1
Exhibit 10.136
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
ECOGEN INC.
as Borrower
Dated: August 20, 1998
2
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS.................................................................................... 1
SECTION 2. CREDIT FACILITIES.............................................................................. 8
2.1 Revolving Loans................................................................................ 8
2.2 Letter of Credit Accommodations................................................................ 9
2.3 Availability Reserves..........................................................................11
SECTION 3. INTEREST AND FEES..............................................................................11
3.1 Interest.......................................................................................11
3.2 Closing Fee....................................................................................12
3.3 Servicing Fee..................................................................................12
3.4 Unused Line Fee................................................................................12
3.5 Facility Fee...................................................................................12
SECTION 4. CONDITIONS PRECEDENT...........................................................................12
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations......................12
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations..........................14
SECTION 5. GRANT OF SECURITY INTEREST.....................................................................14
SECTION 6. COLLECTION AND ADMINISTRATION..................................................................15
6.1 Borrower's Loan Account........................................................................15
6.2 Statements.....................................................................................15
6.3 Collection of Accounts.........................................................................15
6.4 Payments.......................................................................................16
6.5 Authorization to Make Loans....................................................................17
6.6 Use of Proceeds................................................................................17
SECTION 7. COLLATERAL REPORTING AND COVENANTS.............................................................17
7.1 Collateral Reporting...........................................................................17
7.2 Accounts Covenants.............................................................................17
7.3 Inventory Covenants............................................................................19
7.4 Equipment Covenants............................................................................19
7.5 Power of Attorney..............................................................................20
7.6 Right to Cure..................................................................................20
7.7 Access to Premises.............................................................................20
3
SECTION 8. REPRESENTATIONS AND WARRANTIES.................................................................21
8.1 Corporate Existence, Power and Authority; Subsidiaries.........................................21
8.2 Financial Statements; No Material Adverse Change...............................................21
8.3 Chief Executive Office; Collateral Locations...................................................21
8.4 Priority of Liens; Title to Properties.........................................................22
8.5 Tax Returns....................................................................................22
8.6 Litigation.....................................................................................22
8.7 Compliance with Other Agreements and Applicable Laws...........................................22
8.8 Bank Accounts..................................................................................22
8.9 Employee Benefits..............................................................................22
8.10 Environmental Compliance.......................................................................23
8.11 Accuracy and Completeness of Information.......................................................24
8.12 Survival of Warranties; Cumulative.............................................................24
9.1 Maintenance of Existence.......................................................................24
9.2 New Collateral Locations.......................................................................25
9.3 Compliance with Laws, Regulations, Etc.........................................................25
9.4 Payment of Taxes and Claims....................................................................26
9.5 Insurance......................................................................................26
9.6 Financial Statements and Other Information.....................................................27
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc........................................27
9.8 Encumbrances...................................................................................28
9.9 Indebtedness...................................................................................28
9.10 Loans, Investments, Guarantees, Etc............................................................29
9.11 Dividends and Redemptions......................................................................29
9.12 Transactions with Affiliates...................................................................30
9.13 Additional Bank Accounts.......................................................................30
9.14 Working Capital................................................................................30
9.15 Adjusted Net Worth.............................................................................30
9.16 Compliance with ERISA..........................................................................30
9.17 Costs and Expenses.............................................................................31
9.18 Further Assurances.............................................................................31
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.................................................................32
ii
4
10.1 Events of Default...............................................................................32
10.2 Remedies........................................................................................33
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver...........................34
11.2 Waiver of Notices...............................................................................35
11.3 Amendments and Waivers..........................................................................35
11.4 Waiver of Counterclaims.........................................................................35
11.5 Indemnification.................................................................................35
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS................................................................36
12.1 Term............................................................................................36
12.2 Notices.........................................................................................37
12.3 Partial Invalidity..............................................................................37
12.4 Successors......................................................................................37
12.5 Entire Agreement................................................................................37
iii
5
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
Schedule 8.10 Environmental Matters
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
Schedule 9.12 Transactions with Affiliates
iv
6
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated August 20, 1998 is entered into
by and between CONGRESS FINANCIAL CORPORATION, a Delaware corporation
("Lender"),and ECOGEN INC., a Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code as in effect in the State of New York shall have the
meanings given therein unless otherwise defined in this Agreement. All
references to the plural herein shall also mean the singular and to the singular
shall also mean the plural unless the context otherwise requires. All references
to Borrower and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective successors
and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. The word "including" when used in this
Agreement shall mean "including, without limitation". An Event of Default shall
exist or continue or be continuing until such Event of Default is waived in
accordance with Section 11.3 or is cured in a manner satisfactory to Lender. Any
accounting term used herein unless otherwise defined in this Agreement shall
have the meanings customarily given to such term in accordance with GAAP. For
purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on an average cost basis, after deducting from such
book values all appropriate reserves in accordance with
-1-
7
GAAP (including all reserves for doubtful receivables, obsolescence,
depreciation and amortization) and (ii) the aggregate amount of the indebtedness
and other liabilities of such Person and its subsidiaries (including tax and
other proper accruals) plus (b) indebtedness of such Person and its subsidiaries
which is subordinated in right of payment to the full and final payment of all
of the Obligations on terms and conditions reasonably acceptable to Lender.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in accordance
with its credit judgment exercised in good faith reducing the amount of
Revolving Loans and Letter of Credit Accommodations which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may adversely affect either (i) the Collateral or
any other property which is security for the Obligations or its value, (ii) the
assets, business or prospects of Borrower or any Obligor or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect outstanding
Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in
respect of any state of facts which Lender determines in good faith constitutes
an Event of Default or may, with notice or passage of time or both, constitute
an Event of Default.
1.4 "Blocked Account Event" shall mean the occurrence of any of the
following events: (a) an Event of Default, or (b) Borrower has Loans outstanding
at any one time in excess of $2,000,000, or (c) the aggregate amount of Excess
Availability plus any of Borrower's cash on hand shall equal less than
$1,500,000.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Change of Control" shall mean (a) any merger or consolidation of
Borrower with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of
Borrower in one transaction or a series of related transactions, if, immediately
after giving effect to such transaction, any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not applicable), is or
becomes the "beneficial owner" (as such term is used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable), directly or
indirectly, of more than 35% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee or surviving entity, (ii) any "person" or "group"
is or becomes the "beneficial owner", directly or indirectly, of more than 35%
of the total voting power in the aggregate of all classes of capital stock of
Borrower then outstanding normally entitled to vote in elections of directors,
or (iii) during any period of 12 consecutive months after the date hereof,
individuals who at the beginning of any such 12-month period constituted the
board of directors of Borrower (together, in each case, with any new directors
whose election to such board or whose nomination for election by the
shareholders of Borrower was approved by a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the board of directors of Borrower
then in office.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.8 "Collateral" shall have the meaning set forth in Section 5 hereof.
2
8
1.9 "Convertible Note" shall mean Borrower's 8% Convertible Note due
October 31, 2002.
1.10 "Cotton Market Products" shall mean Condor XL bioinsecticide, each
product that replaces or constitutes a new version of Condor XL bioinsecticide,
and any other product sold by Borrower to the cotton growing market as
complementary to Condor XL and such replacements or new versions.
