1
Exhibit 99.1
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
ZILA, INC., a Delaware corporation,
ZILA PHARMACEUTICALS, INC., a Nevada corporation,
XXXXX DENTAL OF KENTUCKY, INC., a Kentucky corporation, and
INTER-CAL CORPORATION, INC., an Arizona corporation
as Borrowers
Dated: August 17, 2001
2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS ................................................. 2
SECTION 2. CREDIT FACILITIES ........................................... 19
Revolving Loans ...................................................... 19
Letter of Credit Accommodations ...................................... 20
SECTION 3. INTEREST AND FEES ........................................... 23
Interest ............................................................. 23
Closing Fee .......................................................... 23
Servicing Fee ........................................................ 23
Unused Line Fee ...................................................... 24
SECTION 4. CONDITIONS PRECEDENT ........................................ 24
Conditions Precedent to Initial Loans and Letter of Credit
Accommodations ...................................................... 24
Conditions Precedent to All Loans and Letter of Credit Accommodations 26
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST ................... 26
Grant of Security Interest ........................................... 26
Perfection of Security Interests ..................................... 27
SECTION 6. COLLECTION AND ADMINISTRATION ............................... 31
Borrower's Loan Account .............................................. 31
Statements ........................................................... 31
Collection of Accounts ............................................... 31
Payments ............................................................. 33
Authorization to Make Loans .......................................... 33
Use of Proceeds ...................................................... 34
SECTION 7. COLLATERAL REPORTING AND COLLATERAL COVENANTS ............... 34
Collateral Reporting ................................................. 34
Accounts Covenants ................................................... 35
Inventory Covenants .................................................. 35
Equipment and Real Property Covenants ................................ 36
Power of Attorney .................................................... 37
Right to Cure ........................................................ 37
Access to Premises ................................................... 38
SECTION 8. REPRESENTATIONS AND WARRANTIES .............................. 38
Corporate Existence; Power and Authority ............................. 38
Name; State of Organization; Chief Executive Office; Collateral
Locations ........................................................... 38
Financial Statements; No Material Adverse Change ..................... 39
Priority of Liens; Title to Properties ............................... 39
Tax Returns .......................................................... 39
Litigation ........................................................... 40
Compliance with Other Agreements and Applicable Laws ................. 40
Environmental Compliance ............................................. 40
Employee Benefits .................................................... 41
Bank Accounts ........................................................ 41
Intellectual Property ................................................ 41
Subsidiaries; Affiliates; Capitalization; Solvency ................... 42
Labor Disputes ....................................................... 42
Restrictions on Subsidiaries ......................................... 43
Material Contracts ................................................... 43
Payable Practices .................................................... 43
Accuracy and Completeness of Information ............................. 43
i
3
Survival of Warranties; Cumulative ................................... 43
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS .......................... 44
Maintenance of Existence ............................................. 44
New Collateral Locations ............................................. 44
Compliance with Laws, Regulations, Etc ............................... 44
Payment of Taxes and Claims .......................................... 45
Insurance ............................................................ 46
Financial Statements and Other Information ........................... 46
Sale of Assets, Consolidation, Merger, Dissolution, Etc .............. 47
Encumbrances ......................................................... 49
Indebtedness ......................................................... 49
Loans, Investments, Etc .............................................. 51
Dividends and Redemptions ............................................ 52
Transactions with Affiliates ......................................... 52
Compliance with ERISA ................................................ 53
End of Fiscal Years: Fiscal Quarters ................................. 53
Change in Business ................................................... 53
Limitation of Restrictions Affecting Subsidiaries .................... 53
Adjusted Tangible Net Worth .......................................... 54
License Agreements ................................................... 54
Costs and Expenses ................................................... 55
Further Assurances ................................................... 55
SECTION 10. EVENTS OF DEFAULT AND REMEDIES ............................. 56
Events of Default .................................................... 56
Remedies ............................................................. 58
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 61
Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver 61
Waiver of Notices .................................................... 62
Amendments and Waivers ............................................... 62
Waiver of Counterclaims .............................................. 62
Indemnification ...................................................... 63
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS ........................... 64
Term ................................................................. 64
Interpretative Provisions ............................................ 65
Notices .............................................................. 67
Partial Invalidity ................................................... 67
Successors ........................................................... 68
Entire Agreement ..................................................... 68
Counterparts, Etc .................................................... 68
ii
4
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Compliance Certificate
Schedule 1.52 Permitted Holders
1
5
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated August 17, 2001 is entered
into by and between, on the one hand, Congress Financial Corporation (Western),
a California corporation ("Lender"), and, on the other hand, Zila, Inc., a
Delaware corporation ("Zila"), Zila Pharmaceuticals, Inc., a Nevada corporation
("ZP"), Xxxxx Dental of Kentucky, Inc., a Kentucky corporation ("Xxxxx Dental"),
and Inter-Cal Corporation, Inc., an Arizona corporation ("Inter-Cal") (Zila, ZP,
Xxxxx Dental, and Inter-Cal are hereinafter collectively referred to, jointly
and severally, as "Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into 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
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 of a monetary obligation, whether or not earned by performance, which is
not evidenced by chattel paper or an instrument, (a) for property that has been
or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for
services rendered or to be rendered, (c) for a secondary obligation incurred or
to be incurred, or (d) arising out of the use of a credit or charge card or
information contained on or for use with the card.
1.2 "Adjusted Tangible 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 the difference between:
2
6
(a) the aggregate net book value of all assets of such Person and its
Subsidiaries (excluding the value of patents, trademarks, tradenames,
copyrights, licenses, goodwill, leasehold improvements and other intangible
assets, but including the value of prepaid assets), calculating the book value
of inventory for this purpose on a first-in-first-out basis, after deducting
from such book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence, depreciation and
amortization) and (b) the aggregate amount of the Indebtedness and other
liabilities of such Person and its Subsidiaries (including tax and other proper
accruals).
1.3 "Affiliate" shall mean, with respect to a specified Person, any other
Person which directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with such Person, and
without limiting the generality of the foregoing, includes (a) any Person which
beneficially owns or holds fifteen (15%) percent or more of any class of Voting
Stock of such Person or other equity interests in such Person, (b) any Person of
which such Person beneficially owns or holds fifteen (15%) percent or more of
any class of Voting Stock or in which such Person beneficially owns or holds
fifteen (15%) percent or more of the equity interests and (c) any director or
executive officer of such Person. For the purposes of this definition, the term
"control" (including with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise.
1.4. "Appraised Orderly Liquidation Value" shall mean, with respect to
Eligible Inventory, the appraised value of such Eligible Inventory, determined
as of any date on an orderly liquidation value basis, net of all estimated
liquidation expenses, shrinkage and markdowns, pursuant to an appraisal
conducted, at Borrower's expense, by an independent appraisal firm acceptable to
Lender in its sole and absolute discretion or such value as otherwise determined
by Lender in its sole discretion. Provided that no Event of Default exists and
is continuing, such appraisals shall be conducted no more frequently than once
in every twelve (12) month period.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Borrowing Base" shall mean, at any time, the amount equal to:
(a) Eighty (80%) percent of the Net Amount of Eligible Accounts,
plus
(b) the lesser of:
(i) the sum of:
(A) Fifty (50%) percent of the Value of Eligible Inventory
consisting of finished goods owned by Inter-Cal which
are not Palmettx Products,
3
7
(B) Sixty (60%) percent of the Value of Eligible Inventory
consisting of finished goods owned by Zila and ZP which
are not Palmettx Products,
plus
(C) the lesser of
(y) Twenty-five (25%) percent of the Value of Eligible
Inventory consisting of finished goods or raw
materials which are Palmettx Products, or
(z) $500,000 (the "Palmettx Products Sublimit");
plus
(D) Fifty (50%) percent of the Value of Eligible Inventory
consisting of raw materials owned by Inter-Cal which are
not Palmettx Products,
plus
(E) Sixty (60%) percent of the Value of Eligible Inventory
consisting of raw materials owned by Zila and ZP which
are not Palmettx Products
or
(ii) $6,000,000
less
(c) any Reserves.
provided that, total Loans with respect to Eligible Inventory shall not
exceed an amount equal to 80% of the Appraised Orderly Liquidation Value
thereof; and
provided that, the Palmettx Products Sublimit shall be reduced by $41,667
on the first day of each month, beginning September 1, 2001, and
continuing through February 1, 2001, and the Palmettx Products Sublimit
shall be reduced to zero on March 1, 2001, so that beginning March 1,
2001, there shall be no further Loans against Eligible Inventory
consisting of Palmettx Products.
For purposes only of applying the sublimit on Revolving Loans based on
Eligible Inventory set forth clause (b)(ii) above, 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
4
8
and Reserves shall be attributed first to any components of the lending formulas
set forth above that are not subject to such sublimit, before being attributed
to the components of the lending formulas subject to such sublimit.
1.7 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which the Reference Bank and Lender are open for the transaction of business,
the term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market.
1.8 "Capital Leases" shall mean, as applied to any Person, any lease of
(or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such Person.
1.9 "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock or partnership, limited liability company or other
equity interests at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
1.10 "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of ninety (90) days or less issued or directly
and fully guaranteed or insured by the United States of America of any agency or
instrumentality thereof; provided, that, the full faith and credit of the United
States of America is pledged in support thereof; (b) certificates of deposit or
bankers' acceptances with a maturity of ninety (90) days or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$250,000,000; (c) commercial paper (including variable rate demand notes) with a
maturity of ninety (90) days or less issued by a corporation (except an
Affiliate of Borrower) organized under the laws of any State of the United
States of America or the District of Columbia and rated at least A-1 by Standard
& Poor's Ratings Service, a division of The XxXxxx-Xxxx Companies, Inc. or at
least P-1 by Xxxxx'x Investors Service, Inc.; (d) repurchase obligations with a
term of not more than thirty (30) days for underlying securities of the types
described in clause (a) above entered into with any financial institution having
combined capital and surplus and undivided profits of not less than
$250,000,000; (e) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the United States of America or issued by any governmental agency thereof and
backed by the full faith and credit to the United States of America, in each
case maturing within ninety (90) days or less from the date of acquisition;
provided, that, the terms of such agreements comply with the guidelines set
forth in the Federal Financial Agreements of Depository Institutions with
Securities Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; and (f) investments in money market funds and mutual funds
which invest substantially all of their assets in securities of the types
described in clauses (a) through (e) above.
1.11 "Change of Control" shall mean (a) the transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of
Borrower to any Person or group (as such
5
9
term is used in Section 13(d)(3) of the Exchange Act); (b) the liquidation or
dissolution of Borrower or the adoption of a plan by the stockholders of
Borrower relating to the dissolution or liquidation of Borrower; or (c) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act), except for one or more Permitted Holders, of beneficial
ownership, directly or indirectly, of fifty (50%) percent or more of the voting
power of the total outstanding Voting Stock of Borrower or the Board of
Directors of Borrower.
1.12 "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.
1.13 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.14 "Collateral Access Agreement" shall mean an agreement in writing, in
form and substance satisfactory to Lender, from any lessor of premises to
Borrower, or any other person to whom any Collateral (including Inventory,
Equipment, bills of lading or other documents of title) is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, pursuant
to which such lessor, consignee or other person, inter alia, acknowledges the
first priority security interest of Lender in such Collateral, agrees to waive
or subordinate any and all claims such lessor, consignee or other person may, at
any time, have against such Collateral, whether for processing, storage or
otherwise, and agrees to permit Lender access to, and the right to remain on,
the premises of such lessor, consignee or other person so as to exercise
Lender's rights and remedies and otherwise deal with such Collateral and, in the
case of any consignee or other person who at any time has custody, control or
possession of any Collateral, acknowledges that it holds and will hold
possession of the Collateral for the benefit of Lender and agrees to follow all
instructions of Lender with respect thereto.
1.15 "Default" shall mean an act, condition or event which with notice or
passage of time or both would constitute an Event of Default.
1.16 "Deposit Account Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory to Lender, by and among Lender,
Borrower and any bank at which any deposit account of Borrower is at any time
maintained which provides that such bank will comply with instructions
originated by Lender directing disposition of the funds in the deposit account
without further consent by Borrower and such other terms and conditions as
Lender may require, including as to any such agreement with respect to any
Blocked Account, providing that all items received or deposited in the Blocked
Accounts are the property of Lender, that the 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 bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis to the
Lender Payment Account all funds received or deposited into the Blocked
Accounts.
1.17 "EBITDA" shall mean, on a consolidated basis, Borrower's earnings
before interest, taxes, depreciation and other non-cash amortization expenses
and other non-cash expenses of Borrower, determined in accordance with generally
accepted accounting principles, consistently applied; provided that, for
purposes of computing EBITDA neither extraordinary income items nor
extraordinary loss items shall be included in computing Borrower's earnings.
