Exhibit 10.1
ENAMELON, INC.
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower.
SECTION 1. DEFINITIONS
1.1 The "Borrower" is identified in Section 10.6(c) and its
successors and assigns. If more than one Borrower is specified in Section
10.6(c), all references to Borrower shall mean each of them, jointly and
severally, individually and collectively, and the successors and assigns of
each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its
agents, designees, representatives, successors and assigns.
1.3 "Private Placement" means the offer and sale of Borrower's
equity and/or debt securities to institutional and/or accredited investors
pursuant to Section 4(2) of the Securities Act of 1933, as amended, from which
Borrower receives gross proceeds of at least $5,000,000.00.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and
conditions contained herein, make revolving loans to Borrower ("Revolving
Loans") in amounts requested by Borrower from time to time, but not in excess of
the Net Availability existing immediately prior to the making of the requested
loan and provided the requested loan would not cause the outstanding Obligations
to exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a).
(b) The "Gross Availability" is at any time (i) the product of the
outstanding amount of Eligible Accounts, multiplied by the Eligible Accounts
Percentage set forth in Section 10.1(b) (subject to the sublimits on
availability relating to certain Eligible Accounts, as more fully set forth in
Section 10.1(d)), plus: (ii) following consummation by Borrower of the Private
Placement, and its receipt of the gross proceeds therefrom (so long as and to
the extent that at such time and after giving effect thereto, Borrower is not
and would not otherwise be in default of any of its obligations under this
Agreement) the product(s) obtained by multiplying the applicable Eligible
Inventory Percentage(s), if any, set forth in Section 10.1(b) by the values
(based on the lower of cost or market) of Eligible Inventory, but the amount so
added shall not exceed any sublimits set forth in Section 10.1(c), minus: any
Reserves.
(c) The "Net Availability" shall be calculated at any time as an
amount equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding principal
balance of the Term Loan, if any.
(d) "Eligible Accounts" are accounts created by Borrower in the
ordinary course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its sole judgment and consistent
with its usual and customary business practices, on fifteen (15) days' prior
written notice to Borrower. Lender shall, in general, deem and continue to deem
accounts to be Eligible Accounts if: (i) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (ii) the amounts of
the accounts reported to Lender are absolutely owing to Borrower and payment is
not conditional or contingent (such as consignments, guaranteed sales or rights
of return or other similar terms); (iii) the account debtor's chief executive
office or principal place of business is located in the United States; (iv) such
accounts do not arise from progress xxxxxxxx, retainages or xxxx and hold sales;
(v) there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto and there are no other facts existing or
threatened which would impair or delay the collectibility of all or any portion
thereof; (vi) the goods giving rise thereto were not at the time of the sale
subject to any liens except those permitted in this Agreement; (vii) such
accounts are not accounts with respect to which the account debtor or any
officer or employee thereof is an officer, employee or agent of or is affiliated
with Borrower, directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise; (viii) there has been compliance
with the Assignment of Claims Act or similar State or local law, if applicable,
if the account debtor is the United States or any domestic governmental unit;
(ix) Borrower has delivered to Lender such documents as Lender may have
requested pursuant to Section 5.9 hereof in connection with such accounts and
Lender shall have received verifications of such accounts, satisfactory to it,
if sent to the account debtors or any other obligors or any bailees pursuant to
Section 5.5 hereof; (x) there are no facts existing or threatened which might
result in any adverse change in the account debtor's financial condition; (xi)
accounts owed by an account debtor and its affiliates do not represent more than
twenty five percent (25%) of all otherwise Eligible Accounts (the amount
exceeding twenty five percent (25%) shall be ineligible); (xii) not more than
fifty percent (50%) of the accounts of an account debtor or its affiliates owed
to Borrower are unpaid more than the number of days after the invoice date set
forth in Section 10.1(d); (xiii) such accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the amount of any customer credit
limits as established from time to time on notice to Borrower ( the amount
exceeding the credit limit shall be ineligible; and (xiv) such accounts are owed
by account debtors deemed credit-worthy at all times by Lender.
(e) "Eligible Inventory" is inventory 100% owned by Borrower
which is and remains acceptable to Lender, for lending purposes, is located at
one of the addresses set forth in Section 10.6(e), and meets all of the general
criteria for Eligible Inventory set forth below, which criteria may be revised
from time to time by Lender, in its sole judgment and consistent with its usual
and customary business practices, on fifteen (15) days' prior written notice to
Borrower. Lender shall, in general, deem and continue to deem inventory to be
Eligible Inventory if: (i) such inventory has been purchased and received by
Borrower, and is held by Borrower free and clear of all liens and claims
whatever except Permitted Liens (defined below), except that inventory which is
in-transit to Borrower and which would otherwise qualify as Eligible Inventory
will so qualify provided that (A) it is backed by a letter of credit issued
through Lender or paid for in full in advance by Borrower, (B) Lender is
satisfied that title has passed to Borrower, and (C) Borrower has prepaid all
applicable duty and freight charges; (ii) such inventory is in merchantable
condition, not obsolete or slow-moving, not defective, and is usable for the
purposes for which it has been purchased, held and processed; (iii) Borrower
continues to hold the inventory for sale in the ordinary course of business,
with the reasonable expectation that it will be sold; (iv) such inventory is
located or warehoused in a location where Borrower has obtained a landlord's,
mortgagee's or bailee's waiver, as the case may be, in form and substance
satisfactory to, and in favor of, Lender; and (v) such inventory is either (A)
finished goods consisting of dual chamber tubes filled with toothpaste which
have passed Borrower's final quality approval process and are packaged and ready
for shipment, (B) raw materials consisting of (1) dual chamber tubes (without
dividers) and dividers prior to insertion into the dual chamber tubes, and (2)
materials consisting of the chemicals and other ingredients that are necessary
to formulate the toothpaste, such as glycerine, silicon dioxide, charabot
flavor, calcium, etc, prior to mixing (collectively, the "Raw Materials"), or
(C) work-in-process consisting of (1) dual chamber tubes (with dividers), (2)
chemicals and other ingredients in a combined state during the mixing process,
and (3) dual chamber tubes filled with toothpaste which have not yet passed
Borrower's final quality approval process (collectively, "Work-in-Process").