1.11 "Eligible Accounts" shall mean Accounts created by Borrower which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after the
date of the original invoice for them (or one-hundred twenty (120) days in the
case of Accounts representing sales to the cotton growing market of Borrower's
Cotton Market Products) or more than sixty (60) days after the due date
therefor;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts, other than Accounts arising from Cotton Market
Products, do not arise from sales on consignment, guaranteed sale, sale and
return, sale on approval, or other terms under which payment by the account
debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress xxxxxxxx, license
royalties, research and development contract payments, xxxx and hold invoices or
retainage invoices, except as to xxxx and hold invoices, if Lender shall have
received an agreement in writing from the account debtor, in form and substance
satisfactory to Lender, confirming the unconditional obligation of the account
debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted
a counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts
(but the portion of the Accounts of such account debtor in excess of the amount
at any time and from time to time owed by Borrower to such account debtor or
claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or delay payment
thereunder or reduce the amount
3
9
payable (but the portion of the Accounts in excess of the amount of any such
reduction that is capable of being quantified to Lender's satisfaction may be
deemed Eligible Accounts);
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than thirty-five (35%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts
ineligible pursuant to subsection (b) of this Section which constitute more than
fifty (50%) percent of the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time in accordance with its
credit judgment exercised in good faith out of Borrower has been notified (but
the portion of the Accounts not in excess of such credit limit may be deemed
Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender in accordance with its credit
judgment exercised in good faith.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in accordance with its credit judgment exercised in good
faith. Any Accounts which are not Eligible Accounts shall nevertheless be part
of the Collateral.
1.12 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrower which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) raw materials (including, without limitation,
technical powders) or work-in-process; (b) components which are not part of
finished goods; (c) spare parts for equipment; (d) packaging and shipping
materials; (e) supplies used or consumed in Borrower's business; (f) Inventory
at premises other than those owned and controlled by Borrower, except if Lender
shall have received an agreement in writing from the person in possession of
such Inventory and/or the owner or operator of such premises in form and
substance satisfactory to Lender acknowledging Lender's first priority security
interest in the Inventory, waiving security interests and claims by such person
against the Inventory and permitting Lender access to, and the right to remain
on,
4
10
the premises so as to exercise Lender's rights and remedies and otherwise deal
with the Collateral; (g) Inventory subject to a security interest or lien in
favor of any person other than Lender except those permitted in this Agreement;
(h) xxxx and hold goods; (i) unserviceable, obsolete or slow moving Inventory;
(j) Inventory which is not subject to the first priority, valid and perfected
security interest of Lender; (k) returned, damaged and/or defective Inventory,
except for Cotton Market Products, in unopened, original packaging, returned by
customers in the cotton growing market which is in saleable condition; and (l)
Inventory purchased or sold on consignment. General criteria for Eligible
Inventory may be established and revised from time to time by Lender in
accordance with its credit judgment exercised in good faith. Any Inventory which
is not Eligible Inventory shall nevertheless be part of the Collateral.
1.13 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority: (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirement
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.14 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.15 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.16 "ERISA Affiliate" shall mean any person required to be aggregated with
Borrower or any of its Subsidiaries under Section 414(b), 414(c) 414(m) or
414(o) of the Code.
1.17 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.18 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas multiplied by the Net Amount of Eligible Accounts and the Value
of Eligible Inventory, as determined by Lender, and subject to the sublimits and
Availability Reserves in effect at such time and (ii) the Maximum Credit, minus
(b) the sum of (i) the amount of all
5
11
then outstanding and unpaid Obligations, plus (ii) the aggregate amount of all
trade payable of Borrower which are more than sixty (60) days past due as of
such time plus (iii) the amount of checks issued by Borrower to pay trade
payables, but not yet sent and the book overdraft of Borrower.
1.19 "Existing Lender" shall mean United Equities (Commodities) Company.
1.20 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.21 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.14 and 9.15 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.22 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous contituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials, or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.23 "Inactive Subsidiaries" shall mean Ecogen-Jerusalem Inc., Ecogen
Israel International Inc., Ecogen Biotechnologies Israel Inc., and Ecogen
BioGermany Gmbh.
1.24 "Information Certificate" shall mean, collectively, the Information
Certificates of Borrower and its subsidiaries constituting Exhibit A hereto
containing material information with respect to Borrower and its subsidiaries
and their business and assets provided by or on behalf of Borrower to Lender in
connection with the preparation of this Agreement and the other Financing
Agreements and the financing arrangements provided for herein.
1.25 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.26 "KA Stock Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of June 5, 1998, between the Borrower and KA
Investments LDC.
1.27 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
6
12
1.28 "Loans" shall mean the Revolving Loans.
1.29 "Material Adverse Effect" shall mean (a) a material adverse effect on
the assets, business, properties, condition (financial or otherwise), prospects,
or results of operations of Borrower and its subsidiaries taken as a whole, (b)
a material impairment of the ability of Borrower and its subsidiaries taken as a
whole, to perform any of its obligations under any Financing Agreement, or (c)
an impairment of the validity or enforceability of, or the material rights,
remedies, or benefits available to Lender under, any Financing Agreement.
1.30 "Maximum Credit" shall mean the amount of $5,000,000.
1.31 "Monsanto Royalty" shall mean all Gene Success Fees and
Commercialization Success Fees payable at any time to Borrower or any of its
subsidiaries by Monsanto Company pursuant to the Technology Assignment Agreement
dated as of January 24, 1996, as amended, by and among Monsanto Company,
Borrower, and Ecogen-Bio, Inc.
1.32 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.33 "Obligations" shall mean any and all Revolving Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise, each
as arising under this Agreement or any Financing Agreement, whether now existing
or hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including the payment of interest and other amounts which would accrue
and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.34 "Obligor" shall mean any guarantor of, or other person liable on or
with respect to, the Obligations or any person who is the owner of any property
which is security for the Obligations, other than Borrower.
1.35 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.36 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.37 "Permitted Activity" shall mean any transfer, transaction or activity
between or among one or more Obligors, or between or among Borrower and one or
more Obligors (i) pursuant to or in connection with any agreement or arrangement
in effect on the date hereof, (ii) consistent with past practice or conduct of
Borrower or any Obligor, including, but not limited to Borrower's cash
management procedures or the research, development, holding, license, transfer
or commercialization of,
7
13
technology, or (iii) to which Lender has consented, such consent not to be
unreasonably withheld or delayed.
1.38 "Preferred Stock" means, collectively, the Borrower's Series 1998-A
Convertible Preferred Stock, Series 1998-B Convertible Preferred Stock, and
Series 0000-X Xxxxxxxxxxx Preferred Stock.
1.39 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.40 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.41 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.42 "United Equities Stock Purchase Agreement" means the Convertible
Preferred Stock Purchase Agreement, dated as of August 20, 1998, between the
Borrower and United Equities (Commodities) Company.
1.43 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on an average cost basis in
accordance with GAAP or (b) market value.
1.44 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
subsidiaries (as determined in accordance with GAAP), calculating the book value
of inventory for this purpose on an average cost basis, and (b) all current
liabilities of such Person and its subsidiaries (as determined in accordance
with GAAP), provided, that, as to Borrower, for purposes of Section 9.14, the
liabilities of Borrower and its subsidiaries to Lender under this Agreement
shall not be considered current liabilities (whether or not classified as
current liabilities in accordance with GAAP).