6
10
1.18 "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 (i) one hundred twenty
(120) days after the date of the original invoice for them or (ii) more than
sixty (60) days after the due date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts 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 Canada (provided,
that, at any time promptly upon Lender's request, Borrower shall execute and
deliver, or cause to be executed and delivered, such other agreements, documents
and instruments as may be required by Lender to perfect the security interests
of Lender in those Accounts of an account debtor with its chief executive office
or principal place of business in Canada in accordance with the applicable laws
of the Province of Canada in which such chief executive office or principal
place of business is located and take or cause to be taken such other and
further actions as Lender may request to enable Lender as secured party with
respect thereto to collect such Accounts under the applicable Federal or
Provincial laws of Canada) or, at Lender's option, if the chief executive office
and principal place of business of the account debtor with respect to such
Accounts is located other than in the United States of America or Canada, then
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 Borrower has complied with the terms of Section 5.2(f) hereof
with respect to the assignment of the proceeds of such letter of credit to
Lender or naming Lender as transferee beneficiary thereunder, as Lender may
specify, or (ii) such Account is subject to credit insurance payable to Lender
issued by an insurer, including but not limited to Ex-Im Bank, 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 (such that the
obligation of the account debtors with respect to such Accounts is conditioned
upon Borrower's satisfactory completion of any further performance under the
agreement giving rise thereto), xxxx and hold invoices or retainage invoices,
except as to xxxx and hold invoices, if Lender shall have received
7
11
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 or recoupment
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, in any
material manner, impair the validity, enforceability or collectability of such
Accounts or reduce the amount payable or delay payment thereunder;
(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, agent or
other Affiliate of Borrower;
(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 (including, without limitation, any bankruptcy, dissolution,
liquidation, reorganization or similar proceeding);
(m) such Accounts are not evidenced by or arising under any
instrument or chattel paper;
(n) unless otherwise approved by Lender, from time to time, such
Accounts of a single account debtor or its affiliates do not constitute more
than twenty (20%) percent of all otherwise Eligible Accounts (but the portion of
the Accounts not in excess of such percentage may be deemed Eligible Accounts),
provided that, with respect to Accounts of Walmart, such limitation shall be
thirty five (35%) percent;
(o) such Accounts are not owed by an account debtor who, in the
aggregate total, has Accounts unpaid more than (i) one hundred twenty (120) days
after the original invoice date for them, and/or (ii) sixty (60) days after the
original due date for them, and which constitute more than Fifty (50%) percent
of the total Accounts of such account debtor;
8
12
(p) the account debtor is not located in a state requiring the
filing of a Notice of Business Activities Report, or similar report, and/or the
maintenance of a Good Standing Certificate, or similar certificate, in order to
permit Borrower to seek judicial enforcement in such state of payment of such
Account, unless Borrower has qualified to do business in such state and/or has
filed a Notice of Business Activities Report, or equivalent report, and is in
good standing for the then current year, or such failure to file and inability
to seek judicial enforcement is capable of being remedied without any material
delay or material cost;
(q) 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 Borrower from time to time in the ordinary
course of business consistent with its current practices as of the date hereof
and as is reasonably acceptable to Lender (but the portion of the Accounts not
in excess of such credit limit may be deemed Eligible Accounts);
(r) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender in good faith;
(s) there is no accrued Account Development Fund ("ADF") with
respect to such Accounts (but any portion of such Accounts which exceeds the
accrued ADF with respect to such Accounts may be deemed Eligible Accounts); and
(t) such Accounts do not include finance charges, provided that, any
portion of such Accounts which does not consist of such finance charges may be
deemed Eligible Accounts;
(u) such Accounts do not arise from sales in which any amount due
Borrower was prepaid; and
(v) such Accounts do not arise from C.O.D. sales or credit card
sales, other than credit card sales by Xxxxx Dental in connection with which a
Credit Card Processor Agreement, or similar document, has been executed which is
acceptable to Lender in form and substance.
The criteria for Eligible Accounts set forth above may only be changed and any
new criteria for Eligible Accounts may only be established by Lender in good
faith based on either: (i) an event, condition or other circumstance arising
after the date hereof, or (ii) an event, condition or other circumstance
existing on the date hereof to the extent Lender has no written notice thereof
from Borrower prior to the date hereof, in either case under clause (i) or (ii)
which adversely affects or could reasonably be expected to adversely affect the
Accounts in the good faith determination of Lender. Any Accounts which are not
Eligible Accounts shall nevertheless be part of the Collateral.
1.19 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and raw
materials for such finished goods, in each case which are acceptable to Lender
based on the criteria set forth below. In general, Eligible Inventory shall not
include (a) 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 any Inventory which
would otherwise be deemed
9
13
Eligible Inventory that is not located at premises owned and operated by
Borrower may nevertheless be considered Eligible Inventory: (i) as to locations
which are leased by Borrower if Lender shall have received a Collateral Access
Agreement from the owner and lessor of such location, duly authorized, executed
and delivered by such owner and lessor or if Lender shall not have received such
Collateral Access Agreement (or Lender shall determine to accept a Collateral
Access Agreement which does not include all required provisions or provisions in
the form otherwise required by Lender), Lender may, at is option, nevertheless
consider Inventory at such location to be Eligible Inventory to the extent
Lender shall have established such Reserves in respect of amounts at any time
payable by Borrower to the owner and lessor thereof as Lender shall determine,
and (ii) as to locations owned and operated by a third person, if Lender shall
have received a Collateral Access Agreement from such owner and operator with
respect to such location, duly authorized, executed and delivered by such owner
and operator or if Lender shall not have received such Collateral Access
Agreement (or Lender shall determine to accept a Collateral Access Agreement
which does not include all required provisions or provisions in the form
otherwise required by Lender), Lender may, at its option, nevertheless consider
Inventory at such location to be Eligible Inventory to the extent Lender shall
have established such Reserves in respect of amounts at any time payable by
Borrower to the owner and operator thereof as Lender shall determine, and, in
addition, as to locations owned and operated by a third person, Lender shall
have received, if required by Lender: (A) UCC-1 financing statements between the
owner and operator, as consignee or bailee and Borrower, as consignor or xxxxxx,
in form and substance satisfactory to Lender, which are duly assigned to Lender
and (B) a written notice to any lender to the owner and operator of the first
priority security interest in such Inventory of Lender, provided that, the only
locations owned and operated by a third person at which Inventory consisting of
Palmettx Products may be considered Eligible Inventory are 00000 XX Xxxx Xxxx,
Xxxxxxxxxx, Xxxxxxx 00000, and 000X Xxxxx Xxxxx, Xxxxx X, Xxxxxxx, Xxxxxxx
00000; (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; (l)
Inventory purchased or sold on consignment; (m) Inventory whose expiration date,
as indicated on the packaging of such Inventory, is less than twelve (12) months
from the then-current date; and (n) any Inventory owned by Xxxxx Dental. The
criteria for Eligible Inventory set forth above may only be changed and any new
criteria for Eligible Inventory may only be established by Lender in good faith
based on either: (i) an event, condition or other circumstance arising after the
date hereof, or (ii) an event, condition or other circumstance existing on the
date hereof to the extent Lender has no written notice thereof from Borrower
prior to the date hereof, in either case under clause (i) or (ii) which
adversely affects or could reasonably be expected to adversely affect the
Inventory in the good faith determination of Lender. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral.
1.20 "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,
10
14
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 requirements
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.
1.21 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, wherever located, including machinery, data processing and
computer equipment and computer hardware and software, whether owned or
licensed, and including embedded software, 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.
1.22 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, together with all rules, regulations and interpretations
thereunder or related thereto.
1.23 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.24 "ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412 of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the occurrence of a "prohibited
transaction" with respect to which Borrower or any of its Subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of the Code) or with
respect to which Borrower or any of its Subsidiaries could otherwise be liable;
(f) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from
a Multiemployer Plan or a cessation of operations which is treated as such a
withdrawal or notification that a Multiemployer Plan is in reorganization; (g)
the filing of a notice of intent to terminate, the treatment of a Plan amendment
as a termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the Pension Benefit Guaranty Corporation to terminate a Plan; (h)
an event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; (i) the imposition of any liability under Title
IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due
but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (j) any other event or condition with respect to a Plan including
any Plan subject to Title IV of ERISA maintained, or contributed to, by any
ERISA
11
15
Affiliate that could reasonably be expected to result in liability of Borrower
in excess of $500,000.
1.25 OMITTED
1.26 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.27 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to the sum of:
(a) the lesser of: (i) the Borrowing Base, or (ii) the Revolving Loan
Limit,
plus
(b) the aggregate balance of Borrower's unrestricted Cash Equivalents,
minus
(c) the sum of:
(i) the amount of all then outstanding and unpaid Obligations,
plus
(ii) the aggregate amount of all then outstanding and unpaid trade
payables and other obligations 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
and other obligations which are more than sixty (60) days past
due as of such time, but not yet sent (but without duplication
of clause (c)(ii)) and the book overdraft of Borrower.
1.28 "Exchange Act" shall mean the Securities Exchange Act of 1934,
together with all rules, regulations and interpretations thereunder or related
thereto.
1.29 "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.
1.30 "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 Section 9.17 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 most recent audited financial statements delivered to
Lender prior to the date hereof.
12
16
1.31 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.32 "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 constituents), 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).
1.33 "Indebtedness" shall mean, with respect to any Person, any liability,
whether or not contingent, (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof) or evidenced by bonds, notes, debentures or similar
instruments; (b) representing the balance deferred and unpaid of the purchase
price of any property or services (except any such balance that constitutes an
account payable to a trade creditor (whether or not an Affiliate) created,
incurred, assumed or guaranteed by such Person in the ordinary course of
business of such Person in connection with obtaining goods, materials or
services that is not overdue by more than ninety (90) days, unless the trade
payable is being contested in good faith); (c) all obligations as lessee under
leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued
by such Person; (f) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker's acceptances, drafts or similar documents or
instruments issued for such Person's account; (g) all indebtedness of such
Person in respect of indebtedness of another Person for borrowed money or
indebtedness of another Person otherwise described in this definition which is
secured by any consensual lien, security interest, collateral assignment,
conditional sale, mortgage, deed of trust, or other encumbrance on any asset of
such Person, whether or not such obligations, liabilities or indebtedness are
assumed by or are a personal liability of such Person, all as of such time; (h)
all obligations, liabilities and indebtedness of such Person (marked to market)
arising under swap agreements, cap agreements and collar agreements and other
agreements or arrangements designed to protect such person against fluctuations
in interest rates or currency or commodity values and (I) all obligations owed
by such Person under License Agreements with respect to non-refundable, advance
or minimum guarantee royalty payments.
13
17
1.34 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its 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.
1.35 "Intellectual Property" shall mean Borrower's now owned and hereafter
arising or acquired: patents, patent rights, patent applications, copyrights,
works which are the subject matter of copyrights, copyright registrations,
trademarks, trade names, trade styles, trademark and service xxxx applications,
and licenses and rights to use any of the foregoing; all extensions, renewals,
reissues, divisions, continuations, and continuations-in-part of any of the
foregoing; all rights to xxx for past, present and future infringement of any of
the foregoing; inventions, trade secrets, formulae, processes, compounds,
drawings, designs, blueprints, surveys, reports, manuals, and operating
standards; goodwill (including any goodwill associated with any trademark or the
license of any trademark); customer and other lists in whatever form maintained;
and trade secret rights, copyright rights, rights in works of authorship, domain
names and domain name registrations; software and contract rights relating to
software, in whatever form created or maintained.
1.36 OMITTED.
1.37 "Interest Rate" shall mean, as to Prime Rate Loans, a rate equal to
three-quarters of one (0.75%) percent per annum in excess of the Prime Rate;
provided, that, notwithstanding anything to the contrary contained herein, the
Interest Rate shall mean the rate of two and three-quarters (2.75%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans, at Lender's option,
without notice, (a) either (i) for the period on and after the date of
termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid and satisfied in full in immediately available funds, or (ii)
for the period from and after the date of the occurrence of any Event of
Default, and for so long as such Event of Default is continuing as determined by
Lender and (b) 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). Notwithstanding the foregoing, if, based
upon Borrower's audited financial statements dated as of July 31, 2002, all of
the Rate Reduction Conditions exist as of such date, then the above-referenced
rates of 0.75% and 2.75% per annum, respectively, in excess of the Prime Rate
shall each be decreased by one-quarter of one (0.25%) percent, to one-half of
one (0.50%) percent and two and one-half (2.50%) percent per annum,
respectively, in excess of the Prime Rate, provided that, if, based upon
Borrower's audited financial statements dated as of any July 31 subsequent to
July 31, 2002 (or, if Borrower changes its fiscal year, then as of any such new
fiscal year end date), all of the Rate Reduction Conditions do not exist as of
such subsequent date, then such rates shall automatically revert to the original
rates, i.e., they shall be increased by one-quarter of one (0.25%) percent to
0.75% and 2.75% per annum, respectively, in excess of the Prime Rate.
1.38 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired goods, wherever located, which (a) are leased by Borrower
as lessor; (b) are held by Borrower for sale or lease or to be furnished under a
contract of service; (c) are furnished by Borrower under a contract of service;
or (d) consist of raw materials, work in process, finished goods or materials
used or consumed in its business.
14
18
1.39 "Investment Property Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory to Lender, by and among Lender,
Borrower and any securities intermediary, commodity intermediary or other person
who has custody, control or possession of any investment property of Borrower
acknowledging that such securities intermediary, commodity intermediary or other
person has custody, control or possession of such investment property on behalf
of Lender, that it will comply with entitlement orders originated by Lender with
respect to such investment property, or other instructions of Lender, or (as the
case may be) apply any value distributed on account of any commodity contract as
directed by Lender, in each case, without the further consent of Borrower and
including such other terms and conditions as Lender may require.
1.40 "Lender Payment Account" shall mean account no. 322-020530 of Lender
at Chase Manhattan Bank, 4 New York Plaza, New York, New York, or such other
account of Lender as Lender may from time to time designate to Borrower as the
Lender Payment Account for purposes of this Agreement.
1.41 "Letter of Credit Accommodations" shall mean, collectively, 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: sometimes being referred to herein individually as a "Letter of
Credit Accommodation".
1.42 "License Agreements" shall have the meaning set forth in Section 8.11
hereof.
1.43 "Loans" shall mean the Revolving Loans.
1.44 "Material Contract" shall mean (a) any contract or other agreement
(other than the Financing Agreements), written or oral, of Borrower involving
monetary liability of or to any Person in an amount in excess of $250,000 in any
fiscal year and (b) any other contract or other agreement (other than the
Financing Agreements), whether written or oral, to which Borrower is a party as
to which the breach, nonperformance, cancellation or failure to renew by any
party thereto would have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations or prospects of
Borrower or the validity or enforceability of this Agreement, any of the other
Financing Agreements, or any of the rights and remedies of Lender hereunder or
thereunder.
1.45 "Maximum Credit" shall mean the amount of $12,000,000.
1.46 "Multiemployer Plan" shall mean a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by Borrower or any
ERISA Affiliate.