(f) Lender shall have a continuing right to reduce the Gross
Availability by implementing reserves ("Reserves"), and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's sole
judgment and consistent with its usual and customary business practices, such
Reserves are necessary to protect Lender against any state of facts which does,
or would, with notice or passage of time or both, constitute an Event of Default
or have an adverse effect on any Collateral.
(g) If a voluntary or involuntary petition under the United
States Bankruptcy Code or any similar statute is filed against the Borrower,
then Lender need not make loans.
(h) Revolving Loans will not at any time exceed the Gross
Availability unless Lender has consented.
2.2 Term Loan. Lender shall make term loans to Borrower on the
terms and conditions set forth in Section 10.2. (each, a "Term Loan" and,
collectively, the "Term Loans").
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2.3 Accommodations. Lender may, in its sole discretion, issue or
cause to be issued, from time to time at Borrower's request and on terms and
conditions and for purposes satisfactory to Lender, credit accommodations
consisting of letters of credit, bankers' acceptances, merchandise purchase
guaranties or other guaranties or indemnities for Borrower's account
("Accommodations"). Borrower shall execute and perform additional agreements
relating to the Accommodations in form and substance acceptable to Lender and
the issuer of any Accommodations, all of which shall supplement the rights and
remedies granted herein. Any payments made by Lender or any affiliate of Lender
in connection with the Accommodations shall constitute additional Revolving
Loans to Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest on the Revolving Loans and Term Loans shall be payable
by Borrower on the first day of each month, calculated upon the closing daily
balances in the loan account of Borrower for each day during the immediately
preceding month, at the per annum rate set forth as the Interest Rate in Section
10.4(a). The Interest Rate shall increase or decrease by an amount equal to each
increase or decrease, respectively, in the Prime Rate (as defined below),
effective as of the date of each such change. On and after any Event of Default
or termination or non-renewal hereof, interest on all unpaid Obligations shall
accrue at a rate equal to two percent (2%) per annum in excess of the Interest
Rate otherwise payable until such time as all Obligations are indefeasibly paid
in full (notwithstanding entry of any judgment against Borrower or the exercise
of any other right or remedy by Lender), and all such interest shall be payable
on demand. The interest paid by Borrower shall in no Contract Year (as defined
below) be less than the Interest Rate multiplied by the Minimum Borrowing set
forth in Section 10.1(e). A "Contract Year" shall consist of a twelve-month
period commencing on August 1st and ending on July 31st. In no event shall
charges constituting interest exceed the rate permitted under any applicable law
or regulation, and if any provision of this Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to conform
thereto. Sums due pursuant to this paragraph shall be charged against Borrower's
loan account as of the last day of each Contract Year.
(b) The "Prime Rate" is the rate of interest publicly announced by
The Chase Manhattan Bank in New York, New York, or its successors and assigns,
from time to time as its prime rate.
3.2 Fees. Borrower shall pay to Lender:
(a) Closing Fee. A Closing Fee (fully earned at closing) payable in
installments as set forth in Section 10.4(c).
(b) Facility Fee. A Facility Fee (fully earned at closing and at the
beginning of any renewal Term) payable in installments during the initial Term
and any renewal Term as set forth in Section 10.4(d).
(c) Collateral Handling Fee. Monthly, on the first day of each
month, in advance, a Collateral Handling Fee for each month (or part thereof)
during the initial and each renewal Term in the amount set forth in Section
10.4(e).
