuance of any writ of garnishment or attachment against any
property of or debts due Borrower. Government Intervention. Permit the
assertion or making of any seizure, vesting or intervention by or under
authority of any government by which the management of Borrower or any
guarantor is displaced of its authority in the conduct of its respective
business or such business is curtailed or materially impaired. Prepayment of
Other Debt. Retire any long-term debt entered into prior to the date of this
Agreement at a date in advance of its legal obligation to do so. Retire or
Repurchase Capital Stock. Retire or otherwise acquire any of its capital
stock. Change of Control. Make or suffer a transfer of controlling interest
of Xxxxxxx Xxxxxx or any change in the officers or Board of Directors. Change
in Fiscal Year. Borrower or guarantor shall not change its fiscal year
without the consent of Bank. Guarantees. Guarantee or otherwise become
responsible for obligations of any other person or persons, other than the
endorsement of checks and drafts for collection in the ordinary course of
business. Encumbrances. Create, assume, or permit to exist any mortgage,
security deed, deed of trust, pledge, lien, charge or other encumbrance on
any of its assets, whether now owned or hereafter acquired, other than: (I)
security interests required by the Loan Documents; (ii) liens for taxes
contested in good faith; (iii) liens accruing by law for employee benefits;
or (iv) Permitted Liens.
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the
date hereof until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing: Current Ratio. Borrower shall, at all times,
maintain a Current Ratio of not less than 1.50 to 1.00, tested quarterly.
"Current Ratio" shall mean the ratio of current assets divided by current
liabilities. Effective Net Worth. Borrower shall maintain an Effective Net
Worth of not less than four million dollars ($4,000,000.00) at fiscal year
end 6/30/99 and not less than five million seven hundred fifty thousand
dollars ($5,750,000.00) at fiscal year end 6/30/00, tested annually.
"Effective Net Worth" shall mean total assets minus total liabilities. For
purposes of this computation, the aggregate amount of any intangible assets
of Borrower including without limitation, goodwill, franchises, licenses,
patents, trademarks, trade names, copyrights, service marks, and brand names,
shall be subtracted from total assets, and total liabilities shall exclude
debt subordinated to First Union. Senior Debt to Effective Net Worth Ratio.
Borrower shall
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maintain a ratio of Senior Debt divided by Effective Net Worth of not more
than 2.00 to 1.00 at fiscal year end 6/30/99 and fiscal year end 6/30/00,
tested annually. "Senior Debt" shall mean the sum of total liabilities,
including capitalized leases and all reserves for deferred taxes and other
deferred sums appearing on the liabilities side of a balance sheet, in
accordance with generally accepted accounting principles applied on a
consistent basis, excluding debt subordinated to Bank. "Effective Net Worth"
shall mean total assets minus total liabilities. For purposes of this
computation, the aggregate amount of any intangible assets of Borrower
including without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and brand names, shall be
subtracted from total assets, and total liabilities shall exclude debt
subordinated to First Union. Debt Service Coverage Ratio. Borrower shall at
all times maintain a Debt Service Coverage Ratio of 1.50 to 1.00, to be
tested quarterly on a rolling four quarter basis. "Debt Service Coverage
Ratio" shall mean earnings before interest, taxes, depreciation and
amortization divided by the sum of interest expense and current maturities of
long term debt, including capitalized leases. Deposit Relationship. Borrower
shall maintain its primary depository account with Bank.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 120 days
after the close of each fiscal year, audited financial statements reflecting
its operations during such fiscal year, including, without limitation, a
balance sheet, profit and loss statement and statement of cash flows, with
supporting schedules; all on a consolidated and consolidating basis and in
reasonable detail, prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year.
All such statements shall be examined by an independent certified public
accountant acceptable to Bank. The opinion of such independent certified
public accountant shall not be acceptable to Bank if qualified due to any
limitations in scope imposed by Borrower or its Subsidiaries, if any. Any
other qualification of the opinion by the accountant shall render the
acceptability of the financial statements subject to Bank's approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank copies of
Borrower's unaudited reports on Form 10Q as filed with the Securities and
Exchange Commission, as soon as available and in any event within 45 days
after the close of the first three fiscal quarters of Borrower; all in
reasonable detail and prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the
preceding year. Such statements shall be certified as to their correctness by
a principal financial officer of Borrower and in each case, if audited
statements are required, subject to audit and year-end adjustments.
TAX RETURNS. Borrower shall deliver to Bank, within 30 days of filing,
complete copies of federal and state tax returns, as applicable, each of
which shall be signed and certified by Borrower to be true and complete
copies of such returns. In the event an extension is filed, Borrower shall
deliver a copy of the extension within 30 days of filing.
ACCOUNTS RECEIVABLE AGING. Borrower shall, from time to time hereafter but
not less than monthly, deliver to First Union within 10 days of the end of
each such period, a detailed aging of accounts by total, a summary aging of
accounts by customer and customer address, and a reconciliation statement.
Said aging should also include the original date of each invoice.