1.47 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less returns, discounts, claims, credits and allowances of any
nature at any time issued, owing, granted, outstanding, available or claimed
with respect thereto.
15
19
1.48 "Net Worth" shall mean as to any Person, at any time, in accordance
with GAAP (except as otherwise specifically set forth below), for such Person,
the amount equal to the difference between: (a) the aggregate net book value of
all assets of such Person (excluding the value of goodwill, leasehold
improvements and other intangible assets (except for trademarks, patents and
copyrights), but including the value of prepaid assets), calculating the book
value of inventory for this purpose on a first-in-first-out basis, after
deducting from such book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence, depreciation and
amortization) and (b) the aggregate amount of the Indebtedness and other
liabilities of such Person and its Subsidiaries (including tax and other proper
accruals).
1.49 "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, whether arising under this Agreement or otherwise, 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.
1.50 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.51 "Palmettx Products" shall mean Inventory consisting of Saw Palmetto
in saleable form or derivative products, including but not limited to Palmettx
or products sold under the tradename Palmettx.
1.52 "Permitted Holders" shall mean the persons listed on Schedule 1.52
hereto and their respective successors and assigns.
1.53 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Code), 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.
1.54 "Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which Borrower sponsors, maintains, or to which it makes, is making, or
is obligated to make contributions, or in the case of a Multiemployer Plan has
made contributions at any time during the immediately preceding six (6) plan
years.
1.55 "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.
16
20
1.56 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof, but shall not mean or include undrawn Letter of Credit Accommodations.
1.57 "Rate Reduction Conditions" shall mean all of the following: (i) the
Excess Availability is at least $1,000,000; (ii) Borrower's EBITDA for the
immediately preceding audited fiscal year-end is at least $4,500,000; and (iii)
no Default or Event of Default exists or has occurred and is continuing.
1.58 "Receivables" shall mean all of the following now owned or hereafter
arising or acquired property of Borrower: (a) all Accounts; (b) all interest,
fees, late charges, penalties, collection fees and other amounts due or to
become due or otherwise payable in connection with any Account; (c) all payment
intangibles of Borrower and other contract rights, chattel paper, instruments,
notes, and other forms of obligations owing to Borrower, whether from the sale
and lease of goods or other property, licensing of any property (including
Intellectual Property or other general intangibles), rendition of services or
from loans or advances by Borrower or to or for the benefit of any third person
(including loans or advances to any Affiliates or Subsidiaries of Borrower) or
otherwise associated with any Accounts, Inventory or general intangibles of
Borrower (including, without limitation, choses in action, causes of action, tax
refunds, tax refund claims, any funds which may become payable to Borrower in
connection with the termination of any Plan or other employee benefit plan and
any other amounts payable to Borrower from any Plan or other employee benefit
plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, casualty
or any similar types of insurance and any proceeds thereof and proceeds of
insurance covering the lives of employees on which Borrower is a beneficiary).
1.59 "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).
1.60 "Reference Bank" shall mean First Union National Bank, or such other
bank as Lender may from time to time designate.
1.61 "Renewal Date" shall the meaning set forth in Section 12.1 hereof.
1.62 "Reserves" shall mean as of any date of determination, such amounts
as Lender may from time to time establish and revise 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, adversely affect, or would have a reasonable
likelihood of adversely affecting, 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
17
21
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 a Default or an Event of Default. To the extent Lender may revise
the lending formulas used to determine the Borrowing Base or establish new
criteria or revise existing criteria for Eligible Accounts or Eligible Inventory
so as to address any circumstances, condition, event or contingency in a manner
satisfactory to Lender, Lender shall not establish a Reserve for the same
purpose. The amount of any Reserve established by Lender shall have a reasonable
relationship to the event, condition or other matter which is the basis for such
reserve as determined by Lender in good faith. Without limiting the foregoing,
Reserves shall include, but not be limited to: (i) the aggregate amount of all
rebates accrued but not paid by Borrower; and (ii) ten (10%) percent of all
Eligible Accounts of Xxxxx Dental so long as Xxxxx Dental, in connection with
its sales of dental equipment, bills any of its customers prior to the
installation of such dental equipment. Notwithstanding the foregoing, if Lender
increases the amount of Reserves in any manner that causes the Obligations then
outstanding to exceed the Borrowing Base, then, so long as no Event of Default
exists or has occurred and is continuing, Borrower shall have ten (10) Business
Days from the date Lender gives Borrower notice thereof to repay the excess
amount.
1.63 "Revolving Loan Limit" shall mean $12,000,000.
1.64 "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.
1.65 "Solvent" shall mean, at any time with respect to any Person, that at
such time such Person (a) is able to pay its debts as they mature and has (and
has a reasonable basis to believe it will continue to have) sufficient capital
(and not unreasonably small capital) to carry on its business consistent with
its practices as of the date hereof, and (b) the assets and properties of such
Person at a fair valuation (and including as assets for this purpose at a fair
valuation all rights of subrogation, contribution or indemnification arising
pursuant to any guarantees given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such person has a reasonable basis to
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guarantee the face amount of such liability as reduced to
reflect the probability of it becoming a matured liability).
1.66 "Subsidiary" or "subsidiary" shall mean, with respect to any Person,
any corporation, limited liability company, limited liability partnership or
other limited or general partnership, trust, association or other business
entity of which an aggregate of at least a majority of the outstanding Capital
Stock or other interests entitled to vote in the election of the board of
directors of such corporation (irrespective of whether, at the time, Capital
Stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency), managers, trustees
or other controlling persons, or an equivalent controlling interest therein, of
such Person is, at the time, directly or indirectly, owned by such Person and/or
one or more subsidiaries of such Person.
18
22
1.67 "UCC" shall mean the Uniform Commercial Code as in effect in the
State of California , and any successor statute, as in effect from time to time
(except that terms used herein which are defined in the Uniform Commercial Code
as in effect in the State of California on the date hereof shall continue to
have the same meaning notwithstanding any replacement or amendment of such
statute except as Lender may otherwise determine).
1.68 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in first-out
basis in accordance with GAAP or (b) market value provided, that, for purposes
of the calculation of the Borrowing Base, (i) the Value of the Inventory shall
not include (A) the portion of the value of Inventory equal to the profit earned
by any Affiliate on the sale thereof to Borrower or (B) write-ups or write-downs
in value with respect to currency exchange rates and (ii) notwithstanding
anything to the contrary contained herein, the cost of the Inventory shall be
computed in the same manner and consistent with the most recent appraisal of the
Inventory received and accepted by Lender prior to the date hereof, if any.
1.69 "Voting Stock" shall mean with respect to any Person, (a) one (1) or
more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
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 lesser of: (i) the Borrowing
Base or (ii) the Revolving Loan Limit.
(b) Lender may, in its discretion, from time to time, upon not less
than ten (10) Business Days' prior notice to Borrower (or, if an Event of
Default exists or has occurred and is continuing, then without notice to
Borrower): (i) reduce the lending formula with respect to Eligible Accounts by
an amount equal to one percent (1%) for each one (1) percentage point by which
"Dilution" (as hereinafter defined) exceeds seven percent (7%) for any period
designated by Lender (e.g. an 80% lending formula with respect to Eligible
Accounts shall reduce to 77% in the event Dilution, for a period designated by
Lender, is 10%). "Dilution" with respect to the Accounts for any period shall
mean the extent by which 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 or may be reasonably anticipated to increase above
historical levels; or (ii) reduce the lending formula(s) to the extent that
Lender determines in good faith that the general creditworthiness of account
debtors has declined; or (iii) reduce the lending formula(s) with respect to
Eligible Inventory to the extent that Lender determines that the number of days
of the turnover of the Inventory for any period has changed or the liquidation
value of the Eligible Inventory, or any category thereof, has decreased,
including any such decrease attributable to any
19
23
change in the nature, quality or mix of the Inventory. Except for decreases
based upon Dilution, the amount of any decrease in the lending formulas shall
have a reasonable relationship to the event, condition or circumstance which is
the basis for such decrease as determined by Lender in good faith. 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 Reserves.
(c) Except in Lender's discretion, (i) the aggregate amount of the
Revolving Loans outstanding at any time shall not exceed the Revolving Loan
Limit and (ii) 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 pursuant to the Borrowing Base, the Revolving Loan
Limit, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(e) 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, except as otherwise set forth in Section 1.62 of this Agreement,
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.
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 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 one and one-half (1.5%)
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 three and one-half (3.5%) 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) Borrower shall give Lender two (2) Business Days' prior written
of Borrower's request for the issuance of a Letter of Credit Accommodation. Such
notice shall be irrevocable and shall specify the original face amount of the
Letter of Credit Accommodation requested, the effective date (which date shall
be a Business Day) of issuance of such requested
20
24
Letter of Credit Accommodation, whether such Letter of Credit Accommodations may
be drawn in a single or in partial draws, the date on which such requested
Letter of Credit Accommodation is to expire (which date shall be a Business
Day), the purpose for which such Letter of Credit Accommodation is to be issued,
and the beneficiary of the requested Letter of Credit Accommodation. Borrower
shall attach to such notice the proposed form of the Letter of Credit
Accommodation.
(d) In addition to being subject to the satisfaction of the
applicable conditions precedent contained in Section 4 hereof and the other
terms and conditions contained herein, no Letter of Credit Accommodations shall
be available unless each of the following conditions precedent have been
satisfied in a manner satisfactory to Lender: (i) Borrower shall have delivered
to the proposed issuer of such Letter of Credit Accommodation at such times and
in such manner as such proposed issuer may require, an application in form and
substance satisfactory to such proposed issuer and Lender for the issuance of
the Letter of Credit Accommodation and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed Letter of
Credit Accommodation shall be satisfactory to Lender and such proposed issuer,
(ii) as of the date of issuance, no order of any court, arbitrator or other
Governmental Authority shall purport by its terms to enjoin or restrain money
center banks generally from issuing letters of credit of the type and in the
amount of the proposed Letter of Credit Accommodation, and no law, rule or
regulation applicable to money center banks generally and no request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed issuer of such Letter of Credit Accommodation refrain
from, the issuance of letters of credit generally or the issuance of such
Letters of Credit Accommodation; and (iii) the Excess Availability, prior to
giving effect to any Reserves with respect to such Letter of Credit
Accommodations, on the date of the proposed issuance of any Letter of Credit
Accommodations, shall be equal to or greater than: (A) if the proposed Letter of
Credit Accommodation is for the purpose of purchasing Eligible Inventory and the
documents of title with respect thereto are consigned to the issuer, the sum of
(1) the percentage equal to one hundred (100%) percent minus the then applicable
percentage with respect to Eligible Inventory set forth in the definition of the
term Borrowing Base multiplied by the Value of such Eligible Inventory, plus (2)
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 (B) if the proposed Letter of Credit Accommodation is for any other purpose
or the documents of title are not consigned to the issuer in connection with a
Letter of Credit Accommodation for the purpose of purchasing Inventory, 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, a
Reserve shall be established in the applicable amount set forth in Section
2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).
(e) 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
$500,000.
(f) 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
21
25
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. 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 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, except for the gross negligence
or willful misconduct of Lender as determined pursuant to a final,
non-appealable order of a court of competent jurisdiction. The provisions of
this Section 2.2(f) shall survive the payment of Obligations and the termination
or non-renewal of this Agreement.
(g) In connection with Inventory purchased pursuant to Letter of
Credit Accommodations, Borrower shall, at Lender's request, instruct all
suppliers, carriers, forwarders, customs brokers, warehouses or others receiving
or holding cash, checks, Inventory, documents or instruments in which Lender
holds a security interest to deliver them to Lender and/or subject to Lender's
order, and if they shall come into Borrower's possession, to deliver them, upon
Lender's request, to Lender in their original form. Borrower shall also, at
Lender's request, designate Lender as the consignee on all bills of lading and
other negotiable and non-negotiable documents.
(h) Borrower hereby irrevocably authorizes and directs any issuer of
a Letter of Credit Accommodation to name Borrower as the account party therein
and to deliver to Lender all instruments, documents and other writings and
property received by issuer pursuant to the Letter of Credit Accommodations and
to accept and rely upon Lender's instructions and agreements with respect to all
matters arising in connection with the Letter of Credit Accommodations or the
applications therefor. 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: 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.
22
26
(i) 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.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the Loans at the Interest Rate. All interest accruing
hereunder on and after the date of any Event of Default or termination or
non-renewal hereof shall be payable on demand.
(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 on non-contingent Obligations 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 based on the Prime Rate in effect on the last day of the month in
which any such change occurs. 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 such 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 $120,000 which shall be fully earned as of the date hereof and payable
one half (1/2) ($60,000) at the date of closing and one half (1/2) ($60,000) at
the first anniversary of the date of closing.
3.3 Facility Fee. Borrower shall pay to Lender annually a facility fee
in an amount equal to $ N.A. while this Agreement is 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 each anniversary of the date hereof.
3.4 Servicing Fee . Borrower shall pay to Lender monthly a servicing fee
in an amount equal to $3,500 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. The $3,500 monthly servicing fee shall be reduced to $3,000 per month
the first full month following the conclusion of the sale, to a third party, of
100% of the stock or all or substantially all of the assets of any one of the
following: Zila, ZP, Xxxxx Dental, or Inter-Cal.
23
27
3.5 Unused Line Fee . Borrower shall pay to Lender monthly an unused
line fee at a rate equal to one-quarter of one (0.25%) percent per annum
calculated upon the amount by which Ten Million Dollars ($10,000,000) exceeds
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.