(d) Unused Line Fee. Monthly, on the first day of each month, in
arrears, an Unused Line Fee for each month during the initial and each renewal
Term at the rate per annum set forth in Section 10.4(f), calculated upon the
amount, if any, by which the Maximum Credit exceeds the greater of the Minimum
Borrowing or the average outstanding daily principal balance during the
preceding month of all Revolving Loans, Accommodations and any Term Loan.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and
performance in full of all Obligations, Borrower hereby grants to Lender a
continuing security interest in and lien upon, and a right of setoff
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against, and Borrower hereby assigns and pledges to Lender, all of the
Collateral, including any Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Term
Loans, Accommodations and all other indebtedness, liabilities and obligations of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees (including attorneys'
fees incurred by Lender both before and after obtaining and in collecting upon
any judgment) 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 or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended and whether arising directly
or howsoever acquired by Lender including from any other entity outright,
conditionally or as collateral security, by assignment, merger with any other
entity, participations or interests of Lender in the obligations of Borrower to
others, assumption, operation of law, subrogation or otherwise and shall also
include all amounts chargeable to Borrower under this Agreement or in connection
with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of
Borrower:
(a) All now owned and hereafter acquired right, title and interest
of Borrower in, to and in respect of all: accounts, interests in goods
represented by accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; chattel paper;
investment property; general intangibles (including, but not limited to, tax and
duty claims and refunds, registered and unregistered patents, trademarks,
service marks, copyrights, trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, choses in action and other claims, and existing
and future leasehold interests in equipment, real estate and fixtures)
(collectively, the "General Intangibles"); documents; instruments; letters of
credit, bankers' acceptances or guaranties; cash moneys, deposits, securities,
bank accounts, deposit accounts, credits and other property now or hereafter
held in any capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrower or at any other depository or
other institution; agreements or property securing or relating to any of the
items referred to above;
(b) All now owned and hereafter acquired right, title and interest
of Borrower in, to and in respect of goods, including, but not limited to:
(i) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description,
including all raw materials, work-in-process, finished goods, and
materials to be used or consumed in Borrower's business; and all
names or marks affixed to or to be affixed thereto for purposes of
selling same by the seller, manufacturer, lessor or licensor thereof
and all inventory which may be returned to Borrower by its customers
or repossessed by Borrower and all of Borrower's right, title and
interest in and to the foregoing (including all of Borrower's rights
as a seller of goods);
(ii) All equipment and fixtures, wherever located, whether now
owned or hereafter acquired, including, without limitation, all
machinery, equipment, motor vehicles, furniture and fixtures, and
any and all additions, substitutions, replacements (including spare
parts), and accessions thereof and thereto (including, but not
limited to Borrower's rights to acquire any of the foregoing,
whether by exercise of a purchase option or otherwise);
(iii) All consumer goods, farm products, crops, timber, minerals
or the like (including oil and gas), wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or
description;
(c) All now owned and hereafter acquired right, title and interests
of Borrower in, to and in respect of any real or other personal property in or
upon which Borrower has or may hereafter have a security interest, lien or right
of setoff;
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(d) All present and future books and records relating to any of the
above including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party; and
(e) All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing.
4.4 Additional Security. As additional security for the timely
payment and performance in full of the Obligations, contemporaneously with the
execution and delivery by Borrower of this Agreement:
(a) Borrower shall and execute and deliver to Lender a Trademark and
Patent Security Agreement in form and substance satisfactory to Lender (the
"Trademark and Patent Security Agreement"); and
(b) Each of Xxxxxx Xxx, Xxx Xxxxxxxxxx and Xxxxx Xxxx shall execute
and deliver to Lender a Liquidation Assistance Agreement in form and substance
satisfactory to Lender.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower will, at its expense as Lender requests,
direct that all remittances and all other proceeds of accounts and other
Collateral be sent to a lock box designated by Lender, and deposited into a bank
account selected by Lender under arrangements with the bank providing that all
funds deposited in the bank account are to be transferred solely to Lender.
Borrower shall bear all risk of loss of any funds deposited into such account.
In connection therewith, Borrower shall execute such lock box and bank account
agreements as Lender shall specify. Any collections or other proceeds received
by Borrower shall be held in trust for Lender and immediately remitted to Lender
in kind. Notwithstanding anything contained herein to the contrary, Borrower
shall not be required to (a) remit the proceeds of the Private Placement or the
sale of its New Jersey net operating losses (the "New Jersey NOL's") to the
above-referenced lock box, or (b) hold such proceeds in trust for Lender and
remit such proceeds to Lender in kind.
5.2 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due, as principal to any
loan account of Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts payable by Borrower to
Lender based on a per annum rate shall be calculated on the basis of actual days
elapsed over a 360-day year.
5.3 Payments. All Obligations shall be payable at Lender's office
set forth in Section 10.6(a) or at Lender's bank designated in Section 10.6(b)
or at such other bank or place as Lender may expressly designate from time to
time for purposes of this Section. Lender shall apply all proceeds of accounts
or other Collateral received by Lender and all other payments in respect of the
Obligations to the Revolving Loans or to any other Obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross Availability and Net Availability and for the calculation of the Minimum
Borrowing, remittances and other payments will be treated as credited to the
loan account of Borrower maintained by Lender and Collateral balances to which
they relate, upon the date of Lender's receipt of advice from Lender's bank that
such remittances or other payments have been credited to Lender's account or in
the case of remittances or other payments received directly in kind by Lender,
upon the date of Lender's deposit thereof at Lender's bank, subject to final
payment and collection. In computing interest charges, the loan account of
Borrower will be credited with remittances and other payments for the number of
days set forth in Section 10.4(b) after the day Lender has received advice of
receipt of remittances in Lender's account at Lender's Bank. For purposes of
this Agreement, "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which Lender or banks located in states where Lender has its
offices, are authorized to close.
5.4 Loan Account Statements. Lender shall render to Borrower monthly
a loan account statement. Each statement shall be considered correct and binding
upon Borrower as an account stated, except to the
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extent that Lender receives, within sixty (60) days after the mailing of such
statement, written notice from Borrower of any specific exceptions by Borrower
to that statement.