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) the sum of: (A) eighty-five (85%) percent of the Net
Amount of Eligible Accounts (other than Eligible Accounts representing
sales of Cotton Market Products to account debtors in the cotton
growing market that are subject to right of return ) and (B) with
respect to Eligible Accounts representing sales of Cotton Market
Products to account debtors in the cotton
8
14
growing market that are subject to right of return, fifty (50%) percent
of the Value of such Cotton Market Products, to the extent that they
would constitute Eligible Inventory if returned to Borrower, plus
(ii) the lesser of: (A) the lesser of fifty (50%) percent of
the Value of Eligible Inventory or eighty percent (80%) of the orderly
liquidation value (as determined by Lender from appraisals performed by
appraisers acceptable to Lender) of Eligible Inventory or (B)
$2,750,000 during January February, March, and December of each year
during the term of this Agreement and $2,250,000 at all other times
less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in accordance
with its credit judgment exercised in good faith that: (A) the dilution with
respect to the Accounts for any period (based on the ratio of (1) the aggregate
amount of reductions in Accounts other than as a result of payments in cash to
(2) the aggregate amount of total sales) has increased in any material respect
or may be reasonably anticipated to increase in any material respect above
historical levels, or (B) the general creditworthiness of account debtors has
declined or (ii) reduce the lending formula(s) with respect to Eligible
Inventory to the extent that Lender determines in accordance with its
credit judgment exercised in good faith that: (A) the number of days of the
turnover of the Inventory for any period has changed in any material respect or
(B) the liquidation value of the Eligible Inventory, or any category thereof,
has decreased, or (C) the nature and quality of the Inventory has deteriorated.
In determining whether to reduce the lending formula(s), Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit. In the event that the outstanding amount of any component of
the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the
Maximum Credit, as applicable, such event shall not limit, waive or otherwise
affect any rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on Revolving Loans
based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may treat
the then undrawn amounts of outstanding Letter of Credit Accommodations for the
purpose of purchasing Eligible Inventory as Revolving Loans to the extent Lender
is in effect basing the issuance of the Letter of Credit Accommodations on the
Value of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be attributed first to any
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending formulas
subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein, at
the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of
9
15
Borrower containing terms and conditions acceptable to Lender and the issuer
thereof. Any payments made by Lender to any issuer thereof and/or related
parties in connection with the Letter of Credit Accommodations shall constitute
additional Revolving Loans to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to two (2%) percent per
annum on the daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month, except that Borrower shall pay to Lender
such letter of credit fee, at Lender's option, without notice, at a rate equal
to four (4%) percent per annum on such daily outstanding balance for: (i) the
period from and after the date of termination or non-renewal hereof until Lender
has received full and final payment of all Obligations (notwithstanding entry of
a judgment against Borrower) and (ii) the period from and after the date of the
occurrence of an Event of Default for so long as such Event of Default is
continuing as determined by Lender. Such letter of credit fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the
sum of (A) the percentage equal to one hundred (100%) percent minus the then
applicable percentage set forth in Section 2.1(a)(ii)(A) above of the Value of
such Eligible Inventory, plus (B) freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon arrival and
for delivery to one of Borrower's locations for Eligible Inventory within the
United States of America and (ii) if the proposed Letter of Credit Accommodation
is for any other purpose, an amount equal to one hundred (100%) percent of the
face amount thereof and all other commitments and obligations made or incurred
by Lender with respect thereto. Effective on the issuance of each Letter of
Credit Accommodation, an Availability Reserve shall be established in the
applicable amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed
$1,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation; provided that Borrower shall not be required to indemnify
Lender and hold Lender harmless for losses, claims, damages, liabilities, costs
and expenses determined by a final and non-appealable judgment or court order
binding on Lender to be directly attributable to Lender's gross negligence or
willful misconduct. Borrower assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts
10
16
or acceptances thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation (other than acts, waivers,
errors, delays, or omissions determined by a final and non-appealable judgment
or court order binding on Lender to have been caused directly by Lender's gross
negligence or willful misconduct. The provisions of this Section 2.2(e) shall
survive the payment of Obligations and the termination or non-renewal of this
Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Availability Reserves. All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations (which exclude the undrawn amount of
the Letter of Credit Accommodations) at the rate of one and one-quarter (1-1/4%)
percent per annum in excess of the Prime Rate, provided that, at Lender's
option, without notice, Borrower shall pay to Lender interest at the rate of
three and one-quarter (3-1/4%) percent per annum in excess of the Prime Rate:
(i) on the non-contingent Obligations for (A) the period from and after the date
of termination or non-renewal hereof until such time as Lender has received full
and final payment of all such Obligations (notwithstanding entry of any judgment
against Borrower), and (B) the period from and after the date of the occurrence
of an Event of Default for so long
11
17
as such Event of Default is continuing and (ii) on the Revolving Loans at any
time outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
(b) Interest shall be payable by Borrower to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced. The increase or decrease shall be based
on the Prime Rate in effect on the last day of the month in which any such
change occurs. All interest accruing hereunder on and after an Event of Default
or termination or non-renewal hereof shall be payable on demand. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in contravention of any such law
or regulation, such part or provision shall be deemed amended to conform
thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the amount
of $50,000, which shall be fully earned as of and payable on the date hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee in
an amount equal to $1,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
fee at a rate equal to one-quarter of one (1/4%) percent per annum calculated
upon the amount by which $5,000,000 exceeds the greater of $1,750,000 or the
average daily principal balance of the outstanding Revolving Loans and Letter of
Credit Accommodations during the immediately preceding month (or part thereof)
while this Agreement is in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be payable on the first day of each
month in arrears.
3.5 Facility Fee. Borrower shall pay Lender monthly a fee at a rate equal
to one and one-quarter (1-1/4%) percent per annum (or three and one-quarter
(3-1/4%) percent per annum under any of the circumstances set forth in the
proviso in Section 3.1(a)) calculated upon the amount by which $1,750,000
exceeds the average daily principal balance of the Revolving Loans and Letter of
Credit Accommodations during the immediately preceding month (or part thereof)
while this Agreement is in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be payable on the first day of each
month in arrears.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements; without limiting the generality of
the foregoing, Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
12
18
reasonably request to evidence and effectuate the termination by the Existing
Lender of its financing arrangements with Borrower and the termination and
release by it of any interest in and to any assets and properties of Borrower
and each Obligor, duly authorized, executed and delivered by it, including, but
not limited to, (i) UCC termination statements for all UCC financing statement
previously filed by the Existing Lender, as secured party and Borrower or any
Obligors, as debtor and (ii) satisfactions and discharges of any mortgages,
deeds of trust or deeds to secure debt by Borrower or any Obligor in favor of
the Existing Lender, in form acceptable for recording in the appropriate
government office;
(b) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower and its subsidiaries taken as a whole since
the date of Lender's latest field examination and no change or event shall have
occurred which would impair the ability of Borrower or any Obligor to perform
its obligations hereunder or under any of the other Financing Agreements to
which it is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(d) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(e) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including acknowledgements by lessors, mortgagees and warehousemen
of Lender's security interests in the Collateral, waivers by such persons of any
security interests, liens or other claims by such persons to the Collateral and
agreements permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Lender may request;
(h) the Excess Availability as determined by Lender, as of the date
hereof, shall be not less than $500,000, after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;
(i) Lender shall have received evidence in form and substance
satisfactory to it that the Convertible Note has been converted into or
exchanged for capital stock of Borrower on terms acceptable to Lender in its
sole discretion;
13
19
(j) Lender shall have received unconditional guaranties of the
Obligations, in form and substance satisfactory to Lender, from each of
Borrower's subsidiaries other than the Inactive Subsidiaries; and
(k) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrower, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto, except for any
representations and warranties which expressly relate only to an earlier date;
and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights for the payment of money (other
than the Monsanto Royalty), general intangibles (including, but not limited to,
customer lists, tax and duty refunds, choses in action and other claims, and
existing and future leasehold interests in equipment, real estate and fixtures,
but, notwithstanding anything to the contrary contained herein, excluding the
Monsanto Royalty, all registered and unregistered patents, trademarks, service
marks, trade names (including, but not limited to common law rights therein),
copyrights and/or copyrightable material , and applications for the foregoing,
trade secrets, processes, drawings, blueprints, and licenses, whether as
licensor or licensee), chattel paper, documents, instruments, securities and
other investment property, letters of credit, bankers' acceptances and
guaranties;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including (a)
rights and remedies under or relating to guaranties, contracts of suretyship,
letters of credit and credit and other insurance related to the Collateral, (b)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (c) goods
14
20
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right to setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender (except with respect to deposits in
the Blocked Accounts remitted directly to Borrower pursuant to an
15
21
unrevoked direction of Lender). Notwithstanding the foregoing until such time as
a Blocked Account Event has occurred, Borrower shall be entitled to receive
directly from the banks where the Blocked Accounts are established the proceeds
of Collateral deposited into such Blocked Accounts. Lender shall promptly
instruct the banks where the Blocked Accounts are established to remit such
deposits directly to Borrower or as otherwise instructed by Borrower until
otherwise instructed by Lender. Upon or at any time after the occurrence and
during the continuance of a Blocked Account Event, Lender shall have the right
to instruct the banks where the Blocked Accounts are established to remit
deposits received in such Blocked Accounts directly to the Payment Account.