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, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lenders to
Borrower of their respective financing arrangements with Borrower and the
termination and release by it or them, as the case may be, of any interest in
and to any assets and properties of Borrower and each Obligor, duly authorized,
executed and delivered by it or each of them, including, but not limited to, UCC
termination statements for all UCC financing statements previously filed by it
or any of them or their predecessors, as secured party and Borrower or any
Obligor, as debtor;
(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 Authority (and including a copy
of the certificate of incorporation of Borrower certified by the Secretary of
State (or equivalent Governmental Authority) which shall set forth the same
complete corporate name of Borrower as is set forth herein and such document as
shall set forth the organizational identification number of Borrower, if one is
issued in its jurisdiction of incorporation);
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower 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 (including,
without limitation, current perpetual inventory records and/or roll-forwards of
Accounts and Inventory through the date of and test counts of the Inventory in a
manner satisfactory to Lender, together with such supporting documentation as
may be necessary or appropriate, and other documents and information that will
enable Lender to accurately identify and verify the Collateral), the results of
which each case shall be satisfactory to Lender, not more than three (3)
Business Days prior to the date hereof;
24
28
(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, without limitation, Collateral Access
Agreements by owners and lessors of leased premises of Borrower and by
warehouses at which Collateral is located;
(f) the Excess Availability as determined by Lender, solely as of
the date of the initial funding, shall be not less than $2,500,000 after giving
effect to the initial Loans made or to be made and the initial Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions hereunder;
(g) Lender shall have received, in form and substance satisfactory
to Lender, Deposit Account Control Agreements by and among Lender, Borrower and
each bank where Borrower has a deposit account, in each case, duly authorized,
executed and delivered by such bank and Borrower (or Lender shall be the bank's
customer with respect to such deposit account, as Lender may specify);
(h) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has a valid perfected first priority
security interest in all of the Collateral;
(i) Lender shall have received and reviewed lien and judgment search
results for the jurisdiction of incorporation or organization of Borrower, the
jurisdiction of the chief executive office of Borrower and all jurisdictions in
which assets of Borrower are located, which search results shall be in form and
substance satisfactory to Lender;
(j) OMITTED.
(k) OMITTED.
(l) 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;
(m) 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, including but
not limited to a status letter (the "Status Letter") with respect to any pending
investigation(s) of Borrower by the Securities and Exchange Commission ("SEC
Investigation(s)") and any pending shareholder lawsuit(s) against Borrower
("Shareholder Lawsuit(s)");
(n) Lender has reviewed, and approved the adequacy of, Borrower's
insurance with respect to the SEC Investigation(s) and the Shareholder
Lawsuit(s); and
25
29
(o) 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 to the
extent that such representations and warranties expressly relate solely to an
earlier date (in which case such representations and warranties shall have been
true and accurate on and as of such earlier date);
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall exist, and no action, suit, investigation,
litigation or proceeding shall be pending or threatened in any court or before
any arbitrator or Governmental Authority, which (i) purports to enjoin,
prohibit, restrain or otherwise affect (A) the making of the Loans or providing
the Letter of Credit Accommodations, or (B) the consummation of the transactions
contemplated pursuant to the terms hereof or the other Financing Agreements or
(ii) has or could reasonably be expected to have a material adverse effect on
the assets, business or prospects of Borrower or would impair the ability of
Borrower to perform its obligations hereunder or under any of the other
Financing Agreements or of Lender to enforce any Obligations or realize upon any
of the Collateral; and
(c) no Default or 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 AND PERFECTION OF SECURITY INTEREST
5.1 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, all personal property and fixtures and interests in personal property
and fixtures of Borrower, whether now owned or hereafter acquired or existing,
and wherever located (together with all other collateral security for the
Obligations at any time granted to or held or acquired by Lender, collectively,
the "Collateral"), including:
(a) all Accounts;
(b) all general intangibles, including, without limitation, all
Intellectual Property;
(c) all goods, including, without limitation, Inventory and
Equipment;
26
30
(d) all fixtures, except fixtures located at Zila's headquarters
located at 0000 Xxxxx 0xx Xxxxxx, Xxxxxxx, Xxxxxxx;
(e) all chattel paper (including all tangible and electronic chattel
paper);
(f) all instruments (including all promissory notes);
(g) all documents;
(h) all deposit accounts;
(i) all letters of credit, banker's acceptances and similar
instruments and including all letter-of-credit rights;
(j) all supporting obligations and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Receivables and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of account debtors or
other persons securing the obligations of account debtors;
(k) all (i) investment property (including securities, whether
certificated or uncertificated, securities accounts, security entitlements,
commodity contracts or commodity accounts) and (ii) monies, credit balances,
deposits 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;
(l) all commercial tort claims, including, without limitation, those
identified in the Information Certificate;
(m) to the extent not otherwise described above, all Receivables;
(n) all Records; and
(o) 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 or other involuntary conversion of any kind or
nature of any or all of the other Collateral.
5.2 Perfection of Security Interests.
(a) Borrower irrevocably and unconditionally authorizes Lender (or
its agent) to file at any time and from time to time such financing statements
with respect to the Collateral naming Lender or its designee as the secured
party and Borrower as debtor, as Lender may require, and including any other
information with respect to Borrower or otherwise required by
27
31
part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as
Lender may determine, together with any amendment and continuations with respect
thereto, which authorization shall apply to all financing statements filed on,
prior to or after the date hereof. Borrower hereby ratifies and approves all
financing statements naming Lender or its designee as secured party and Borrower
as debtor with respect to the Collateral (and any amendments with respect to
such financing statements) filed by or on behalf of Lender prior to the date
hereof and ratifies and confirms the authorization of Lender to file such
financing statements (and amendments, if any). Borrower hereby authorizes Lender
to adopt on behalf of Borrower any symbol required for authenticating any
electronic filing. In the event that the description of the collateral in any
financing statement naming Lender or its designee as the secured party and
Borrower as debtor includes assets and properties of Borrower that do not at any
time constitute Collateral, whether hereunder, under any of the other Financing
Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by Borrower to the extent of the Collateral
included in such description and it shall not render the financing statement
ineffective as to any of the Collateral or otherwise affect the financing
statement as it applies to any of the Collateral. In no event shall Borrower at
any time file, or permit or cause to be filed, any correction statement or
termination statement with respect to any financing statement (or amendment or
continuation with respect thereto) naming Lender or its designee as secured
party and Borrower as debtor.
(b) Borrower does not have any chattel paper (whether tangible or
electronic) or instruments as of the date hereof, except as set forth in the
Information Certificate. In the event that Borrower shall be entitled to or
shall receive any chattel paper or instrument after the date hereof, Borrower
shall promptly notify Lender thereof in writing. Promptly upon the receipt
thereof by or on behalf of Borrower (including by any agent or representative),
Borrower shall deliver, or cause to be delivered to Lender, all tangible chattel
paper and instruments that Borrower or may at any time acquire, accompanied by
such instruments of transfer or assignment duly executed in blank as Lender may
from time to time specify, in each case except as Lender may otherwise agree. At
Lender's option, Borrower shall, or Lender may at any time on behalf of
Borrower, cause the original of any such instrument or chattel paper to be
conspicuously marked in a form and manner acceptable to Lender with the
following legend referring to chattel paper or instruments as applicable: "This
[chattel paper][instrument] is subject to the security interest of Congress
Financial Corporation (Western) and any sale, transfer, assignment or
encumbrance of this [chattel paper][instrument] violates the rights of such
secured party."
(c) In the event that Borrower shall at any time hold or acquire an
interest in any electronic chattel paper or any "transferable record" (as such
term is defined in Section 201 of the Federal Electronic Signatures in Global
and National Commerce Act or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction), Borrower shall
promptly notify Lender thereof in writing. Promptly upon Lender's request,
Borrower shall take, or cause to be taken, such actions as Lender may reasonably
request to give Lender control of such electronic chattel paper under Section
9-105 of the UCC and control of such transferable record under Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect
in such jurisdiction.
28
32
(d) Borrower does not have any deposit accounts as of the date
hereof, except as set forth in the Information Certificate. Borrower shall not,
directly or indirectly, after the date hereof open, establish or maintain any
deposit account unless each of the following conditions is satisfied: (i) Lender
shall have received not less than five (5) Business Days prior written notice of
the intention of Borrower to open or establish such account which notice shall
specify in reasonable detail and specificity acceptable to Lender the name of
the account, the owner of the account, the name and address of the bank at which
such account is to be opened or established, the individual at such bank with
whom Borrower is dealing and the purpose of the account, (ii) the bank where
such account is opened or maintained shall be acceptable to Lender, and (iii) on
or before the opening of such deposit account, Borrower shall as Lender may
specify either (A) deliver to Lender a Deposit Account Control Agreement with
respect to such deposit account duly authorized, executed and delivered by
Borrower and the bank at which such deposit account is opened and maintained or
(B) arrange for Lender to become the customer of the bank with respect to the
deposit account on terms and conditions acceptable to Lender. The terms of this
subsection (d) shall not apply to deposit accounts specifically and exclusively
used for payroll, payroll taxes and other employee wage and benefit payments to
or for the benefit of Borrower's salaried employees.
(e) Except for treasury stock and stock of Subsidiaries (the
"Excluded Securities"), Borrower does not own or hold, directly or indirectly,
beneficially or as record owner or both, any investment property, as of the date
hereof, or have any investment account, securities account, commodity account or
other similar account with any bank or other financial institution or other
securities intermediary or commodity intermediary as of the date hereof, in each
case except as set forth in Schedule 5.2 of the Information Certificate.
(i) In the event that Borrower shall be entitled to or shall
at any time after the date hereof hold or acquire any certificated securities
other than the Excluded Securities, Borrower shall promptly endorse, assign and
deliver the same to Lender, accompanied by such instruments of transfer or
assignment duly executed in blank as Lender may from time to time specify. If
any securities, other than the Excluded Securities, now or hereafter acquired by
Borrower are uncertificated and are issued to Borrower or its nominee directly
by the issuer thereof, Borrower shall immediately notify Lender thereof and
shall as Lender may specify, either (A) cause the issuer to agree to comply with
instructions from Lender as to such securities, without further consent of
Borrower or such nominee, or (B) arrange for Lender to become the registered
owner of the securities.
(ii) Borrower shall not, directly or indirectly, after the
date hereof open, establish or maintain any investment account, securities
account, commodity account or any other similar account (other than a deposit
account) with any securities intermediary or commodity intermediary unless each
of the following conditions is satisfied: (A) Lender shall have received not
less than five (5) Business Days prior written notice of the intention of
Borrower to open or establish such account which notice shall specify in
reasonable detail and specificity acceptable to Lender the name of the account,
the owner of the account, the name and address of the securities intermediary or
commodity intermediary at which such account is to be opened or established, the
individual at such intermediary with whom Borrower is dealing and the purpose of
the account, (B) the securities intermediary or commodity intermediary (as the
case may be) where such account is opened or maintained shall be acceptable to
Lender, and (C) on or before the opening of such investment account, securities
account or other similar account
29
33
with a securities intermediary or commodity intermediary, Borrower shall as
Lender may specify either (1) execute and deliver, and cause to be executed and
delivered to Lender, an Investment Property Control Agreement with respect
thereto duly authorized, executed and delivered by Borrower and such securities
intermediary or commodity intermediary or (2) arrange for Lender to become the
entitlement holder with respect to such investment property on terms and
conditions acceptable to Lender.
(f) Borrower is not the beneficiary or otherwise entitled to any
right to payment under any letter of credit, banker's acceptance or similar
instrument as of the date hereof, except as set forth in Schedule 5.2 of the
Information Certificate. In the event that Borrower shall be entitled to or
shall receive any right to payment under any letter of credit, banker's
acceptance or any similar instrument, whether as beneficiary thereof or
otherwise after the date hereof, Borrower shall promptly notify Lender thereof
in writing. Borrower shall immediately, as Lender may specify, either (i)
deliver, or cause to be delivered to Lender, with respect to any such letter of
credit, banker's acceptance or similar instrument, the written agreement of the
issuer and any other nominated person obligated to make any payment in respect
thereof (including any confirming or negotiating bank), in form and substance
satisfactory to Lender, consenting to the assignment of the proceeds of the
letter of credit to Lender by Borrower and agreeing to make all payments thereon
directly to Lender or as Lender may otherwise direct or (ii) cause Lender to
become, at Borrower's expense, the transferee beneficiary of the letter of
credit, banker's acceptance or similar instrument (as the case may be).
(g) Borrower has no commercial tort claims as of the date hereof,
except as set forth in Schedule 5.2 of the Information Certificate. In the event
that Borrower shall at any time after the date hereof have any commercial tort
claims, Borrower shall promptly notify Lender thereof in writing, which notice
shall (i) set forth in reasonable detail the basis for and nature of such
commercial tort claim and (ii) include the express grant by Borrower to Lender
of a security interest in such commercial tort claim (and the proceeds thereof).
In the event that such notice does not include such grant of a security
interest, the sending thereof by Borrower to Lender shall be deemed to
constitute such grant to Lender. Upon the sending of such notice, any commercial
tort claim described therein shall constitute part of the Collateral and shall
be deemed included therein. Without limiting the authorization of Lender
provided in Section 5.2(a) hereof or otherwise arising by the execution by
Borrower of this Agreement or any of the other Financing Agreements, Lender is
hereby irrevocably authorized from time to time and at any time to file such
financing statements naming Lender or its designee as secured party and Borrower
as debtor, or any amendments to any financing statements, covering any such
commercial tort claim as Collateral. In addition, Borrower shall promptly upon
Lender's request, execute and deliver, or cause to be executed and delivered, to
Lender such other agreements, documents and instruments as Lender may require in
connection with such commercial tort claim.
(h) Borrower does not have any goods, documents of title or other
Collateral in the custody, control or possession of a third party as of the date
hereof, except as set forth in Schedule 5.2 of the Information Certificate and
except for goods located in the United States in transit to a location of
Borrower permitted herein in the ordinary course of business of Borrower in the
possession of the carrier transporting such goods. In the event that any goods,
documents of the title or other Collateral are at any time after the date hereof
in the custody, control or possession of any other person not referred to in the
Information Certificate or such carriers,
30
34
Borrower shall promptly notify Lender thereof in writing. Promptly upon Lender's
request, Borrower shall deliver to Lender a Collateral Access Agreement duly
authorized, executed and delivered by such person and Borrower.