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ACCOUNTS PAYABLE AGING. Borrower shall, from time to time hereafter but not
less than monthly, deliver to First Union within 10 days of the end of each
such period, a detailed aging of payables by total, a summary aging of
payables by vendor and vendor address, and a reconciliation statement. Said
aging should also include the original date of each invoice.
INVENTORY REPORTS. Borrower shall, from time to time hereafter but not less
than monthly, deliver to First Union within 10 days of the end of each such
period, an inventory report, with summary by category, showing individual
values for raw materials, work-in-progress, finished products and any
inventory obsolescence.
ANNUAL BUDGET. Borrower shall deliver to Bank, no later than 60 days after
the close of each fiscal year, Borrower's annual budget projections of
revenues and expenses for the next fiscal year.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such
information as Bank may reasonably request from time to time, including
without limitation, financial statements and information pertaining to
Borrower's financial condition. Such information shall be true, complete and
accurate.
BORROWING BASE. As to the Line of Credit Note in the principal amount of
$2,000,000, the following provisions shall apply:
Borrowing Limitation. The maximum principal amount that Borrower may borrow
shall be the lesser of the principal amount stated in the Line of Credit Note
minus the sum of (I) the amount available to be drawn plus (ii) the amount of
unreimbursed drawing under all letters of credit issued by Bank for the
account of Borrower or the maximum principal amount allowed under this
addendum (the "Maximum Principal Amount").
The Maximum Principal Amount shall be an amount equal to 80% of the net
amount of Eligible Accounts, plus 50% of an amount equal to its value of
Eligible Inventory (the inventory amount not to exceed $500,000.00), less the
amount of any Reserve required by the Bank.
"Eligible Account" refers to an account receivable not more than 90 days from
the date of the original invoice (except for certain Approved Account
Debtors, as described below) that arises in the ordinary course of Borrower's
business and meets the following eligibility requirements: (a) the sale of
goods or services reflected in such account is final and such goods and
services have been delivered or provided and accepted by the account debtor
and payment for such is owing; (b) the invoices comprising an account are not
subject to any claims, returns or disputes of any kind; (c) the account
debtor is not insolvent; (d) the account debtor has its principal place of
business in the United States; (e) the account debtor is not an affiliate of
Borrower and is not a supplier to Borrower and the account is not otherwise
exposed to risk of set-off; (f) not more than thirty percent of the original
invoices owing Borrower by the account debtor are more than ninety days from
the date of the original invoice. Notwithstanding the foregoing, accounts
receivable of Approved Account Debtors of Borrower may be aged more than 90
days but not more than 120 days from the date of the original invoice, so
long as said accounts receivable
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meet all of the other eligibility requirements listed above. "Approved
Account Debtors" are such account debtors as Bank may approve in writing from
time to time. As of the date of this Agreement, Bank approves Novopharm USA,
Inc. and Mova Pharmaceutical, Inc. as Approved Account Debtors. Bank reserves
the right to add and remove any account debtor from the list of Approved
Account Debtors by written notice to Borrower.
"Eligible Inventory" means inventory of raw material and finished goods in
Borrower's possession that is held for use or sale in the ordinary course of
Borrower's business and is not unmerchantable or obsolete and is subject to a
first priority perfected security interest in favor of Bank. The value of the
inventory will be determined by Bank and will be valued at the lower of cost
or market on a first-in, first-out basis.
"Reserves" may be required at any time and from time to time by Bank without
prior notice to Borrower in amounts deemed by Bank to be adequate to reserve
against outstanding letter of credit, outstanding bankers acceptances,
Borrower's obligation to Bank or its affiliates or any guaranties or other
contingent debt of Borrower.
Required Reports. Borrower shall certify to Bank by the tenth day of each
month, the amount of Eligible accounts and the value of Eligible Inventory as
of the first day of each month, on forms required by Bank together with all
detail and supporting documents requested by Bank. Bank may at any time and
from time to time, during Bank's normal business hours, enter upon any
business premises of Borrower and audit Borrower's accounts and inventory.
Bank's determination of the amount of Eligible Accounts and the value of
Eligible Inventory shall at all times be indisputable and deemed correct. The
Borrower, at all times, shall cooperate with Bank without limitation by
providing Bank information and access to Borrower's premises and business
records and shall be courteous to Bank's agents.
Continuing Representations. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note (the "Borrowing Limit"). Borrower agrees to pay any advances in excess
of the Borrowing Limit immediately upon receipt by Borrower of written notice
that the Borrowing Limit has been exceeded.
CONDITIONS PRECEDENT. The obligation of Bank to make the Loan and any
advances pursuant to this Agreement are subject to the following conditions
precedent: Additional Documents. Receipt by Bank of such additional
supporting documents as Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written
above, have caused this Agreement to be executed under seal.
Lannett Company, Inc.
By: Xxxxxxx Xxxxxx, Chairman of the Board
First Union National Bank
By: Xxxx Xxxxxxxx, Vice President
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