5.5 Direct Collections. Lender may, at any time, (a) notify any
account debtor that the accounts and other Collateral which includes a monetary
obligation have been assigned to Lender by Borrower and that payment thereof is
to be made to the order of and directly to Lender, (b) send, or cause to be sent
by its designee, requests (which may identify the sender by a pseudonym) for
verification by telephone, in writing or otherwise of accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, (c) demand, collect or enforce payment of any accounts or
such other Collateral, but without any duty to do so, and Lender shall not be
liable for any failure to collect or enforce payment thereof, (d) take or bring,
in the name of Lender or Borrower, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of or other
realization upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to receive and
open mail addressed to Borrower, and (f) after an Event of Default, extend the
time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations. At
Lender's request, all invoices and statements sent to any account debtor, other
obligor or bailee, shall state that the accounts and such other Collateral have
been assigned to Lender and are payable directly and only to Lender.
5.6 Attorney-in-Fact. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact and authorizes Lender at Borrower's sole expense, to
exercise at any time in Lender's discretion all or any of the powers necessary
for Lender to obtain information about the Collateral or to enforce Lender's
rights in the Collateral. Lender shall use its good faith efforts to provide
Borrower with contemporaneous notice of Lender's exercise of any of such powers;
provided, however, that Lender's failure to provide such contemporaneous notice
or any notice, shall not (a) in any way interfere with, impede or impair
Lender's exercise of such powers, or (b) be deemed a breach by Lender of its
obligations to Borrower and Borrower shall have no right or remedy as a result
thereof.
5.7 Liability. Borrower hereby releases and exculpates Lender, its
officers and employees, from any liability arising from any acts under this
Agreement or in furtherance thereof, except for gross negligence or willful
misconduct. Lender will not have any liability to Borrower for lost profits or
other special, exemplary, punitive, or consequential damages.
5.8 Administration of Accounts. After written notice by Lender to
Borrower or without notice after an Event of Default, Borrower shall not, (a)
amend, modify, settle or compromise any of the accounts or any other Collateral
which includes a monetary obligation, (b) release in whole or in part any
account debtor or other person liable for the payment of any of the accounts or
any such other Collateral, or (c) grant any credits, discounts, allowances,
deductions, return authorizations or the like with respect to any of the
accounts or any such other Collateral.
5.9 Documents. Borrower shall deliver to Lender, as Lender may
request, all documents, schedules, invoices, proofs of delivery, purchase
orders, statements, contracts and all other information evidencing or relating
to the Collateral, in form and substance satisfactory to Lender and duly
executed by Borrower. Without limiting the provisions of Section 5.5, Borrower's
granting of credits, discounts, allowances, deductions, return authorizations or
the like will be promptly reported to Lender in writing. In no event shall any
schedule or confirmatory assignment (or the absence thereof or omission of any
of the accounts or other Collateral therefrom) limit or in any way be construed
as a waiver, limitation or modification of the security interests or rights of
Lender or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return at Borrower's expense.
5.10 Access. Lender shall have access, prior to an Event of Default
during reasonable business hours and upon one (1) day's prior notice, and on or
after an Event of Default at any time, to all of the premises where Collateral
is located for the purposes of inspecting or copying the Collateral, and all
Borrower's books and records. Lender may, at no charge, use such of Borrower's
personnel, equipment, including computer
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equipment, programs, printed output and computer readable media, supplies and
premises for the collection of accounts and realization on other Collateral as
Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably
authorizes all accountants and third parties to disclose and deliver to Lender
at Borrower's expense all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
5.11 Environmental Audits. From time to time, but not more
frequently than semi-annually (provided Borrower is not in default) as requested
by Lender, at the sole expense of Borrower, Borrower shall provide Lender
complete access to all of Borrower's facilities for the purpose of conducting an
environmental audit of such facilities as Lender may deem necessary.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). Borrower shall, at its expense, on or
before Wednesday of each week, deliver to Lender true and complete weekly
inventory reports relating to the prior week, in form and content satisfactory
to Lender. Borrower shall, at its expense, (a) on or before the twentieth (20th)
day of each month, deliver to Lender true and complete (i) monthly agings of its
accounts receivable and accounts payable, (ii) monthly inventory reports, and
(iii) monthly internally prepared interim financial statements, and (b) within
forty five (45) days after the end of each fiscal quarter, Borrower shall
deliver to Lender a true and complete signed copy of its Form 10-Q as filed with
the Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "34 Act"), all in such form, and together
with such other information with respect to the business of Borrower or any
guarantor, as Lender may request, which shall present fairly, in all material
respects, the financial position of Borrower as of the end of each such period
and the results of its operations and cash flows during such period, all in
accordance with GAAP, and certified by the treasurer or chief financial officer
of Borrower. Annually as soon as available, but not later than ninety (90) days
after the end of each fiscal year of Borrower, Borrower shall deliver to Lender
(a) a true and complete signed copy of its Form 10-K as filed with the SEC
pursuant to the 34 Act, and (b) audited financial statements of Borrower
prepared by and accompanied by the unqualified report and opinion thereon of an
independent certified public accountant acceptable to Lender, together with a
certificate signed by such accountant to the effect that such accountant does
not then know of any Event of Default specified in Section 7 hereof or the
occurrence or continuance of any event which, with the giving of notice or the
passage of time or both, would constitute such an Event of Default or if such
accountant shall have obtained knowledge of any such Event of Default or other
event, specifying the nature thereof. Lender hereby acknowledges that, from the
date hereof until such time as it notifies Borrower otherwise, BDO Xxxxxxx is
acceptable to Lender as the independent certified public accountant that will
audit Borrower's financial statements.