(i) Borrower shall take any other actions reasonably requested by
Lender from time to time to cause the attachment, perfection and first priority
of, and the ability of Lender to enforce, the security interest of Lender in any
and all of the Collateral, including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the UCC or other applicable law, to the extent, if any,
that Borrower's signature thereon is required therefor, (ii) causing Lender's
name to be noted as secured party on any certificate of title for a titled good
if such notation is a condition to attachment, perfection or priority of, or
ability of Lender to enforce, the security interest of Lender in such
Collateral, (iii) complying with any provision of any statute, regulation or
treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability of
Lender to enforce, the security interest of Lender in such Collateral, (iv)
obtaining the consents and approvals of any Governmental Authority or third
party, including, without limitation, any consent of any licensor, lessor or
other person obligated on Collateral, and taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant
jurisdiction.
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, the "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender.
During any period that any one or more of the Dominion Conditions (defined
below) exists, Borrower shall promptly deposit, and direct its account debtors
to directly remit, into the Blocked Accounts all payments on Receivables and all
payments constituting proceeds of Inventory or other Collateral in the identical
form in which
31
35
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 of 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 at any time after notice
from Lender 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 (the "Payment Account"). Lender will only instruct the depository banks
at which the Blocked Accounts are maintained to transfer all funds received or
deposited into the Blocked Accounts to the Payment Account at any time that any
one or more of the Dominion Conditions (defined below) shall exist. Until such
time as Lender shall instruct the depository banks at which the Blocked Accounts
are maintained to remit the funds to the Payment Account, such funds in the
Blocked Accounts shall be remitted to the operating disbursement accounts of
Borrower. In the event that at any time after Lender has instructed the
depository banks to transfer such funds to the Payment Account, each of the
Dominion Conditions (defined below) does not exist for a period of thirty (30)
consecutive days, upon written request, Lender shall instruct such depository
banks to transfer the funds on deposit in such accounts to such operating
disbursement accounts of Borrower as Borrower may specify in writing to Lender
until such time as Lender is entitled to notify the depository banks otherwise
as provided above. Borrower agrees that all payments made to such Blocked
Accounts or other funds received and collected by Lender, whether in respect of
the Accounts, as proceeds of Inventory or other Collateral, or otherwise, shall
be treated as payments to Lender in respect of the Obligations and therefore
shall constitute the property of Lender to the extent of the then outstanding
Obligations. For purposes of this Agreement, the term "Dominion Conditions"
shall mean and include the following: (i) an Event of Default shall exist or
have occurred and be continuing; (ii) the aggregate amount of the outstanding
Loans and Letter of Credit Accommodations at any time shall exceed the amount
equal to fifty (50%) percent of the Borrowing Base at such time; or (iii) the
Excess Availability shall be less than $5,000,000.
(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 Lender 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 Lender 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 the event that at any time or from time to time there are no
Loans outstanding, Lender shall be entitled to an administrative charge in an
amount equivalent to the interest Lender would have received for such Business
Day had there been Loans outstanding on such day.
(c) Borrower and its shareholders, directors, employees, agents,
Subsidiaries or other Affiliates shall, acting as trustee for Lender, receive,
as the property of Lender, any monies,
32
36
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 .
(a) All Obligations shall be payable to the Lender Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender shall 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) as follows: first, to pay any fees, indemnities
or expense reimbursements then due to Lender from Borrower; second, to pay
interest due in respect of any Loans; third, to pay principal due in respect of
the Loans; fourth, to pay or prepay any other Obligations whether or not then
due, in such order and manner as Lender determines. Notwithstanding anything to
the contrary contained in this Agreement, to the extent Borrower uses any
proceeds of the Loans or Letter of Credit Accommodations to acquire rights in or
the use of any Collateral or to repay any Indebtedness used to acquire rights in
or the use of any Collateral, payments in respect of the obligations shall be
deemed applied first to the Obligations arising from Loans and Letter of Credit
Accommodations that were not used for such purposes and second to the
Obligations arising from Loans and Letter of Credit Accommodations the proceeds
of which were used to acquire rights in or the use of any Collateral in the
chronological order in which Borrower acquired such rights or use.
(b) 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 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
33
37
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. Los Angeles
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 initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower 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 COLLATERAL COVENANTS
7.1 Collateral Reporting .
(a) Borrower shall provide Lender with the following documents in a
form satisfactory to Lender:
(i) on a regular basis as required by Lender, a schedule of
sales made, credits issued and cash received;
(ii) as soon as possible after the end of each month (but in
any event within ten (10) Business Days after the end thereof), on a monthly
basis or more frequently as Lender may request, (A) perpetual inventory reports,
(B) inventory reports by location and category (including identifying Inventory
at locations owned and operated by third parties or on consignment), (C) agings
of accounts payable (and including information indicating the status of payments
to owners and lessors of the leased premises of Borrower) and (D) agings of
accounts receivable (together with a reconciliation to the previous month's
aging and general ledger);
(iii) upon Lender's request, (A) copies of customer statements
and credit memos, remittance advices and reports, and copies of deposit slips
and bank statements, (B) copies of shipping and delivery documents, and (C)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrower;
34
38
(iv) such other reports as to the Collateral as Lender shall
request from time to time; and
(b) 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 .
(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 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 and except as set forth in the schedules
delivered to Lender pursuant to Section 7.1(a) above. So long as no Event of
Default exists or has occurred and is continuing, Borrower shall 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) 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, (v) none of the transactions
giving rise thereto will violate any applicable foreign, Federal, State or local
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.
(c) 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 the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
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
35
39
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 on or
after an Event of Default, 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 (i) the removal of
Inventory in connection with the manufacturing of Inventory in accordance with
Borrower's customary practices, (ii) sales of Inventory in the ordinary course
of Borrower's business, (iii) the movement of Inventory directly from one
location set forth or permitted herein to another such location, and (iv) the
shipment of Inventory from the manufacturer thereof to Borrower so long as such
Inventory is in transit to the locations set forth or permitted herein; (d) upon
Lender's request, Borrower shall, at its expense, no more frequently than once
in any twelve (12) month period, but 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 appraisals as to the Inventory in form, scope and methodology acceptable
to Lender and by an appraiser acceptable to Lender, addressed to Lender and 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) none of the Inventory or other Collateral constitutes farm products or the
proceeds thereof; (g) Borrower assumes all responsibility and liability arising
from or relating to the production, use, sale or other disposition of the
Inventory; (h) 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 insofar as such sales are conducted in the
ordinary course of Borrower's business pursuant to Borrower's customary business
practices ; (i) Borrower shall keep the Inventory in good and marketable
condition; and (j) Borrower shall not, without prior written notice to Lender or
the specific identification of such Inventory with respect thereto provided by
Borrower to Lender pursuant to Section 7.1(a) hereof, 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 appraisals as to the Equipment in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender and upon which Lender is expressly permitted to rely; (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 to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of Borrower or to
move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrower shall not
36
40
permit any of the Equipment to be or become a part of or affixed to real
property; 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 Receivables or other Collateral, (ii) enforce payment of
Receivables by legal proceedings or otherwise, (iii) exercise all of Borrower's
rights and remedies to collect any Receivable or other Collateral, (iv) sell or
assign any Receivable 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 Receivable, (vii) prepare, file and
sign Borrower's name on any proof of claim in bankruptcy or other similar
document against an account debtor or other obligor in respect of any
Receivables or other Collateral, (viii) notify the post office authorities to
change the address for delivery of remittances from account debtors or other
obligors in respect of Receivables or other proceeds of Collateral to an address
designated by Lender, and open and dispose of all mail addressed to Borrower and
handle and store all mail relating to the Collateral; and (ix) do all acts and
things which are necessary, in Lender's 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 in respect of
Receivables or constituting Collateral or otherwise received in or for deposit
in the Blocked Accounts or otherwise received by Lender, (ii) have access to any
lockbox or postal box into which remittances from account debtors or other
obligors in respect of Receivables or other proceeds of Collateral are sent or
received, (iii) endorse Borrower's name upon any items of payment in respect of
Receivables or constituting Collateral or otherwise received by Lender and
deposit the same in 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 Receivable or any goods
pertaining thereto or any other Collateral, including any warehouse or other
receipts, or bills of lading and other negotiable or non-negotiable documents,
(v) clear Inventory the purchase of which was financed with Letter of Credit
Accommodations through U.S. Customs or foreign export control authorities in
Borrower's name, Lender's name or the name of Lender's designee, and to sign and
deliver to customs officials powers of attorney in Borrower's name for such
purpose, and to complete in Borrower's or Lender's name, any order, sale or
transaction, obtain the necessary documents in connection therewith and collect
the proceeds thereof, (vi) sign Borrower's name on any verification of
Receivables and notices thereof to account debtors or any secondary obligors or
other obligors in respect thereof. 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) upon notice to
Borrower, cure any default by Borrower under any material agreement with a third
party that affects the Collateral, its value or the ability of Lender to
collect, sell or otherwise dispose of the Collateral or the rights and remedies
of Lender therein or the ability of Borrower to perform its obligations
hereunder or under the other Financing Agreements, (b) pay or bond on appeal any
judgment entered against Borrower, (c) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (d) pay any amount, incur any
37
41
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 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) Lender or its designee may 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 Receivables 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 . Borrower 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 have
a material adverse effect on Borrower's financial condition, results of
operation or business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the other Financing
Agreements and the transactions contemplated hereunder and thereunder (a) are
all within Borrower's corporate powers, (b) have been duly authorized, (c) 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 and (d) will not result in the creation or imposition of,
or require or give rise to any obligation to grant, any lien, security interest,
charge or other encumbrance upon any property of Borrower. This Agreement and
the other Financing Agreements constitute legal, valid and binding obligations
of Borrower enforceable in accordance with their respective terms.
8.2 Name; State of Organization; Chief Executive Office; Collateral
Locations.
38
42
(a) The exact legal name of Borrower is as set forth on the
signature page of this Agreement and in the Information Certificate. Borrower
has not, during the past five years, been known by or used any other corporate
or fictitious name or been a party to any merger or consolidation, or acquired
all or substantially all of the assets of any Person, or acquired any of its
property or assets out of the ordinary course of business, except as set forth
in the Information Certificate.
(b) Borrower is an organization of the type and organized in the
jurisdiction set forth in the Information Certificate. The Information
Certificate accurately sets forth the organizational identification number of
Borrower or accurately states that Borrower has none and accurately sets forth
the federal employer identification number of Borrower.
(c) The chief executive office and mailing address of Borrower and
Borrower's Records concerning Accounts are located only at the address
identified as such in Schedule 8.2 to the Information Certificate and its only
other places of business and the only other locations of Collateral, if any, are
the addresses set forth in Schedule 8.2 to 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.
8.3 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower (other than projections) which have been or may
hereafter be delivered by Borrower to Lender have been prepared in accordance
with GAAP (except as to any interim financial statements, to the extent such
statements are subject to normal year-end adjustments and do not include any
notes) and fairly present the financial condition and the results of operation
of Borrower 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, since the date of the most recent audited financial statements
furnished by Borrower to Lender prior to the date of this Agreement.
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 subject only to the liens indicated on Schedule 8.4 to
the Information Certificate and the other liens permitted under Section 9.8
hereof. Borrower has good, valid and merchantable title to all of its properties
and assets 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 to the Information Certificate
or permitted under Section 9.8 hereof.
8.5 Tax Returns . Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it. All information in such tax returns, reports and declarations is complete
and accurate in all material respects. Borrower has paid or caused to be paid
all taxes due and payable or claimed due and payable in any assessment received
by it, except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books. Adequate
provision has been made for the payment of
39
43
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 in Schedule 8.6 to the Information
Certificate, there is no present investigation by any Governmental Authority
pending, or to the best of Borrower's knowledge threatened, against or affecting
Borrower, its 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 its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against Borrower would result in any material adverse change in the assets,
business or prospects of Borrower or would impair the ability of Borrower to
perform its obligations hereunder or under any of the other Financing Agreements
to which it is a party or of Lender to enforce any Obligations or realize upon
any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws . Except as set
forth in Schedule 8.7 to the Information Certificate, Borrower is not in default
in any material respect under, or in violation in any material 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 Borrower
is in compliance in all material respects with all applicable provisions of
laws, rules, regulations, licenses, permits, approvals and orders of any
foreign, Federal, State or local Governmental Authority.
8.8 Environmental Compliance .
(a) Except as set forth on Schedule 8.8 to the Information
Certificate, Borrower and any Subsidiary 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 any applicable Environmental Law or any
license, permit, certificate, approval or similar authorization thereunder and
the operations of Borrower and any Subsidiary complies in all material respects
with all Environmental Laws and all licenses, permits, certificates, approvals
and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 to the Information
Certificate, 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 and any Subsidiary 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 business, operations or assets or any
properties at which Borrower has transported, stored or disposed of any
Hazardous Materials.
(c) Borrower and its Subsidiaries have no material liability
(contingent or otherwise) 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.
40
44
(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 under any Environmental Law
and all of such licenses, permits, certificates, approvals or similar
authorizations are valid and in full force and effect.
8.9 Employee Benefits.
(a) Each Plan is in compliance with the applicable provisions of
ERISA, the Code and other federal or state law. Each Plan which is intended to
qualify under Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service and to the best of Borrower's
knowledge, nothing has occurred which would cause the loss of such
qualification. Borrower and its ERISA Affiliates have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or to the best of Borrower's knowledge,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan. There has been no prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) the current value of each Plan's assets (determined in accordance
with the assumptions used for funding such Plan pursuant to Section 412 of the
Code) are not less than such Plan's liabilities under Section 4001(a)(16) of
ERISA; (iii) Borrower and its ERISA Affiliates have not incurred and do not
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) Borrower and its ERISA Affiliates have not incurred and do not
reasonably expect to incur, any liability (and no event has occurred which, with
the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) Borrower and its ERISA Affiliates have not engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
8.10 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 in Schedule 8.10 to the Information
Certificate, subject to the right of Borrower to establish new accounts in
accordance with Section 5.2 hereof.