(b) For purposes of calculating the amount of the Loans available to
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the business day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next business day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) business day following the date of receipt of immediately available
funds by Lender in the Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
In addition, with respect to all proceeds of Collateral deposited in the Blocked
Accounts, which are not remitted to the Payment Account, Borrower shall pay to
Lender a collection fee on the first day of each month in an amount equal to
interest at the rate then currently being charged by Lender for Revolving Loans
hereunder calculated upon the amounts deposited in or transferred to the Blocked
Accounts during the immediately preceding month. Such collection fee calculated
at such rate shall accrue for the period commencing on the business day on which
such funds so deposited or transferred first become immediately available funds.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrower or for the
account of Borrower (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether or not then
due, in such order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall
16
22
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans and
provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a business day) and the amount of the requested Loan. Requests received after
11:00 a.m. New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following business day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the Loans and Letter of Credit
Accommodations provided by Lender to Borrower hereunder only for: (a) costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements; and (b) working
capital and other general corporate purposes of Borrower and its subsidiaries
not otherwise prohibited by the terms hereof. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security or for the purposes of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security or for any other
purpose which might cause any of the Loans to be considered a "purpose credit"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a regular basis as required
by Lender, a schedule of sales made, credits issued and cash received; (b) on a
monthly basis or more frequently as Lender may request, (i) perpetual inventory
reports, (ii) inventory reports by category and (iii) agings of accounts
payable, (c) upon Lender's request, (i) copies of customer statements and credit
memos, remittance advices and reports, and copies of deposit slips and bank
statements, (ii) copies of shipping and delivery documents, and (iii) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrower; (d) agings of accounts receivable on a monthly basis or
more frequently as Lender may request; (e) on a weekly basis or more frequently
as Lender may request, cash balance reports; and (f) such other reports as to
the Collateral as Lender shall reasonably request from time to time. If any of
Borrower's records or reports of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
17
23
(a) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information known to Borrower
relating to the financial condition of any account debtor and (iii) any event or
circumstance which, to Borrower's knowledge would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Lender's consent, except in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default exists
or has occurred and is continuing, Borrower shall be entitled to settle, adjust
or compromise any claim, offset, counterclaim or dispute with any account
debtor. At any time that an Event of Default exists or has occurred and is
continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any other
information to Lender, Borrower shall promptly report to Lender any return of
Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $50,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments immediately
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed to Lender, (iv) there shall be no
setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, and (v) none of the transactions giving rise
thereto will violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify in accordance with its
customary credit policies the validity, amount or any other matter relating to
any Account or other Collateral, by mail, telephone, facsimile transmission or
otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except (i) instruments evidencing
loans and advances to employees permitted under Section 9.10 and (ii) as Lender
may otherwise agree.
(f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and
18
24
that Lender has a security interest therein and Lender may direct any or all
accounts debtors to make payment of Accounts directly to Lender, (ii) extend the
time of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby discharge or release
the account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request when an Event of Default has occurred and is
continuing, and promptly following such physical inventory shall supply Lender
with a report in the form and with such specificity as may be reasonably
satisfactory to Lender concerning such physical count; (c) Borrower shall not
remove any Inventory from the locations set forth or permitted herein, without
the prior written consent of Lender, except for sales of Inventory in the
ordinary course of Borrower's business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
upon Lender's request, Borrower shall, at its expense, no more than once in any
twelve (12) month period, but at any time or times as Lender may request when an
Event of Default has occurred and is continuing, deliver or cause to be
delivered to Lender written reports or appraisals as to the Inventory in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to rely;
(e) Borrower shall produce, use, store and maintain the Inventory with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all responsibility
and liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (g) Borrower shall not sell Inventory to any
customer on approval, or any other basis which entitles the customer to return
or may obligate Borrower to repurchase such Inventory, except sales of Cotton
Market Products to customers in the cotton growing market; (h) Borrower shall
keep the Inventory in good and marketable condition; and (i) Borrower shall not,
without prior written notice to Lender, acquire or accept any Inventory on
consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrower shall, at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not remove any Equipment
from the locations set forth or permitted herein, except (i) in connection with
sales and other dispositions permitted by Section 9.7, (ii) to the extent
necessary to have any
19
25
Equipment repaired or maintained in the ordinary course of the business of
Borrower, (iii) to move Equipment directly from one location set forth or
permitted herein to another such location, and (iv) for the movement of motor
vehicles used by or for the benefit of Borrower in the ordinary course of
business; (f) except as disclosed in writing to Lender on or prior to the date
hereof, the Equipment is now and shall remain personal property and Borrower
shall not permit any of the Equipment to be or become a part of or affixed to
real property, except real property leased by Borrower under a lease which
entitles Borrower to remove such Equipment; and (g) Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a)
at any time an Event of Default exists or has occurred and is continuing (i)
demand payment on Accounts or other proceeds of Inventory or other Collateral,
(ii) enforce payment of Accounts by legal proceedings or otherwise, (iii)
exercise all of Borrower's rights and remedies to collect any Account or other
Collateral, (iv) sell or assign any Account upon such terms, for such amount and
at such time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any Account,
(vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy
or other similar document against an account debtor, (viii) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender, and open and dispose of all mail addressed to
Borrower, and (ix) do all acts and things which are necessary, in Lender's good
faith determination, to fulfill Borrower's obligations under this Agreement and
the other Financing Agreements and (b) at any time to (i) take control in any
manner of any item of payment or proceeds thereof, (ii) have access to any
lockbox or postal box into which Borrower's mail is deposited, (iii) endorse
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the Lender's account for application to the Obligations, (iv) endorse
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors and (vi) execute in Borrower's
name and file any UCC financing statements or amendments thereto. Borrower
hereby releases Lender and its officers, employees and designees from any
liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or willful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral, other than taxes and encumbrances for claims that Borrower is
contesting in good faith in accordance with the terms of this Agreement, subject
to Lender's right to establish Availability Reserves with respect thereto, and
(c) pay any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add any
amounts so expended to the Obligations and charge Borrower's account therefor,
such amounts to be repayable by Borrower on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of Borrower. Any payment
made or other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an
20
26
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower and
each of its subsidiaries (other than the Inactive Subsidiaries) is a corporation
duly organized and in good standing under the laws of its state of incorporation
and is duly qualified as a foreign corporation and in good standing in all
states or other jurisdictions where the nature and extent of the business
transacted by it or the ownership of assets makes such qualification necessary,
except for those jurisdictions in which the failure to so qualify would not
reasonably be expected to have a Material Adverse Effect. The execution,
delivery and performance of this Agreement, the other Financing Agreements and
the transactions contemplated hereunder and thereunder are all within Borrower's
corporate powers, have been duly authorized and are not in contravention of law
or the terms of Borrower's certificate of incorporation, by-laws, or other
organizational documentation, or any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower or its property are bound. This
Agreement and the other Financing Agreements to which Borrower or any Obligor is
a party constitute legal, valid and binding obligations of Borrower or such
Obligor enforceable in accordance with their respective terms, except as
enforceability may be affected by applicable bankruptcy, insolvency,
reorganization, or similar laws relating to creditors rights. Borrower does not
have any subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower and its subsidiaries which have been or may
hereafter be delivered by Borrower to Lender have been prepared in accordance
with GAAP (except, with respect to unaudited financial statements, for the
absence of footnotes and normal year-end audit adjustments) and fairly present
the financial condition and the results of operation of Borrower and its
consolidated subsidiaries as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower and its subsidiaries, since the date of the most recent
audited financial statements furnished by Borrower to Lender prior to the date
of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below its signature line hereto and its only other
places of business and the only other locations of Collateral, if any, are the
addresses set forth in the Information Certificate, subject to the right of
Borrower to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by Borrower and sets forth the owners and/or operators thereof and to the
best of Borrower's knowledge, the holders of any mortgages on such locations.