6.2 Trade Names. Borrower may from time to time render invoices
under its trade names set forth in Section 10.6(g), and Borrower represents
that: (a) each trade name does not refer to another corporation or other legal
entity, (b) all accounts and proceeds thereof (including any returned
merchandise) invoiced under any such trade names are owned exclusively by
Borrower, and (c) Lender may receive, endorse and deposit to any loan account of
Borrower maintained by Lender all checks or other remittances made payable to
any trade name of Borrower representing payment with respect to such sales or
services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.
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6.4 Books and Records. Borrower's books and records concerning
accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.6(d). Borrower's only other places of business
and the only other locations of Collateral, if any, are and shall be the
addresses set forth in Sections 10.6(e) and (f) hereof, except Borrower may
change such locations or open a new place of business after thirty (30) days'
prior written notice to Lender. Borrower shall execute and deliver or cause to
be executed and delivered to Lender such financing statements, amendments,
financing documents and security and other agreements as Lender may reasonably
require.
6.5 Title. Borrower has and at all times will continue to have good
and marketable title to all of the Collateral, free and clear of all liens,
security interests, claims or encumbrances of any kind except in favor of Lender
and except, if any, those set forth on Schedule A hereto ("Permitted Liens").
6.6 Disposition of Assets. Borrower shall not, directly or
indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose of
any part of the Collateral or any material portion of its other assets, other
than (i) sales of inventory to buyers in the ordinary course of business, (ii)
the sale of the New Jersey NOL's, (iii) sales or leases of furniture, machinery
and/or equipment having an aggregate value in any calendar year of not more than
$50,000.00; provided, however, that such furniture, machinery and/or equipment
is not listed in the KosterGroup, Inc. Auction Sale Appraisal dated June 18,
1999 (or any subsequent or replacement appraisal) and Lender is not otherwise
lending against such furniture, machinery and equipment, and (iv) the sale or
transfer of all or a portion of the General Intangibles to Newco (as defined
below), so long as and to the extent that (X) Borrower is not and would not as a
result of such sale or transfer be in default of any of its obligations under
this Agreement, (Y) Borrower owns all of the issued and outstanding capital
stock of Newco, and (Z) the sale of such General Intangibles to Newco is not
consummated unless and until (1) Lender has filed UCC-1 Financing Statements
against Newco in all jurisdictions where Lender deems necessary or appropriate,
Lender has recorded the appropriate assignment for security documents with the
United States Patent and Trademark Office, and Lender has otherwise obtained a
valid first priority perfected security interest in and lien upon such General
Intangibles, and (2) Newco has executed such other documents and instruments in
favor of Lender as Lender deems necessary or appropriate including, without
limitation, a guaranty, suretyship and security agreement and a trademark and
patent security agreement, in each case in form and substance satisfactory to
Lender in its sole discretion, or (b) consolidate with or merge with or into any
other entity, or permit any other entity to consolidate with or merge with or
into Borrower, or (c) form or acquire any interest in any firm, corporation or
other entity, provided, however, that Borrower may, upon at least thirty (30)
days prior written notice to Lender, form a new corporation ("Newco"), so long
as and to the extent that Borrower will not transfer any assets to or permit the
assumption of liabilities by Newco during the term of this Agreement and until
all of the Obligations have been fully paid, satisfied and discharged, except
upon compliance with all of the terms and conditions set forth in Section
6.6(a); (d) change its corporate name or trade name or otherwise conduct
business under any assumed or fictitious name, other than as set forth in
Section 10.6(g).
6.7 Insurance. Borrower shall at all times maintain, with
financially sound and reputable insurers, adequate insurance (including, without
limitation, at the option of Lender, earthquake and flood insurance) with
respect to the Collateral and other assets. All such insurance policies shall be
in such form, substance, amounts and coverage as may be satisfactory to Lender
and shall provide for thirty (30) days' prior written notice to Lender of
cancellation or reduction of coverage. Lender may obtain, at Borrower's expense,
any such insurance should Borrower fail to do so and adjust or settle any claim
or other matter under or arising pursuant to such insurance or amend or cancel
such insurance. Borrower shall provide evidence of such insurance and a lender's
loss payable endorsement satisfactory to Lender. Borrower shall deliver to
Lender, in kind, all instruments representing proceeds of insurance received by
Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations in any
order or manner as Lender determines.
6.8 Compliance With Laws. Borrower is and at all times will continue
to be in compliance with the requirements of all material laws, rules,
regulations and orders of any governmental authority relating to its business
(including laws, rules, regulations and orders relating to income, withholding,
excise, property and social security taxes, minimum wages, employee retirement
and welfare benefits, employee health and safety, or environmental matters) and
all material agreements or other instruments binding on Borrower or its
property. Borrower shall pay and discharge all taxes, assessments and
governmental charges against Borrower or any
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Collateral when due unless the same are being contested in good faith. Lender
may establish Reserves for the amount contested and penalties which may accrue
thereon.