8.11 Intellectual Property . Borrower owns or licenses or otherwise has
the right to use all Intellectual Property necessary for the operation of its
business as presently conducted or proposed to be conducted. As of the date
hereof, Borrower does not have any Intellectual Property registered, or subject
to pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof, any political
subdivision thereof or in any other country, other than those described in
Schedule 8.11 to the Information Certificate hereto and has not granted any
licenses with respect thereto other than as set forth in Schedule 8.11 to the
Information Certificate. No event has occurred which permits or would permit
after notice or passage of time or both, the revocation, suspension or
termination of such rights. To the best of Borrower's knowledge, no slogan or
other advertising
41
45
device, product, process, method, substance or other Intellectual Property or
goods bearing or using any Intellectual Property presently contemplated to be
sold by or employed by Borrower infringes any patent, trademark, servicemark,
tradename, copyright, license or other Intellectual Property owned by any other
Person presently and no claim or litigation is pending or threatened against or
affecting Borrower contesting its right to sell or use any such Intellectual
Property. Schedule 8.11 to the Information Certificate sets forth all of the
agreements or other arrangements of Borrower pursuant to which Borrower has a
license or other right to use any trademarks, logos, designs, representations or
other Intellectual Property owned by another person as in effect on the date
hereof and the dates of the expiration of such agreements or other arrangements
of Borrower as in effect on the date hereof (collectively, together with such
agreements or other arrangements as may be entered into by Borrower after the
date hereof, collectively, the "License Agreements" and individually, a "License
Agreement"). No trademark, servicemark or other Intellectual Property at any
time used by Borrower which is owned by another person, or owned by Borrower
subject to any security interest, lien, collateral assignment, pledge or other
encumbrance in favor of any person other than Lender, is affixed to any Eligible
Inventory, except to the extent permitted under the term of the License
Agreements listed on Schedule 8.11 to the Information Certificate.
8.12 Subsidiaries; Affiliates; Capitalization; Solvency .
(a) Borrower does not have any direct or indirect Subsidiaries or
Affiliates and is not engaged in any joint venture or partnership except as set
forth in Schedule 8.12 to the Information Certificate, subject to the right of
Borrower to form or acquire Subsidiaries in accordance with Section 9.10 hereof.
(b) Borrower is the record and beneficial owner of all of the issued
and outstanding shares of Capital Stock of each of the Subsidiaries listed on
Schedule 8.12 to the Information Certificate as being owned by Borrower and
there are no proxies, irrevocable or otherwise, with respect to such shares and
no equity securities of any of the Subsidiaries are or may become required to be
issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any kind or nature and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is or may become bound to
issue additional shares of it Capital Stock or securities convertible into or
exchangeable for such shares.
(c) The issued and outstanding shares of Capital Stock of Borrower
are directly and beneficially owned and held by the persons indicated in the
Information Certificate, and in each case all of such shares have been duly
authorized and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
Lender prior to the date hereof.
(d) Borrower is Solvent and will continue to be Solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder.
8.13 Labor Disputes .
(a) Set forth on Schedule 8.13 to the Information Certificate is a
list (including dates of termination) of all collective bargaining or similar
agreements between or applicable to
42
46
Borrower and any union, labor organization or other bargaining agent in respect
of the employees of Borrower on the date hereof.
(b) There is (i) no significant unfair labor practice complaint
pending against Borrower or, to the best of Borrower's knowledge, threatened
against it, before the National Labor Relations Board, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is pending on the date hereof against Borrower
or, to best of Borrower's knowledge, threatened against it, and (ii) no
significant strike, labor dispute, slowdown or stoppage is pending against
Borrower or, to the best of Borrower's knowledge, threatened against Borrower.
8.14 Restrictions on Subsidiaries . Except for restrictions contained in
this Agreement or any other agreement with respect to Indebtedness of Borrower
permitted hereunder as in effect on the date hereof, there are no contractual or
consensual restrictions on Borrower or any of its Subsidiaries which prohibit or
otherwise restrict (a) the transfer of cash or other assets (i) between Borrower
and any of its Subsidiaries or (ii) between any Subsidiaries of Borrower or (b)
the ability of Borrower or any of its Subsidiaries to incur Indebtedness or
grant security interests to Lender in the Collateral.
8.15 Material Contracts . Schedule 8.15 to the Information Certificate
sets forth all Material Contracts to which Borrower is a party or is bound as of
the date hereof. Borrower has delivered true, correct and complete copies of
such Material Contracts to Lender on or before the date hereof. Borrower is not
in breach of or in default under any Material Contract and has not received any
notice of the intention of any other party thereto to terminate any Material
Contract.
8.16 Payable Practices . Borrower has not made any material change in the
historical accounts payable practices from those in effect immediately prior to
the date hereof.
8.17 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 prior to
the date hereof.
8.18 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.
43
47
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence.
(a) Borrower 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.
(b) Borrower shall not change its name unless each of the following
conditions is satisfied: (i) Lender shall have received not less than thirty
(30) days prior written notice from Borrower of such proposed change in its
corporate name, which notice shall accurately set forth the new name; and (ii)
Lender shall have received a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation or organization of
Borrower as soon as it is available. The foregoing shall not limit Borrower's
ability to transact business under any existing or future fictitious name(s)
that Borrower may elect to use, provided that Borrower gives Lender notice of
all such fictitious names, as required pursuant to this Agreement.
(c) Borrower shall not change its chief executive office or its
mailing address or organizational identification number (or if it does not have
one, shall not acquire one) unless Lender shall have received not less than
thirty (30) days' prior written notice from Borrower of such proposed change,
which notice shall set forth such information with respect thereto as Lender may
require and Lender shall have received such agreements as Lender may reasonably
require in connection therewith. Borrower shall not change its type of
organization, jurisdiction of organization or other legal structure.
9.2 New Collateral Locations. Borrower may only open any new location
within the continental United States if Borrower: (a) prior to the opening of
such new location, gives Lender (i) thirty (30) days written notice if
Collateral having an aggregate value of $20,000 or more will be maintained at
such new location, and (ii) five (5) days written notice if Collateral having an
aggregate value of less than $20,000 will be maintained at 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 necessary or
desirable to protect its interests in the Collateral at such new location.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, and shall cause any Subsidiary to, 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 foreign, Federal, State or local Governmental Authority, including ERISA,
the Code, the Occupational Safety and Health Act of 1970, as amended, the Fair
Labor Standards Act of 1938, as amended, and all statutes, rules, regulations,
orders, permits and stipulations relating to environmental pollution and
employee health and safety, including all of the Environmental Laws.
(b) Borrower shall give written notice to Lender immediately upon
Borrower's receipt of any notice of, or Borrower's otherwise obtaining knowledge
of, (i) the occurrence of
44
48
any event involving the release, spill or discharge, threatened or actual, of
any Hazardous Material that is not in compliance with all Environmental Laws, or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any applicable Environmental Law by Borrower or (B) the release, spill or
discharge, threatened or actual, of any Hazardous Material other than in the
ordinary course of business and other than as permitted under any applicable
Environmental Law. 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 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) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is material non-compliance, or any
condition which requires any action by or on behalf of Borrower in order to
avoid any material non-compliance, with any Environmental Law, 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 non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such 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.
(d) 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 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 and the preparation and implementation of any closure, remedial or
other required plans. 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 shall, and shall cause any
Subsidiary to, 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 such Subsidiary, as
the case may be, 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.
45
49
9.5 Insurance. Borrower shall, and shall cause any Subsidiary to, 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. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall, and shall cause any Subsidiary to, 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. Borrower shall promptly
furnish to Lender all such financial and other information as Lender shall
reasonably request relating to the Collateral and the assets, business and
operations of Borrower, and to notify the auditors and accountants of Borrower
that Lender is authorized to obtain such information directly from them. Without
limiting the foregoing, Borrower shall furnish or cause to be furnished to
Lender, the following: (i) within twenty (20) days after the end of each fiscal
month, monthly unaudited consolidated financial statements (consisting of
balance sheets, statements of income and loss, and statements of cash flow), and
unaudited consolidating 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, certified to be
correct by the chief financial officer of Borrower, subject to normal year-end
adjustments and accompanied by a compliance certificate substantially in the
form of Exhibit B hereto, along with a schedule in form reasonably satisfactory
to Lender of the calculations used in determining, as of the end of such month,
whether Borrower was in compliance with the covenants set forth in Section 9.17
of this Agreement for such month; (ii) within forty-five (45) days after the end
of each fiscal quarter, quarterly unaudited consolidated financial statements
(consisting of balance sheets, statements of income and loss, and statements of
cash flow), and unaudited consolidating 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
46
50
quarter, certified to be correct by the chief financial officer of Borrower,
subject to normal year-end adjustments; and (iii) within ninety (90) days after
the end of each fiscal year, audited consolidated financial statements
(consisting of balance sheets, statements of income and loss, statements of cash
flow, and statements of shareholders' equity), and unaudited consolidating
financial statements of Borrower and its Subsidiaries (consisting of balance
sheets and statements of income and loss), 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 independent
certified public accountants, which accountants shall be an independent
accounting firm 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
business, properties, assets, goodwill or condition, financial or otherwise,
(ii) any Material Contract of Borrower being terminated or amended or any new
Material Contract entered into (in which event Borrower shall provide Lender
with a copy of such Material Contract), (iii) any order, judgment or decree in
excess of $250,000 shall have been entered against Borrower or any of its
properties or assets, (iv) any notification of violation of laws or regulations
received by Borrower, (v) any ERISA Event, and (vi) the occurrence of any
Default or 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, 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 to any
court or other Governmental Authority, if required to do so, 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 any reports or management letters prepared by such accountants or auditors
on behalf of Borrower and to disclose to Lender such information as they may
have regarding the business of Borrower. 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 Mergers (defined below), Borrower shall not, and shall not permit any
Subsidiary to (and Lender does not authorize Borrower to), directly or
indirectly,
47
51
(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; or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of
any Capital Stock 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) the disposition of worn-out or obsolete Equipment so long as (A)
any proceeds are paid to Lender and (B) such sales do not involve Equipment
having an aggregate fair market value in excess of $250,000 for all such
Equipment disposed of in any fiscal year of Borrower and (iii) the issuance and
sale by Borrower or any Subsidiary of Capital Stock of Borrower or such
Subsidiary after the date hereof; provided, that, (A) if any of the proceeds of
such issuance and sale are not received by Borrower or such Subsidiary, as the
case may be, Lender shall have received not less than ten (10) Business Days
prior written notice of such issuance and sale by Borrower, which notice shall
specify the parties to whom such shares are to be sold, the terms of such sale,
the total amount which it is anticipated will be realized from the issuance and
sale of such stock and the net cash proceeds which it is anticipated will be
received by Borrower or such Subsidiary from such sale, (B) Borrower shall not
be required to pay any cash dividends or repurchase or redeem such Capital Stock
or make any other payments in respect thereof in excess of the payments
authorized pursuant to Section 9.11 hereof, (C) the terms of such Capital Stock,
and the terms and conditions of the purchase and sale thereof, shall not include
any terms that include any limitation on the right of Borrower to request or
receive Loans or Letter of Credit Accommodations or the right of Borrower to
amend or modify any of the terms and conditions of this Agreement or any of the
other Financing Agreements or otherwise in any way relate to or affect the
arrangements of Borrower with Lender or are more restrictive or burdensome to
Borrower than the terms of any Capital Stock in effect on the date hereof, and
(D) as of the date of such issuance and sale and after giving effect thereto, no
Default or Event of Default shall exist or have occurred;
(c) wind up, liquidate or dissolve; or
(d) agree to do any of the foregoing.
"Permitted Mergers" shall mean and include any mergers meeting all
of the following requirements:
(i) the merger parties are (A) a wholly-owned subsidiary of
Borrower formed solely for the purpose of such merger, and (B)
an unrelated target entity;
(ii) the surviving entity in the merger transaction shall,
effective immediately upon completion of the merger, at
Lender's option become either (A) a borrower under this
Agreement, assuming all of the Obligations, or (B) a guarantor
of the Obligations, and in either case shall execute and
deliver to Lender any and all instruments, agreements and
other documents deemed necessary by Lender in connection
therewith; and
48
52
(iii) the total acquisition price in the merger transaction does not
exceed $2,000,000.
9.8 Encumbrances. Borrower shall not, and shall permit any Subsidiary
to, create, incur, assume, suffer or permit 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) the
security interests and liens 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
such Subsidiary, as the case may be 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 such 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 such 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) purchase money security interests
in Equipment (including Capital Leases) to secure Indebtedness permitted under
Section 9.9(b) hereof; (e) encumbrances assumed in connection with any
acquisition by Borrower or any Subsidiary that is not prohibited by this
Agreement; and (f) the security interests and liens set forth on Schedule 8.4 to
the Information Certificate.