21
27
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral (to the extent such liens and security interests can be
perfected under Article 9 of the Uniform Commercial Code) subject only to the
liens indicated on Schedule 8.4 hereto and the other liens permitted under
Section 9.8 hereof. Each of Borrower and each of its subsidiaries has good and
marketable title to all of the Collateral subject to no liens, mortgages,
pledges, security interests, encumbrances or charges of any kind, except those
granted to Lender and such others as are specifically listed on Schedule 8.4
hereto or permitted under Section 9.8 hereof. Borrower and its subsidiaries own
or have valid and subsisting licenses for all patents, inventions, technology,
and know-how necessary in order to engage in the business of Borrower and its
subsidiaries. Borrower and its subsidiaries are not bound by any license,
agreement, or other restriction which would limit in any way Lender's right or
ability to sell Inventory for use in the jurisdictions of the United States in
which the products are now being sold by Borrower upon enforcement of Lender's
security interest therein, except licenses, agreements, and restrictions (a)
existing on the date hereof and disclosed in Schedule 8.4 or (b) arising after
the date hereof and of which Borrower has given Lender written notice not less
than twenty (20) days prior to the effective date thereof.
8.5 Tax Returns. Borrower and its subsidiaries have filed, or caused to be
filed, in a timely manner all tax returns, reports and declarations which are
required to be filed by them (without requests for extension except as disclosed
to Lender by prior written notice). All information in such tax returns, reports
and declarations is complete and accurate in all material respects. Borrower and
its subsidiaries have paid or caused to be paid all taxes due and payable or
claimed due and payable in any assessment received by them, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower or the applicable subsidiary and
with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate, there
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against or affecting Borrower or any
subsidiary, their respective assets or business and there is no action, suit,
proceeding or claim by any Person pending, or to the best of Borrower's
knowledge threatened, against Borrower or any subsidiary or their respective
assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower or any subsidiary
would reasonably be expected to result in any Material Adverse Effect.
8.7 Compliance with Other Agreements and Applicable Laws. Neither Borrower
nor any of its subsidiaries is in default in any respect under, or in violation
in any respect of any of the terms of, any agreement, contract, instrument,
lease or other commitment to which it is a party or by which it or any of its
assets are bound and each of Borrower and each of its subsidiaries is in
compliance in all respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders of any foreign, Federal,
State or local governmental authority, except for any such default, violation,
or noncompliance which would not reasonably be expected to have a Material
Adverse Effect.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.8 hereto, subject to
the right of Borrower to establish new accounts in accordance with Section 9.13
below.
8.9 Employee Benefits.
22
28
(a) Borrower and its subsidiaries have not engaged in any transaction
in connection with which Borrower or any of its ERISA Affiliates could be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, including any accumulated funding
deficiency described in Section 8.9(c) hereof and any deficiency with respect to
vested accrued benefits described in Section 8.9(d) hereof, except for any such
penalty or tax which would not have a Material Adverse Effect.
(b) No liability to the Pension Benefit Guaranty Corporation which
would have a Material Adverse Effect has been or is expected by Borrower to be
incurred with respect to any employee benefit plan of Borrower or any of its
ERISA Affiliates. There has been no reportable event (within the meaning of
Section 4043(b) of ERISA) other than an event for which the reporting
requirement has been waived by applicable regulation or any other event or
condition with respect to any employee pension benefit plan of Borrower or any
of its ERISA Affiliates which presents a risk of termination of any such plan by
the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any of
its ERISA Affiliates is required under Section 302 of ERISA and Section 412 of
the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof (except for any amount the nonpayment
of which would not have a Material Adverse Effect), and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists with respect to any employee benefit plan,
including any penalty or tax described in Section 8.9(a) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.9(d)
hereof.
(d) The current value of all vested accrued benefits under all
employee benefit plans maintained by Borrower or any of its subsidiaries that
are subject to Title IV of ERISA does not exceed the current value of the assets
of such plans allocable to such vested accrued benefits, including any penalty
or tax described in Section 8.9(a) hereof and any accumulated funding deficiency
described in Section 8.9(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 Environmental Compliance.
(a) Except as set forth on Schedule 8.10 hereto, Borrower and its
subsidiaries have not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates, in any manner which could have a Material Adverse Effect, any
applicable Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder, and the operations of Borrower and its
subsidiaries comply in all material respects with all Environmental Laws and all
licenses, permits, certificates, approvals and similar authorization thereunder.
(b) Except as set forth on Schedule 8.10 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or any or its subsidiaries or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
affects Borrower or its
23
29
business, operations or assets or any properties at which Borrower or any of its
subsidiaries has transported, stored or disposed of any Hazardous Materials.
(c) To Borrower's knowledge, Borrower and its subsidiaries have no
liability (contingent or otherwise) which could have a Material Adverse Effect
in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower and its subsidiaries have all licenses, permits,
certificates, approvals or similar authorizations required to be obtained or
filed in connection with the operations of Borrower and its subsidiaries under
any Environmental Law (except for any the absence of which would not have a
Material Adverse Effect) and all of such licenses, permits, certificates,
approvals or similar authorizations are valid and in full force and effect.