6.9 Accounts. With respect to each account deemed an Eligible
Account, except as reported in writing to Lender, Borrower has no knowledge that
any of the criteria for eligibility are not or are no longer satisfied and the
eligibility criteria will continue to be satisfied. All statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
6.10 Equipment. With respect to Borrower's equipment, Borrower shall
keep the equipment in good order and repair and in running and marketable
condition, ordinary wear and tear excepted.
6.11 Financial Covenants. Borrower shall at all times maintain
working capital and net worth (each as determined in accordance with generally
accepted accounting principles, in effect on the date hereof, consistently
applied) in the amounts set forth in Section 10.5(a) and (b), respectively, and
Borrower shall not, directly or indirectly, expend or commit to expend, for
fixed or capital assets (including capital lease obligations) an amount in
excess of the capital expenditure limit set forth in Section 10.5(c) in any
fiscal year of Borrower.
6.12 Affiliated Transactions. Borrower will not, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity except (i) as otherwise specifically permitted
by Section 6.6 hereof, (ii) Borrower may advance money to employees to cover
travel and other bona fide business expenses incurred by such employees in the
ordinary course of Borrower's business not to exceed an aggregate amount
outstanding at any point in time of $15,000.00, (iii) investments by Borrower of
the proceeds from the Private Placement or the sale of the New Jersey NOL's in
short-term interest-bearing U.S. government securities, short term certificates
of deposit, time deposits and money market accounts and high quality money
market instruments, or (b) declare, pay or make any dividend, redemption or
other distribution on account of any shares of any class of stock of Borrower
now or hereafter outstanding, provided that Borrower may declare and issue
non-cash dividends in the form of additional shares of preferred stock as
required by the rights and preferences of Borrower's Series B Convertible
Preferred Stock (the "Series B Preferred Stock") outstanding on the date hereof;
and, provided further, that Borrower may redeem shares of its outstanding Series
B Preferred Stock so long as and to the extent that (i) at the time of and after
giving effect to any such redemption, Borrower is not and would not otherwise be
in default of any of its obligations under this Agreement, and (ii) funds used
to effect such redemption are not derived from the proceeds of any Revolving
Loans, Term Loans or other financial accommodations provided by Lender; or (c)
make any payment of the principal amount of or interest on any indebtedness
owing to any officer, director, shareholder, or affiliate of Borrower; or (d)
make any loans or advances to any officer, director, employee, shareholder or
affiliate of Borrower; or (e) enter into any sale, lease or other transaction
with any officer, director, employee, shareholder or affiliate of Borrower on
terms that are less favorable to Borrower than those which might be obtained at
the time from persons who are not an officer, director, employee, shareholder or
affiliate of Borrower provided, however that in respect of Subsections (d) and
(e) above, Borrower shall be permitted to (i) make advances to employees
pursuant to Section 6.12(a), and (ii) complete the sale of the General
Intangibles to Newco pursuant to Section 6.6(a).
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all
reasonable costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defenses asserted by Lender or
claims or defenses against Lender asserted by Borrower, any guarantor or any
third party directly or indirectly arising out of or related to the relationship
between Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (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) all
title insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey
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and search fees; (c) all fees as then in effect relating to the wire transfer of
loan proceeds and other funds and fees then in effect for returned checks and
credit reports; (d) all 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 including, without limitation, field
examiner, travel, food and lodging, plus a per diem charge at the rate set forth
in Section 10.4(g) for Lender's examiners in the field and office; and (e) the
costs, fees and disbursements of in-house and outside counsel to Lender,
including but not limited to such costs, fees and disbursements incurred as a
result of a workout, restructuring, reorganization, liquidation, insolvency
proceeding or litigation between the parties hereto, any third party and in any
appeals arising therefrom.
6.14 Further Assurances. At the request of Lender, at any time and
from time to time, at Borrower's sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security interests or liens,
landlords or bailees, and do or cause to be done such further acts as Lender, in
its discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Borrower hereby authorizes Lender to file financing statements or
amendments against Borrower in favor of Lender with respect to the Collateral,
without Borrower's signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any financing
statements signed by Borrower.
6.15 Environmental Condition. None of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
statute, regulations, ordinances, laws or orders pertaining to environmental
matters (collectively, "Environmental Laws") as a hazardous waste or hazardous
substance disposal site, or a candidate for closure pursuant to any
Environmental Laws. No lien arising under or in connection with any
Environmental Laws has attached to any revenues or to any real or personal
property owned by Borrower. Borrower has not received a summons, citation,
notice, or directive or other communication from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action
or omission by Borrower resulting in the releasing, or otherwise exposing of
hazardous waste or hazardous substances into the environment. Borrower is and
will continue to be in compliance (in all material respects) with all
Environmental Laws and other legal requirements pertaining to the production,
storage, handling, treatment, release, transportation or disposal of any
hazardous waste or hazardous substance.
6.16 Year 2000 Compliance. Borrower has taken, and shall continue to
take, all action necessary to assure that its computer-based systems and
software are, and shall after December 31, 1999 be, able to effectively and
accurately process data including dates and date sensitive functions (the "Year
2000 Problem"). Borrower has also investigated the Year 2000 readiness of its
key suppliers and vendors and has developed contingency plans where necessary.