9.9 Indebtedness. Borrower shall not, and shall not permit any
Subsidiary to, incur, create, assume, become or be liable in any manner with
respect to, suffer or permit to exist, any Indebtedness or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
performance, dividends or other obligations of any Person, except:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases) arising
after the date hereof to the extent secured by purchase money security interests
in Equipment (including Capital Leases) not to exceed $1,500,000 in the
aggregate at any time outstanding so long as such security interests do not
apply to any property of Borrower other than the Equipment so acquired, and the
Indebtedness secured thereby does not exceed the cost of the Equipment so
acquired, as the case may be;
(c) guarantees by any Subsidiaries of Borrower of the Obligations in
favor of Lenders;
(d) Indebtedness of Borrower under interest swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
exchange agreements and similar contractual agreements entered into for the
purpose of protecting a Person against fluctuations in interest rates; provided,
that, such arrangements are with banks or other financial institutions that have
combined capital and surplus and undivided profits of not less than $250,000,000
and are not for speculative purposes and such Indebtedness shall be unsecured;
49
53
(e) unsecured Indebtedness of Borrower arising after the date hereof
to any third person (other than Indebtedness otherwise permitted under this
Section 9.9), provided that, in the event of any transaction which causes such
unsecured Indebtedness of Borrower to exceed $100,000 outstanding in the
aggregate, each of the following conditions is satisfied as determined by
Lender: (i) such Indebtedness shall be on terms and conditions acceptable to
Lender and shall be subject and subordinate in right of payment to the right of
Lender to receive the prior indefeasible payment and satisfaction in full
payment of all of the Obligations pursuant to the terms of an intercreditor
agreement between Lender and such third party, in form and substance
satisfactory to Lender, (ii) Lender shall have received not less than ten (10)
days prior written notice of the intention of Borrower to incur such
Indebtedness, which notice shall set forth in reasonable detail satisfactory to
Lender the amount of such Indebtedness, the person or persons to whom such
Indebtedness will be owed, the interest rate, the schedule of repayments and
maturity date with respect hereto and such other information as Lender may
reasonably request with respect thereto, (iii) Lender shall have received true,
correct and complete copies of all agreements, documents and instruments
evidencing or otherwise related to such Indebtedness, (iv) on and before the
date of incurring such Indebtedness and after giving effect thereto, no Default
or Event of Default shall exist or have occurred, (v) Borrower shall not,
directly or indirectly, (A) amend, modify, alter or change the terms of such
Indebtedness or any agreement, document or instrument related thereto, except,
that, Borrower may, after prior written notice to Lender, amend, modify, alter
or change the terms thereof so as to extend the maturity thereof, or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness (except pursuant to
regularly scheduled payments permitted herein), or set aside or otherwise
deposit or invest any sums for such purpose, and (vi) Borrower shall furnish to
Lender all notices or demands in connection with such Indebtedness either
received by Borrower or on its behalf promptly after the receipt thereof, or
sent by Borrower or on its behalf concurrently with the sending thereof, as the
case may be;
(f) Indebtedness assumed in connection with any acquisition by
Borrower or any Subsidiary that is not prohibited by this Agreement; and
(g) the Indebtedness set forth on Schedule 9.9 to the Information
Certificate; provided, that, (i) Borrower may only make regularly scheduled
payments of principal and interest in respect of such Indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change any material term of such
Indebtedness or any document or instrument related thereto as in effect on the
date hereof (and, for the purposes hereof, "any material term" includes, but is
not limited to, any term which would change the amount of such Indebtedness),
except, that, Borrower may, after prior written notice to Lender, amend, modify,
alter or change the terms thereof so as to extend the maturity thereof, or defer
the timing of any payments in respect thereof, or to forgive or cancel any
portion of such Indebtedness (other than pursuant to payments thereof), or to
reduce the interest rate or any fees in connection therewith, 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 on its behalf, promptly after the
receipt
50
54
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
9.10 Loans, Investments, Etc. Borrower shall not, and shall not permit
any Subsidiary to, directly or indirectly, make, or suffer or permit to exist,
any loans or advance money or property to any person, or any investment in (by
capital contribution, dividend or otherwise) or purchase or repurchase the
Capital Stock or Indebtedness or all or a substantial part of the assets or
property of any person (except as allowed pursuant to a Permitted Merger), or
form or acquire any Subsidiaries (except as allowed pursuant to a Permitted
Merger), 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 cash or Cash Equivalents, provided, that, (i) no
Revolving Loans are then outstanding and (ii) the terms and conditions of
Section 5.2 hereof shall have been satisfied with respect to the deposit account
or investment account in which such cash or Cash Equivalents are held;
(c) the existing equity investments of Borrower or any Subsidiary as
of the date hereof in any other Borrower or any Subsidiary, provided, that,
Borrower shall have no obligation to make any other investment in, or loans to,
or other payments in respect of, any such Subsidiaries;
(d) equity investments of Borrower or any Subsidiary in any
wholly-owned Subsidiary incorporated under the laws of any State of the United
States of America formed or acquired after the date hereof, provided, that, (i)
promptly upon such formation or acquisition, Borrower shall cause any such
Subsidiary to execute and deliver to Lender, in form and substance satisfactory
to Lender, (A) an absolute and unconditional guarantee of payment of the
Obligations, (B) a security agreement granting to Lender a first security
interest and lien (except as otherwise consented to in writing by Lender) upon
all of the assets of such Subsidiary, and (C) such other agreements, documents
and instruments as Lender may require, including, but not limited to,
supplements and amendments hereto and other loan agreements or instruments
evidencing Indebtedness of such new Subsidiary to Lender, (ii) promptly upon
Lender's request: (A) Borrower shall execute and deliver to Lender, in form and
substance satisfactory to Lender, a pledge and security agreement granting to
Lender a first pledge of and lien on all of the issued and outstanding shares of
Capital Stock of such Subsidiary, and (B) Borrower shall deliver the original
stock certificates evidencing such shares of Capital Stock (or such other
evidence as may be issued in the case of a limited liability company or other
entity) together with stock powers with respect thereto duly executed in blank
(or the equivalent thereof in the case of a limited liability company), (iii) as
of the date of any payment in respect of such investment and after giving effect
thereto, no Default or Event of Default shall exist or have occurred, (iv) in no
event shall the aggregate amount of all capital contributions, investments or
other amounts paid by Borrower or any Subsidiary to any new Subsidiary formed or
acquired after the date hereof or to any other person for or otherwise in
connection with the formation or acquisition thereof exceed $2,000,000, and (v)
as of the date of any payment in respect of such investment and after giving
effect thereto, the Excess Availability (A) shall be not less than $2,500,000,
and (B) for each of the immediately preceding thirty (30) consecutive days shall
have been not less than $2,500,000.
51
55
(e) stock or obligations issued to Borrower by any Person (or the
representative of such Person) in respect of Indebtedness of such Person owing
to Borrower in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of the debts of
such Person; provided, that, the original of any such stock or instrument
evidencing such obligations shall be promptly delivered to Lender, upon Lender's
request, together with such stock power, assignment or endorsement by Borrower
as Lender may request;
(f) obligations of account debtors to Borrower arising from Accounts
which are past due evidenced by a promissory note made by such account debtor
payable to Borrower; provided, that, promptly upon the receipt of the original
of any such promissory note by Borrower, such promissory note shall be endorsed
to the order of Lender by Borrower and promptly delivered to Lender as so
endorsed;
(g) the loans and advances set forth on Schedule 9.10 to the
Information Certificate; provided, that, as to such loans and advances, (i)
Borrower shall not, directly or indirectly, amend, modify, alter or change the
terms of such loans and advances or any agreement, document or instrument
related thereto and (ii) Borrower shall furnish to Lender all notices or demands
in connection with such loans and advances either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be; and
(h) loans from one Borrower (the "Loaning Borrower") to another
Borrower or Subsidiary, provided that: (i) both immediately before and
immediately after the making of any such loan, the Net Worth of the Loaning
Borrower is equal to no less than: (A) $1,000,000 if the Loaning Borrower is
Zila or ZP, (B) $5,000,000 if the Loaning Borrower is Xxxxx Dental, and (C)
$10,000,000 if the Loaning Borrower is Inter-Cal; and (ii) the total of all such
loans outstanding to the following entities shall not at any time exceed
$750,000 in the aggregate: Zila Limited, a United Kingdom corporation, Zila
International, Inc., and Zila Acquisition Corp.
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 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 in any case in the form of shares of Capital Stock
consisting of common stock, provided that, Borrower may do any of the foregoing
to the extent that the aggregate value of such dividends, redemptions and other
actions does not exceed $750,000 in any calendar year.
9.12 Transactions with Affiliates. Except as set forth on Schedule 9.12
of the Information Certificate, Borrower 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, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to the Borrower than Borrower would obtain in a comparable arm's
length transaction with an
52
56
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 Affiliate of Borrower except
reasonable compensation to officers, employees and directors for services
rendered to Borrower in the ordinary course of business.
9.13 Compliance with ERISA. Borrower shall and shall cause each of its
ERISA Affiliates to: (a) maintain each Plan (other than a Multiemployer Plan) in
compliance in all material respects with the applicable provisions of ERISA, the
Code and other Federal and State law; (b) cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; (c) not
terminate any of such Plans so as to incur any liability to the Pension Benefit
Guaranty Corporation; (d) not allow or suffer to exist any prohibited
transaction involving any of such Plans or any trust created thereunder which
would subject Borrower or such ERISA Affiliate to a tax or penalty or other
liability on prohibited transactions imposed under Section 4975 of the Code or
ERISA; (e) make all required contributions to any Plan which it is obligated to
pay under Section 302 of ERISA, Section 412 of the Code or the terms of such
Plan; (f) not allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such Plan; or (g) not allow or suffer
to exist any occurrence of a reportable event or any other event or condition
which presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such Plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation.
9.14 End of Fiscal Years: Fiscal Quarters. Borrower shall, for financial
reporting purposes, cause its, and each of its Subsidiaries' (a) fiscal years to
end on July 31 of each year and (b) fiscal quarters to end on October 31,
January 31, April 30 and July 31 of each year.
9.15 Change in Business. Borrower shall not engage in any business other
than the business of Borrower on the date hereof and any business reasonably
related, ancillary or complimentary to the business in which Borrower is engaged
on the date hereof.
9.16 Limitation of Restrictions Affecting Subsidiaries. Borrower shall
not, directly, or indirectly, create or otherwise cause or suffer to exist any
encumbrance or restriction which prohibits or limits the ability of any
Subsidiary of Borrower to (a) pay dividends or make other distributions or pay
any Indebtedness owed to Borrower or any Subsidiary of Borrower; (b) make loans
or advances to Borrower or any Subsidiary of Borrower, (c) transfer any of its
properties or assets to Borrower or any Subsidiary of Borrower; or (d) create,
incur, assume or suffer to exist any lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, other than encumbrances and
restrictions arising under (i) applicable law, (ii) this Agreement, (iii)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of Borrower or any of its Subsidiaries, (iv) customary
restrictions on dispositions of real property interests found in reciprocal
easement agreements of Borrower or its Subsidiary, (v) any agreement relating to
permitted Indebtedness incurred by a Subsidiary of Borrower prior to the date on
which such Subsidiary was acquired by Borrower and outstanding on such
acquisition date, and (vi) the extension or continuation of contractual
obligations in existence on the date hereof; provided, that, any such
encumbrances or restrictions contained in such extension or continuation are no
less favorable to Lender than those encumbrances and restrictions under or
pursuant to the contractual obligations so extended or continued.
53
57
9.17 Adjusted Tangible Net Worth. Zila, on a consolidated basis, shall,
at all times, maintain Adjusted Tangible Net Worth of not less than $22,000,000,
provided that, the amount of such minimum Adjusted Tangible Net Worth shall be
increased, or decreased, by the amount of any net gain, or net loss,
respectively, resulting from any sale to a third party of 100% of the stock or
all or substantially all of the assets of any of the following: Zila, ZP, Xxxxx
Dental, or Inter-Cal.
9.18 OMITTED.
9.19 License Agreements.
(a) Borrower shall (i) promptly and faithfully observe and perform
all of the material terms, covenants, conditions and provisions of the material
License Agreements to be observed and performed by it, at the times set forth
therein, if any, (ii) not do, permit, suffer or refrain from doing anything
could reasonably be expected to result in a default under or breach of any of
the terms of any material License Agreement, (iii) not cancel, surrender,
modify, amend, waive or release any material License Agreement in any material
respect or any term, provision or right of the licensee thereunder in any
material respect, or consent to or permit to occur any of the foregoing; except,
that, subject to Section 9.19(b) below, Borrower may cancel, surrender or
release any material License Agreement in the ordinary course of the business of
Borrower; provided, that, Borrower shall give Lender not less than thirty (30)
days prior written notice of its intention to so cancel, surrender and release
any such material License Agreement, (iv) give Lender prompt written notice of
any material License Agreement entered into by Borrower after the date hereof,
together with a true, correct and complete copy thereof and such other
information with respect thereto as Lender may request, (v) give Lender prompt
written notice of any material breach of any obligation, or any default, by any
party under any material License Agreement, and deliver to Lender (promptly upon
the receipt thereof by Borrower in the case of a notice to Borrower, and
concurrently with the sending thereof in the case of a notice from Borrower) a
copy of each notice of default and every other notice and other communication
received or delivered by Borrower in connection with any material License
Agreement which relates to the right of Borrower to continue to use the property
subject to such License Agreement, and (vi) furnish to Lender, promptly upon the
request of Lender, such information and evidence as Lender may require from time
to time concerning the observance, performance and compliance by Borrower or the
other party or parties thereto with the terms, covenants or provisions of any
material License Agreement.
(b) Borrower will either exercise any option to renew or extend the
term of each material License Agreement in such manner as will cause the term of
such material License Agreement to be effectively renewed or extended for the
period provided by such option and give prompt written notice thereof to Lender
or give Lender prior written notice that Borrower does not intend to renew or
extend the term of any such material License Agreement or that the term thereof
shall otherwise be expiring, not less than sixty (60) days prior to the date of
any such non-renewal or expiration. If Borrower fails to extend or renew any
material License Agreement, then upon (i) notice from Lender that Borrower's
failure to extend or renew such License Agreement constitutes an Event of
Default, and (ii) the continuing failure by Borrower to extend or renew such
License Agreement for a period of thirty (30) days following such notice, Lender
shall have, and is hereby granted, the irrevocable right and authority, at its
option, to renew or extend the term of such material License Agreement, whether
in its own name and
54
58
behalf, or in the name and behalf of a designee or nominee of Lender or in the
name and behalf of Borrower, as Lender shall determine at any time that an Event
of Default shall exist or have occurred and be continuing. Lender may, but shall
not be required to, perform any or all of such obligations of any Borrower under
any of the License Agreements, including, but not limited to, the payment of any
or all sums due from Borrower thereunder. Any sums so paid by Lender shall
constitute part of the Obligations.
9.20 OMITTED.
9.21 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, 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, 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; (c) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (d) costs and expenses of preserving and protecting the
Collateral; (e) 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); (f) 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 $750 per person per day for
Lender's examiners in the field and office; and (g) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.22 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.