8.11 Accuracy and Completeness of Information. All information furnished by
or on behalf of Borrower in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction contemplated hereby
or thereby, including all information on the Information Certificate is true and
correct in all material respects on the date as of which such information is
dated or certified and does not omit any material fact necessary in order to
make such information not misleading. No event or circumstance has occurred
which has had or could reasonably be expected to have a material adverse affect
on the business, assets or prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
8.12 Survival of Warranties; Cumulative. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Each of Borrower and each of its subsidiaries
shall at all times preserve, renew and keep in full, force and effect its
corporate existence and rights and franchises with respect thereto and maintain
in full force and effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts necessary to carry on the
business as presently or proposed to be conducted. Borrower shall give Lender
thirty (30) days prior written notice of any proposed change in its or any
subsidiary's corporate name, which notice shall set forth the new name and
Borrower shall deliver to Lender a copy of the amendment to the Certificate of
Incorporation of Borrower or the applicable subsidiary providing for the name
change certified by the Secretary of State of the jurisdiction of incorporation
of Borrower or such subsidiary as soon as it is available. Borrower shall not
permit any Inactive Subsidiary to engage in any business or to own any assets
other than those engaged in or owned, as the case may be, on the date hereof.
Borrower shall not cause or permit any subsidiary in addition to the Inactive
Subsidiaries to (i) engage in any business other than research and development,
holding and licensing intellectual property and, in the case of Ecogen
Investments Inc., investing in assets of the type described in Section 9.10(b)
or (ii) own any assets other than intellectual property or, in the case of
Ecogen Investments Inc., assets of the type described in Section 9.10(b).
24
30
9.2 New Collateral Locations. Borrower may open any new location within the
continental United States provided Borrower (a) gives Lender thirty (30) days
prior written notice of the intended opening of any such new location and (b)
executes and delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower and its subsidiaries shall, at all times, comply in all
material respects with all laws, rules, regulations, licenses, permits,
approvals and orders applicable to it and duly observe all requirements of any
Federal, State or local governmental authority, including the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Health
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statues, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including all of the
Environmental Laws, except to the extent that noncompliance or nonobservance
would not have a Material Adverse Effect.
(b) Borrower shall establish and maintain, at its expense, a system to
assure and monitor its and its subsidiaries' continued compliance with all
Environmental Laws in all of its operations, which system shall include annual
reviews of such compliance by employees or agents of Borrower who are familiar
with the requirements of the Environmental Laws. Copies of all environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be furnished, by
Borrower to Lender. Borrower and its subsidiaries shall take prompt and
appropriate action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event that could reasonably be
expected to have a Material Adverse Effect involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any material non-compliance with or violation of any
Environmental law by Borrower or any of its subsidiaries or (B) the release,
spill or discharge, threatened or actual, of any Hazardous Material or (C) the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials that could reasonably be
expected to have a Material Adverse Effect or (D) any other environmental,
health or safety matter that could reasonably be expected to have a Material
Adverse Effect which affects Borrower or any of its subsidiaries or their
respective businesses, operations or assets or any properties at which Borrower
transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower or any of its subsidiaries in
order to avoid any material non-compliance, with any Environmental Law that
could reasonably be expected to have a Material Adverse Effect, Borrower shall,
at Lender's request and Borrower's expense: (i) cause an independent
environmental engineer acceptable to Lender to conduct such tests of the site
where Borrower's or such subsidiary's non-compliance and prepare and deliver to
Lender a report as to such non-compliance setting forth the results of such
tests, a proposed plan for responding to any environmental problems described
therein, and an estimate of the costs thereof and (ii) provide to Lender a
supplemental report of such engineer whenever the scope of such non-compliance,
or Borrower's response thereto or the estimated costs thereof, shall change in
any material respect.
25
31
(e) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including reasonable attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrower or its subsidiaries and the preparation and implementation of any
closure, remedial or other required plans, except that Borrower shall not be
required to indemnify Lender or hold Lender harmless for losses, damages,
liabilities, costs, and expenses determined by a final and non-appealable
judgment or court order binding on Lender to be directly attributable to
Lender's gross negligence or willful misconduct. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower and each of its subsidiaries
shall duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or assets, except for
taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower or the applicable
subsidiary and with respect to which adequate reserves have been set aside on
its books. Borrower shall be liable for any tax or penalties imposed on Lender
as a result of the financing arrangements provided for herein and Borrower
agrees to indemnify and hold Lender harmless with respect to the foregoing, and
to repay to Lender on demand the amount thereof, and until paid by Borrower such
amount shall be added and deemed part of the Loans, provided, that, nothing
contained herein shall be construed to require Borrower to pay any income or
franchise taxes attributable to the income of Lender from any amounts charged or
paid hereunder to Lender. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. In
the case of casualty to Equipment, at Borrower's request, Lender shall apply any
insurance proceeds received by Lender at any time to the cost of repairs or
replacement by Borrower of such Equipment, subject to presentation of such
documentation as Lender may reasonable request evidencing such repair or
replacement and its cost. As to casualty to all other Collateral, and as to
insurance proceeds relating to Equipment that Borrower has not requested be
applied to repair or replacement, Lender shall apply any insurance proceeds
received by Lender to payment of the Obligations, whether or not then due, in
any order and in such manner as Lender may determine or, at Lender's option,
Lender may hold such proceeds as cash collateral for the Obligations.
26
32
9.6 Financial Statements and Other Information.
(a) Borrower and its subsidiaries shall keep proper books and records
in which true and complete entries shall be made of all dealings or transactions
of or in relation to the Collateral and the business of Borrower and its
subsidiaries in accordance with GAAP and Borrower shall furnish or cause to be
furnished to Lender: (i) within thirty (30) days after the end of each fiscal
month, monthly unaudited consolidated financial statements (consisting of
balance sheets and statements of income and loss), all in reasonable detail,
fairly presenting the financial position and the results of the operations of
Borrower and its subsidiaries as of the end of and through such fiscal month,
(ii) within fifty (50) days after the end of each fiscal quarter, quarterly
unaudited consolidated and consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow, and
statements of shareholder's equity), all in reasonable detail, fairly presenting
the financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal quarter, and (iii) within one
hundred five (105) days after the end of each fiscal year, audited consolidated
and consolidating financial statements of Borrower and its subsidiaries
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of KPMG Peat Marwick LLP or other independent certified
public accountants selected by Borrower and reasonably acceptable to Lender,
that such financial statements have been prepared in accordance with GAAP, and
present fairly the results of operations and financial condition of Borrower and
its subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details of
(i) any loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or any other property which is security for the Obligations or
which would result in any material adverse change in Borrower's or any
subsidiary's business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower and its subsidiaries, as Lender may, from time to
time, reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower and its subsidiaries to any court or other government agency or to any
participant or assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes and directs all accountants or auditors to deliver to
Lender, at Borrower's expense, copies of the financial statements of Borrower
and its subsidiaries and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower or any of its subsidiaries and to
disclose to Lender such information as they may have regarding the business of
Borrower and its subsidiaries. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Except for
Permitted Activity, each of Borrower and each of its subsidiaries shall not,
directly or indirectly, (a) merge into or with or consolidate with any other
Person or permit any other Person to merge into or with or consolidate with it,
27
33
or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any stock
owned by such Person or indebtedness to any other Person or any of its assets to
any other Person (except for (i) sales of Inventory in the ordinary course of
business, (ii) transfers of the Borrower's stock that would not cause a Change
of Control to occur and (iii) the disposition of worn-out or obsolete Equipment
or Equipment no longer used in the business of Borrower so long as (A) if an
Event of Default exists or has occurred and is continuing, any proceeds are paid
to Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $75,000 for all such Equipment disposed of in any
fiscal year of Borrower); or (c) form or acquire any subsidiaries, or (d) wind
up, liquidate or dissolve (other than with respect to the Inactive Subsidiaries)
or (e) agree to do any of the foregoing provided, that, nothing in this Section
9.7 shall prohibit a merger of (A) any subsidiary of Borrower with Borrower or
another subsidiary of Borrower, so long as in any such merger with Borrower,
Borrower is the surviving corporation or (B) any Person with a subsidiary of
Borrower so long as such subsidiary is the surviving corporation and, after
giving effect thereto, no Event of Default, or event which with notice or the
passage of time or both would constitute an Event of Default, would exist.