Borrower represents and warrants that the Year 2000 Problem will not have a
material adverse effect on Borrower's business condition (financial or
otherwise), operations, properties, prospects or ability to repay any of the
Obligations. Upon request, Borrower shall provide assurances acceptable to
Lender that Borrower's computer systems and software are or will be Year 2000
compliant on a timely basis. Borrower shall immediately advise Lender in writing
of any material changes in Borrower's Year 2000 plan, timetable or budget.
6.17 Organization and Qualification. Borrower is a business
corporation, duly organized, validly existing and in good standing under the
laws of the State set forth in Section 10.6(h) hereto and will (i) do or cause
to be done all things necessary to keep in full force and effect its existence
and its qualification to do business and good standing in such State and any
other jurisdiction(s) in which such qualification is necessary for the proper
conduct of its business or wherein it owns or leases any property, a schedule of
which is attached hereto as Schedule D, and conduct and operate its business in
substantially the manner in which same is presently conducted and operated; (ii)
at all times maintain, preserve and protect all material patents, franchises,
trademarks, trade names, copyrights and other general intangibles; and (iii)
comply with all material agreements to which it is subject.
6.18 Indemnification.
(a) Borrower hereby indemnifies and agrees to protect, defend and
hold harmless Lender and Lender's directors, officers, employees, agents,
attorneys and shareholders from and against any and all losses,
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damages, expenses or liabilities of any kind or nature and from any suits,
claims, or demands, including all reasonable counsel fees incurred in
investigating, evaluating or defending such suits, claims or demands suffered by
any of them and caused by, relating to, arising out of, resulting from, or in
any way connected with this Agreement, or any other collateral document, and any
transaction contemplated herein or therein (other than actions arising out of
the gross negligence or willful misconduct of Lender), including but not limited
to, suits, claims or demands based upon any act or failure to act by Lender in
connection with this Agreement or any other collateral document, and any
transaction contemplated herein or therein. If Borrower shall have knowledge of
any claim or liability hereby indemnified against, it shall give prompt written
notice thereof to Lender. This covenant shall survive payment of the
Obligations.
(b) Lender shall give Borrower prompt notice of all suits, actions
or proceedings instituted against Lender with respect to which Borrower has
indemnified Lender, and Borrower shall have the right to participate in any such
suit, action or proceeding. Lender shall also have the right, at the sole
expense of Borrower, to participate in, or at Lender's election, assume the
defense or prosecution of such suit, action, or proceeding, and in the latter
event the Borrower may employ counsel and participate therein. Lender shall have
the right to adjust, settle, or compromise any claim, suit, or judgment after
notice to Borrower, unless Borrower desires to litigate such claim, defend such
suit, or appeal such judgment and simultaneously therewith deposit with Lender
additional collateral security sufficient to pay any judgment rendered, with
interest, costs, and expenses; and the right of Lender to indemnification under
this Agreement shall extend to any money paid by Lender in settlement or
compromise of any such claims, suits, and judgments in good faith, after notice
to Borrower.
(c) If any suit, action, or proceeding is brought by Lender against
Borrower for breach of this covenant of indemnity, separate suits may be brought
as causes of action accrue, without prejudice or bar to the bringing of
subsequent suits on any other cause of action, whether theretofore or thereafter
accruing.
6.19 Authority and Subsidiaries. Borrower has the lawful power to
own its properties and to engage in the businesses it conducts; and has no
subsidiaries or joint venture partners other than as set forth on Schedule B
hereto.
6.20 Litigation. Except as described on Schedule C attached hereto,
Borrower is not a party to or, to its best knowledge, threatened with, any
litigation, suit, action, investigation (whether civil or criminal), proceedings
or controversy before any Court, administrative agency or other governmental
authority and Borrower is not in violation of or in default with respect to any
judgment, order, writ, injunction, decree or rule of any court, administrative
agency or governmental instrumentality or in any material respect under any
regulation of any administrative agency or governmental instrumentality.
6.21 Patents and Trademarks. Except as set forth in Schedules A and
B of the Trademark and Patent Security Agreement, Borrower holds no United
States or foreign patents and has no United States or foreign patent
applications pending and has no federally registered trademarks or trade names
and, other than as disclosed in Section 10.6(g) below, operates under no
fictitious names.
6.22 Certain Locations. Borrower has ceased utilization of the
services of ESNJ Lakewood and ESNJ Raritan Valley Workshop. As of the date
hereof, Borrower maintains inventory (and no other Collateral) in an amount less
than $80,000 at the ESNJ Lakewood facility located at 000 Xxxxx Xxxxxxx Xxxxxx,
Xxxxxxxx, Xxx Xxxxxx 00000, which inventory will be removed from such location
within thirty (30) days after the date of this Agreement. Borrower's leased
facility located at 0 Xxxxxxxx Xxxxx, Xxxx Xxxxxxxxx, Xxx Xxxxxx 00000 is vacant
and no Collateral is or will during the Term, be stored or located there.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following "Events of Default":
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(a) Borrower fails to pay when due any of the Obligations or fails
to perform any of the terms of this Agreement or any other existing or future
financing, security or other agreement between Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or otherwise, or to any affiliate of Lender, shall prove
inaccurate or misleading;
(c) Any guarantor revokes, terminates or fails to perform any of the
terms of any guaranty, endorsement or other agreement of such party in favor of
Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of the amount
set forth in Section 10.6(i) or any injunction or attachment is obtained against
Borrower or any guarantor which remains unstayed or undischarged for a period of
thirty (30) days or is enforced;
(e) Borrower or any guarantor dies or ceases to exist or the usual
business of Borrower or any guarantor ceases or is suspended;
(f) Any change in the (i) chief executive officer or chief operating
officer of Borrower other than a change of such officer(s) made within ninety
(90) days of the departure of such then-existing officer(s) and which is
otherwise reasonably acceptable to Lender, or (ii) controlling ownership of
Borrower;
(g) Borrower or any guarantor becomes insolvent, makes an assignment
for the benefit of creditors, makes or sends notice of a bulk transfer or calls
a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the bankruptcy
laws of the United States 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 by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower or any
guarantor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any guarantor pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such guarantor which
Lender believes may have a material adverse effect on the Collateral or
Borrower's business;
(j) Any default or event of default occurs on the part of Borrower
under any material agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its property is bound.