55
59
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) Borrower fails to (i) pay any of the Obligations within two (2)
days after the same become(s) due and payable, or (ii) perform any of the terms,
covenants, conditions or provisions contained in this Agreement or any of the
other Financing Agreements (other than as described in subsection (i) of this
paragraph) and such failure shall continue for ten (10) Business Days, provided
that, such ten (10) Business Day period shall not apply in the case of: (A) any
failure to observe any such term, covenant, condition or provision which is not
capable of being cured at all or within such ten (10) Business Day period, or
which has been the subject of a prior failure within a six (6) month period; or
(B) an intentional breach by Borrower of any such term, covenant, condition or
provision; or (C) the failure to observe or perform any of the covenants or
provisions contained in sub-sections (b), (c), (e), (f), (g), (h), (j), (k), (m)
or (n) of this Section 10.1 or any covenants or agreements covering
substantially the same matter as such sections in any of the other Financing
Agreements;
(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 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 $500,000 in any one case or in excess of
$500,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of sixty (60) 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 which is a partnership, limited
liability company, limited liability partnership or a corporation, 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
56
60
of its properties and such petition or application is not dismissed within sixty
(60) 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
(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 $500,000, 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 Material Contract, which default continues for more
than the applicable cure period, if any, with respect thereto;
(j) any bank at which any deposit account of Borrower is maintained
shall fail to comply with any of the terms of any Deposit Account Control
Agreement to which such bank is a party or any securities intermediary,
commodity intermediary or other financial institution at any time in custody,
control or possession of any investment property of Borrower shall fail to
comply with any of the terms of any Investment Property Control Agreement to
which such person is a party;
(k) any material provision hereof or of any of the other Financing
Agreements shall for any reason cease to be valid, binding and enforceable with
respect to any party hereto or thereto (other than Lender) in accordance with
its terms, or any such party shall challenge the enforceability hereof or
thereof, or shall assert in writing, or take any action or fail to take any
action based on the assertion that any provision hereof or of any of the other
Financing Agreements has ceased to be or is otherwise not valid, binding or
enforceable in accordance with its terms, or any security interest provided for
herein or in any of the other Financing Agreements shall cease to be a valid and
perfected first priority security interest in any of the Collateral purported to
be subject thereto (except as otherwise permitted herein or therein) and
Borrower fails to provide Lender a perfected first priority security interest in
such Collateral immediately upon Lender's request;
(l) an ERISA Event shall occur which results in or could reasonably
be expected to result in liability of Borrower in an aggregate amount in excess
of $500,000;
(m) any Change of Control without Lender's prior written consent;
(n) the indictment by any Governmental Authority, or as Lender may
reasonably and in good faith determine, the threatened indictment by any
Governmental Authority of Borrower or any Obligor (other than in connection with
any pending SEC Investigations or any pending Shareholder Lawsuits described in
the Status Letter, as those terms are defined in
57
61
Section 4.1 of this Agreement) of which Borrower, any Obligor or Lender receives
notice, in either case, as to which there is a reasonable possibility of an
adverse determination, in the good faith determination of Lender, under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceedings against Borrower pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of (i) any of the
Collateral having a value in excess of $250,000, or (ii) any other property of
Borrower which is necessary or material to the conduct of its business;
(o) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof; or
(p) 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 UCC 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
UCC 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 or of this Agreement or any of the other Financing Agreements. Agent
may, at any time or times, proceed directly against Borrower or any Obligor to
collect the Obligations without prior recourse to any Obligor or any of 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 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)
58
62
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. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either, as Lender shall
specify, furnish cash collateral to the issuer to be used to secure and fund
Lender's 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. Such cash collateral shall be in the amount equal to one
hundred ten (110%) percent of the amount of the Letter of Credit Accommodations
plus the amount of any fees and expenses payable in connection therewith through
the end of the expiration of such Letter of Credit Accommodations.
(c) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, enforce Borrower's rights against any account
debtor, secondary obligor or other obligor in respect of any of the Accounts or
other Receivables. Without limiting the generality of the foregoing, Lender may
at such time or times (i) notify any or all account debtors, secondary obligors
or other obligors in respect thereof that the Receivables have been assigned to
Lender and that Lender has a security interest therein and Lender may direct any
or all accounts debtors, secondary obligors and other obligors to make payment
of Receivables 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 Receivables or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any secondary obligors or other obligors in respect thereof
without affecting any of the Obligations, (iii) demand, collect or enforce
payment of any Receivables 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. 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, hold the returned
Inventory in trust for Lender, segregate all returned Inventory from all of its
other property, dispose of the returned Inventory solely according to Lender's
instructions, and not issue any credits, discounts or allowances with respect
thereto without Lender's prior written consent.
(d) To the extent that applicable law imposes duties on Lender to
exercise remedies in a commercially reasonable manner (which duties cannot be
waived under such law), Borrower acknowledges and agrees that it is not
commercially unreasonable for Agent and Lenders (i) to fail to incur expenses
reasonably deemed significant by Agent or any Lender to
59
63
prepare Collateral for disposition or otherwise to complete raw material or work
in process into finished goods or other finished products for disposition, (ii)
to fail to obtain third party consents for access to Collateral to be disposed
of, or to obtain or, if not required by other law, to fail to obtain consents of
any Governmental Authority or other third party for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to
exercise collection remedies against account debtors, secondary obligors or
other persons obligated on Collateral or to remove liens or encumbrances on or
any adverse claims against Collateral, (iv) to exercise collection remedies
against account debtors and other persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other persons, whether or not in the same business as Borrower for
expressions of interest in acquiring all or any portion of the Collateral, (vii)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to
insure Lender against risks of loss, collection or disposition of Collateral or
to provide to Lender a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by Lender, to obtain the
services of other brokers, investment bankers, consultants and other
professionals to assist Lender in the collection or disposition of any of the
Collateral. Borrower acknowledges that the purpose of this Section is to provide
non-exhaustive indications of what actions or omissions by Borrower would not be
commercially unreasonable in Lender's exercise of remedies against the
Collateral and that other actions or omissions by Lender shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section. Without limitation of the foregoing, nothing contained in this Section
shall be construed to grant any rights to Borrower or to impose any duties on
Lender that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section.
(e) For the purpose of enabling Lender to exercise the rights and
remedies hereunder, Borrower hereby grants to Lender, effective immediately upon
the occurrence and during the continuance of an Event of Default, to the extent
assignable, an irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to Borrower) to use, assign, license or
sublicense any of the trademarks, service-marks, trade names, business names,
trade styles, designs, logos and other source of business identifiers and other
Intellectual Property and general intangibles now owned or hereafter acquired by
Borrower, wherever the same maybe located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
(f) 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.
60
64
(g) Without limiting the foregoing, upon the occurrence of a Default
or 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 California
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Los Angeles County Superior Court and the
United States District Court for the Central District of California, whichever
Lender may elect, 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 herein and
service so made shall be deemed to be completed five (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. Within thirty (30) days after such service, Borrower shall appear in
answer to such process, failing which Borrower shall be deemed in default and
judgment may be entered by Lender against Borrower for the amount of the claim
and other relief requested.
(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
61
65
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 of Lender. In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement. Except as prohibited by law, Borrower waives any right which it may
have to claim or recover in any litigation with Lender any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. Borrower: (i) certifies that neither Lender nor any
representative, agent or attorney acting for or on behalf of Lender has
represented, expressly or otherwise, that Lender would not, in the event of
litigation, seek to enforce any of the waivers provided for in this Agreement or
any of the other Financing Agreements and (ii) acknowledges that in entering
into this Agreement and the other Financing Agreements, Lender is relying upon,
among other things, the waivers and certifications set forth in this Section
11.1 and elsewhere herein and therein.
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 chattel 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
62
66
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, 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 fees and expenses of
counsel, except to the extent the foregoing arises from the gross negligence or
willful misconduct of Lender, as determined by a court of competent
jurisdiction. 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.
63
67
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 three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Lender or Borrower 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.
In addition, Borrower may terminate this Agreement at any time upon ten (10)
days prior written notice to Lender (which notice shall be irrevocable) and
Lender may terminate this Agreement at any time on or after an Event of Default.
Upon the effective date of termination or non-renewal of this Agreement,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender (or at Lender's option, a letter of
credit issued for the account of Borrower and at Borrower's expense, in form and
substance satisfactory to Lender, by an issuer acceptable to Lender and payable
to Lender as beneficiary) in such amounts as Lender determines are reasonably
necessary to secure (or reimburse) Lender from loss, cost, damage or expense,
including 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 11:00 a.m., Los Angeles 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. Accordingly, Borrower waives any rights
which it may have under the UCC to demand the filing of termination statements
with respect to the Collateral, and Lender shall not be required to send such
termination statements to Borrower, or to file them with any filing office,
unless and until this Agreement is terminated in accordance with its terms and
all of the Obligations are paid and satisfied in full in immediately available
funds.
(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:
64
68
Amount Period
------ ------
Three (3%) percent of From the date hereof to and
the Maximum Credit including August 31, 2002
One (1%) percent of From September 1, 2002 to and
the Maximum Credit including July 31, 2004
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.
If and only if (i) Borrower requests, in writing, a reduction in the Maximum
Credit to an amount (the "Reduced Maximum Credit") not less than $10,000,000,
and (ii) upon the making of such request, and at all times thereafter, no
Default or Event of Default exists or has occurred and is continuing, and (iii)
such reduction does not occur within sixty (60) days prior to the termination of
this Agreement, then the Reduced Maximum Credit shall be used for purposes of
calculating such early termination fee.
Notwithstanding the foregoing, such early termination fee shall be:
(A) reduced to one-half of one (1/2%) percent of the Maximum Credit if
the termination occurs as the result of (i) a sale of one hundred
(100%) percent of the issued and outstanding common stock of
Borrower or (ii) all or substantially all of the assets of Borrower;
(B) waived if the termination occurs as the result of Borrower
refinancing and repaying all unpaid Obligations due Lender from
proceeds generated as a result of a loan transaction that Borrower
enters into with First Union National Bank, or its successors, as
lender.
12.2 Interpretative Provisions.
(a) All terms used herein which are defined in Article 1 or Article
9 of the UCC shall have the meanings given therein unless otherwise defined in
this Agreement.
(b) 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.
(c) 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.
65
69
(d) 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.
(e) The word "including" when used in this Agreement shall mean
"including, without limitation".
(f) All references to the term "good faith" used herein when
applicable to Lender shall mean, notwithstanding anything to the contrary
contained herein or in the UCC, honesty in fact in the conduct or transaction
concerned. Borrower shall have the burden of proving any lack of good faith on
the part of Lender alleged by Borrower at any time.
(g) 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, if such Event of Default is capable of
being cured as determined by Lender.
(h) Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be computed
unless otherwise specifically provided herein, in accordance with GAAP as
consistently applied and using the same method for inventory valuation as used
in the preparation of the financial statements of Borrower most recently
received by Lender prior to the date hereof.
(i) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including", the words "to"
and "until" each mean "to but excluding" and the word "through" means "to and
including".
(j) Unless otherwise expressly provided herein, (i) references
herein to any agreement, document or instrument shall be deemed to include all
subsequent amendments, modifications, supplements, extensions, renewals,
restatements or replacements with respect thereto, but only to the extent the
same are not prohibited by the terms hereof or of any other Financing Agreement,
and (ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, recodifying, supplementing or interpreting the statute or regulation.
(k) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(l) This Agreement and other Financing Agreements may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(m) This Agreement and the other Financing Agreements are the result
of negotiations among and have been reviewed by counsel to Lender and the other
parties, and are the products of all parties. Accordingly, this Agreement and
the other Financing Agreements
66
70
shall not be construed against Lender merely because of Lender's involvement in
their preparation.
12.3 Notices. All notices, requests and demands hereunder shall be in
writing and 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. All notices, requests and
demands upon the parties are to be given to the following addresses (or to such
other address as any party may designate by notice in accordance with this
Section):
If to Borrower: Zila, Inc.
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to: Xxxxxxx & Xxxxx Xxxxxxx Xxxx, LLP
Renaissance Xxx,
Xxx Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Attention: Xxxxxxxxx Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
If to Lender: Congress Financial Corporation (Western)
000 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Portfolio Manager
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to: Levy, Small & Xxxxxx
000 Xxxxxx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxx, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
12.4 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.
67
71
12.5 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.
12.6 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 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.
12.7 Counterparts, Etc. This Agreement or any of the other Financing
Agreements may be executed in any number of counterparts, each of which shall be
an original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile shall have the same force and effect
as the delivery of an original executed counterpart of this Agreement or any of
such other Financing Agreements. Any party delivering an executed counterpart of
any such agreement by telefacsimile shall also deliver an original executed
counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.
68
72
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 ZILA, INC.
(WESTERN)
By: /s/ Xxxxx Xxxxxx By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------- -----------------------------
Xxxxx Xxxxxx Xxxxxxx X. Xxxxxxxx
Title: Executive Vice President Title: Chief Financial Officer/
Vice President
Address: Chief Executive Office:
000 Xxxxx Xxxx Xxxxxx, Xxxxx 000 0000 Xxxxx 0xx Xxxxxx
Xxxxxxxx, XX 00000 Xxxxxxx, XX 00000-0000
BORROWER BORROWER
ZILA PHARMACEUTICALS, INC. XXXXX DENTAL OF KENTUCKY, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------- -----------------------------
Xxxxxxx X. Xxxxxxxx Xxxxxxx X. Xxxxxxxx
Title: Treasurer Title: Treasurer
Chief Executive Office: Chief Executive Office:
0000 Xxxxx 0xx Xxxxxx 0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, XX 00000-0000 Xxxxxxx, XX 00000-0000
BORROWER
INTER-CAL CORPORATION, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------
Xxxxxxx X. Xxxxxxxx
Title: Treasurer
Chief Executive Office:
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, XX 00000-0000
69