9.8 Encumbrances. Neither Borrower nor any of its subsidiaries shall
create, incur, assume or suffer to exist any security interest, mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever on any of its
assets or properties, including the Collateral, except: (a) liens and security
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower or the
applicable subsidiary and with respect to which adequate reserves have been set
aside on its books; (c) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrower's or
the subsidiary's business to the extent: (i) such liens secure indebtedness
which is not overdue or (ii) such liens secure indebtedness relating to claims
or liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower or the
applicable subsidiary, in each case prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books; (d) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property which do not interfere
in any material respect with the use of such real property or ordinary conduct
of the business of Borrower and its subsidiaries as presently conducted thereon
or materially impair the value of the real property which may be subject
thereto; (e) purchase money security interests in Equipment (including capital
leases) and purchase money mortgages on real estate not to exceed $300,000 in
the aggregate at any time outstanding so long as such security interests and
mortgages do not apply to any property of Borrower or any of its subsidiaries
other than the Equipment or real estate so acquired, and the indebtedness
secured thereby does not exceed the cost of the Equipment or real estate so
acquired, as the case may be; (f) the security interests and liens set forth on
Schedule 8.4 hereto; and (g) liens on assets that are not Collateral to secure
debt permitted by Section 9.9(e); and (h) encumbrances on assets that are not
Collateral and are not granted to secure any indebtedness of Borrower.
9.9 Indebtedness. Neither Borrower nor any of its subsidiaries shall incur,
create, assume, become or be liable in any manner with respect to, or permit to
exist, any or indebtedness or other obligations for borrowed money, except: (a)
the Obligations; (b) trade obligations and normal accruals in the ordinary
course of business not yet due and payable, or with respect to which the
Borrower or the applicable subsidiary is contesting in good faith the amount or
validity thereof by appropriate proceedings diligently pursued and available to
Borrower or the applicable subsidiary, and with respect to which adequate
reserves have been set aside on its books; (c) purchase money indebtedness
(including capital leases) to the extent not incurred or secured by liens
(including capital leases) in violation of any other provision of this
Agreement; (d) debt existing on the date hereof and set forth on Schedule 9.9,
provided, that, (i) Borrower or the applicable subsidiary may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the applicable instruments
28
34
and agreements as in effect on the date hereof, (ii) Borrower or the applicable
subsidiary shall not, directly or indirectly, (A) amend, modify, alter or change
the material terms of such indebtedness or any agreement, document or instrument
related thereto as in effect on the date hereof in any manner that is
unfavorable to Borrower and its subsidiaries or Lender, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and (iii) Borrower shall
furnish to Lender all notices or demands in connection with such indebtedness
either received by Borrower or the applicable subsidiary or on its behalf,
promptly after the receipt thereof, or sent by Borrower or the applicable
subsidiary or on its behalf, concurrently with the sending thereof, as the case
may be; (e) additional debt incurred after the date hereof in an aggregate
outstanding principal amount of any time not to exceed $200,000; and (f)
indebtedness incurred by and between Borrower and the Obligors to the extent
permitted in Section 9.12 hereof.
9.10 Loans, Investments, Guarantees, Etc. Neither Borrower nor any of its
subsidiaries shall directly or indirectly, make any loans or advance money or
property to any person, or invest in (by capital contribution, dividend or
otherwise) or purchase or repurchase the stock or indebtedness or all or a
substantial part of the assets or property of any person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing, except: (a) the endorsement of instruments for collection
or deposit in the ordinary course of business; (b) investments in: (i)
short-term direct obligations of the United States Government, (ii) negotiable
certificates of deposit issued by any bank satisfactory to Lender, payable to
the order of the Borrower or a subsidiary or to bearer and delivered to Lender,
and (iii) commercial paper rated A1 or P1; provided, that, as to any of the
foregoing owned by Borrower, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments; (c) the loans, advances and guarantees
set forth on Schedule 9.10 hereto; provided, that, as to such loans, advances
and guarantees, (i) Borrower or the applicable subsidiary shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such loans, advances
or guarantees or any agreement, document or instrument related thereto, or (B)
as to such guarantees, redeem, retire, defease, purchase or otherwise acquire
the obligations arising pursuant to such guarantees, or set aside or otherwise
deposit or invest any sums for such purpose, and (ii) Borrower shall furnish to
Lender all notices or demands in connection with such loans, advances or
guarantees or other indebtedness subject to such guarantees either received by
Borrower or the applicable subsidiary or on its behalf, promptly after the
receipt thereof, or sent by Borrower or the applicable subsidiary or on its
behalf, concurrently with the sending thereof, as the case may be; and (d) loans
and advances to employees in the ordinary course of business in an unpaid
principal amount not exceeding $50,000 individually or $100,000 in the aggregate
at any time.
9.11 Dividends and Redemptions. Borrower shall not, directly or indirectly,
declare or pay any dividends on account of any shares of class of capital stock
of Borrower now or hereafter outstanding, or set aside or otherwise deposit or
invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any consideration
other than common stock or warrants to purchase common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the foregoing,
except that if Borrower is required to (a) pay cash dividends on its Preferred
Stock pursuant to (i) Section 2(b) or 5(c) of Exhibit A to the United Equities
Stock Purchase Agreement, (ii) Section 2(b) of Exhibit A to the KA Stock
Purchase Agreement, or (iii) substantially similar provisions in respect of
payment of cash dividends contained in the Certificate of Designations,
Preferences and Rights of the Series 1998-B Convertible Preferred Stock, if any
(the "Series B Certificate"), or (b) redeem its Preferred Stock pursuant to (i)
Section 7 of Exhibit A to the United Equities Stock Purchase Agreement, (ii)
Section 7 of Exhibit A to the KA Stock Purchase Agreement, or (iii)
substantially similar provisions in respect of mandatory redemptions as
contained in the Series B Certificate, if any, then Borrower may redeem such
stock or pay such cash dividends in cash,
29
35
at the rates and on the dates set forth in the terms of such preferred stock as
in effect on the date hereof if, at the time of such redemption or payment and
after giving effect thereto, (a) no Event of Default, or event which with notice
of the passage or both would constitute an Event of Default, shall exist, and
(b) Borrower has Excess of Availability of not less than $500,000 and would have
had Excess Availability of not less than $500,000 on each day of the preceding
thirty (30) day period if such payment had been made on the first day of such
period.
9.12 Transactions with Affiliates. Except as set forth on Schedule 9.12,
Borrower and its subsidiaries shall not, directly or indirectly, (a) purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
any officer, director, agent or other person affiliated with Borrower or any
subsidiary, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's or the subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such subsidiary than
Borrower or such subsidiary would obtain in a comparable arm's length
transaction with an unaffiliated person or (b) make any payments of management,
consulting or other fees for management or similar services, or of any
indebtedness owing to any officer, employee, shareholder, director or other
person affiliated with Borrower or any subsidiary except reasonable compensation
to officers, employees and directors for services rendered to Borrower or such
subsidiary in the ordinary course of business.
9.13 Additional Bank Accounts. Borrower and its subsidiaries shall not,
directly or indirectly, open, establish or maintain any deposit account,
investment account or any other account with any bank or other financial
institution, other than the Blocked Accounts and the accounts set forth in
Schedule 8.8 hereto, except: (a) as to any new or additional Blocked Accounts
and other such new or additional accounts which contain any Collateral or
proceeds thereof, with the prior written consent of Lender and subject to such
conditions thereto as Lender may establish and (b) as to any accounts used by
Borrower to make payments of payroll, taxes or other obligations to third
parties, after prior written notice to Lender.
9.14 Working Capital. Borrower and its subsidiaries shall, at all times,
maintain Working Capital of not less than $4,750,000.
9.15 Adjusted Net Worth. Borrower and its subsidiaries shall, at all times,
maintain Adjusted Net Worth of not less than $4,750,000.
9.16 Compliance with ERISA.
(a) Borrower and its subsidiaries shall not with respect to any
"employee benefit plans" maintained by Borrower or any of its ERISA Affiliates:
(i) terminate any such employee benefit plans so as to incur any liability to
the Pension Benefit Guaranty Corporation established pursuant to ERISA that
would have a Material Adverse Effect, (ii) allow or suffer to exist any
prohibited transaction involving any of such employee benefit plans or any trust
created thereunder which would subject Borrower, any of its subsidiaries, or
such ERISA Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA that would have a
Material Adverse Effect, (iii) fail to pay to any such employee benefit plan any
contribution which it is obligated to pay under Section 302 of ERISA, Section
412 of the Code or the terms of such plan, except to the extent of any
nonpayment that would not have a Material Adverse Effect, (iv) allow or suffer
to exist any accumulated funding deficiency, whether or not waived, with respect
to any such employee benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event, other than a reportable event for which the reporting
requirement has been waived by applicable regulation, or any other event or
condition which presents a material risk of termination by the Pension Benefit
Guaranty Corporation of any such employee benefit plan that is a single employer
plan, which termination could result in any liability to the Pension Benefit
30
36
Guaranty Corporation that would have a Material Adverse Effect, or (vi) incur
any withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 9.16, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event"' shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.17 Costs and Expenses. Borrower shall pay to Lender on demand all costs,
reasonable expenses, filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters), except in connection with claims
determined by a final and non-appealable judgment or court order binding on
Lender to be directly attributable to Lender's gross negligence or willful
misconduct; (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem charge
at the rate of $650 per person per day for Lender's examiners in the field and
office; and (h) the reasonable fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the foregoing.
9.18 Further Assurances. At the request of Lender at any time and from time
to time, Borrower shall, at its expense, duly execute and deliver, or cause to
be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
31
37
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay when due any of the Obligations or (ii)
Borrower or any Obligor fails to perform any of the covenants contained in
Sections 9.1 (except as to its corporate existence), 9.2(a), 9.3, 9.5, 9.6(d),
9.17, and 9.18 of this Agreement and such failure shall continue for ten (10)
days; provided, that, such ten (10) day period shall not apply in the case of:
(A) any failure to observe any such covenant which is not capable of being cured
at all or within such ten (10) day period or which has been the subject of a
prior failure within a six (6) month period or (B) an intentional breach of
Borrower or any Obligor of any such covenant or (iii) Borrower fails to perform
any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements other than those described in
Sections 10.1(a)(i) and 10.1(a)(ii) above
(b) any representation, warranty or statement of fact made by Borrower
to Lender in this Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or otherwise shall when made or
deemed made be false or misleading in any material respect;
(c) any Obligor with total assets or gross profit in excess of
$100,000 as at the end of or for its most recently ended fiscal year revokes,
terminates or fails to perform any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other agreement of such party in
favor of Lender;
(d) any judgment for the payment of money is rendered against Borrower
or any Obligor in excess of $50,000 in any one case or in excess of $150,000 in
the aggregate and shall remain undischarged or unvacated for a period in excess
of thirty (30) days or execution shall at any time not be effectively stayed, or
any judgment other than for the payment of money, or injunction, attachment,
garnishment or execution is rendered against Borrower or any Obligor or any of
their assets;
(e) Borrower or any Obligor dissolves or suspends or discontinues
doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
32
38
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $100,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by Borrower
or any Obligor under any agreement related to the Monsanto Royalty or any
material license, which default, pursuant to the terms of such agreement or
license, permits any other party thereto to terminate such agreement or license
and which continues for more than the applicable cure period, if any, with
respect thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any Obligor, pursuant to which
statute or proceedings the penalties or remedies sought or available include
forfeiture of any of the property of Borrower or such Obligor;
(l) there shall have occurred any event or there shall exist any
circumstance that has a Material Adverse Effect; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase
33
39
the whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold
or leased by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of Collateral is required by law,
ten (10) days prior notice by Lender to Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of New York for New
York County and the United States District Court for the Southern District of
New York and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Borrower
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
34
40
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation,
35
41
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the reasonable fees and expenses of counsel, except
for losses, claims, damages, liabilities, costs or expenses determined by a
final and non-appealable judgment or court order binding on Lender to have been
the result of acts or omissions of Lender constituting gross negligence or
willful misconduct. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in this Section may be unenforceable because it violates
any law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date two (2) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof; provided, that, Lender may, at
its option, extend the Renewal Date to the date three (3) years from the date
hereof by giving Borrower notice at least sixty (60) days prior to the first
anniversary of this Agreement. Lender or Borrower (it being understood that
Lender has the right to extend the Renewal Date as provided above) may terminate
this Agreement and the other Financing Agreements effective on the Renewal Date
or on the anniversary of the Renewal Date in any year by giving to the other
party at least sixty (60) days prior written notice; provided, that, this
Agreement and all other Financing Agreements must be terminated simultaneously.
Upon the effective date of termination or non-renewal of the Financing
Agreements, Borrower shall pay to Lender, in full, all outstanding and unpaid
Obligations and shall furnish cash collateral to Lender in such amounts as
Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received final
and indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, New York City
time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrower of its respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of
the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
36
42
Amount Period
------ ------
(i) 3% of Maximum Credit From the date hereof to and including August
20, 1999
(ii) 2% of Maximum Credit From August 20, 1999 to and including August
20, 2000 or if the term of this Agreement is
extended for an additional year as provided
above, then to and including August 20, 2001
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the
37
43
subject matter hereof, whether oral or written. In the event of any
inconsistency between the terms of this Agreement and any schedule or exhibit
hereto, the terms of this Agreement shall govern.
(Signatures Follow)
38
44
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION ECOGEN INC.
By: /s/ Xxxxxx Cott By: /s/ Xxxx X. Xxxxxxxx
------------------------------ -----------------------------------------
Title: Vice President Title: Vice President and Chief Financial
Officer
Address: Chief Executive Office:
1133 Avenue of the Americas 0000 Xxxxx Xxxxxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxxxxxxxx, Xxxxxxxxxxxx 00000
-1-