(k) Lender in good faith believes that either (i) the prospect of
payment or performance of the Obligations is impaired or (ii) the Collateral is
not sufficient to secure fully the Obligations; or
(l) Any material change occurs in the nature or conduct of
Borrower's business.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code and other applicable law, all of which rights and remedies may
be exercised without notice to Borrower, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of Lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender may (a) accelerate
the payment of all Obligations and demand immediate payment thereof to Lender,
(b) 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
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Collateral, (c) 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, (d) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (e) sell, lease, transfer, assign, deliver
or otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, by public or private sales at any
exchange, broker's board, 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. 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.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral (other than accounts) actually received by Lender from any sale,
lease, foreclosure or other disposition of the Collateral to payment of any 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 together with interest at the highest rate provided for herein
and all costs and expenses of collection or enforcement, including reasonable
attorneys' fees and legal expenses (including attorneys' fees and legal expenses
incurred both before and after obtaining and in collecting upon any judgment).
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at
its option, cure any default by Borrower under any agreement with a third party
or pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER,
OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto, except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents
to the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.6(a) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set
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forth in Section 10.6(d) or other address thereof of which Lender has received
notice as provided herein, service to be deemed complete five (5) days after
mailing, or as permitted under the rules of said Courts. Any such action or
proceeding commenced by Borrower against Lender will be litigated only in a
Federal Court located in the district, or a State Court in the State and County,
in which the office of Lender designated in Section 10.6(a) is located and
Borrower waives any objections based on forum non conveniens or venue in
connection therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
rights or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. A waiver by Lender of any right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy which Lender would otherwise have on any future occasion, whether similar
in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution
and delivery by Borrower and Lender and shall continue in full force and effect
for a term set forth in Section 10.7 from the date hereof and shall be deemed
automatically renewed, based upon all of the terms and conditions of this
Agreement, for successive terms of equal duration thereafter unless terminated
as of the end of the initial or any renewal term (each a "Term") by either party
giving the other written notice at least sixty (60) days' prior to the end of
the then-current Term.
9.2 Early Termination. Borrower may also terminate this Agreement by
giving Lender at least thirty (30) days' prior written notice and payment in
full of all of the Obligations as provided herein, including an early
termination fee (the "Early Termination Fee"), unpaid Facility Fee and any other
fees. Thirty (30) days after receipt by Lender of such notice, Lender shall not
be obligated to make any further loans, advances or other accommodations to or
for the benefit of Borrower. Lender shall also have the right to terminate this
Agreement at any time upon or after the occurrence of an Event of Default. If
Lender terminates this Agreement upon or after the occurrence of an Event of
Default, or if Borrower shall terminate this Agreement as permitted herein
effective prior to the end of the then-current Term, Borrower shall pay to
Lender on the effective date of termination, in full, all Obligations including
the Early Termination Fee, unpaid Facility Fee and any other fees. 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, the Early Termination Fee shall be the percentage of the Maximum Credit
set forth in Section 10.4(h).
9.3 Termination Indemnity Deposit. Upon termination of this
Agreement by Borrower, as permitted herein, in addition to payment of all
Obligations which are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees, in connection with any
open Accommodations or remittance items or other payments provisionally credited
to the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect 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.
9.6 Entire Agreement; Amendments; Assignments. This Agreement
contains the entire agreement of the parties as to the subject matter hereof,
all prior commitments, proposals and negotiations concerning the subject matter
hereof being merged herein. Neither this Agreement nor any provision hereof
shall be
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amended, modified or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the successors and
assigns of Borrower.
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.
9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State in which the office of Lender set forth
in Section 10.6(a) below is located (the "Applicable State") (without regard to
the Applicable State's conflicts of laws principles).
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit:
$7,500,000.00
(b) Gross Availability Formulas:
Eligible Accounts Percentage:
Eighty percent (80%) provided that the Dilution
Percentage (defined below) does not exceed eight
percent (8%). The Dilution Percentage is the sum
of Borrower's credits, allowances, discounts,
write-offs, contra-accounts, offsets and
deductions which reduce the value of accounts
receivable, divided by gross sales. The Dilution
Percentage shall be calculated on a rolling three
(3) month average. If the Dilution Percentage
exceeds eight percent (8%) then the Eligible
Accounts Percentage shall be reduced by one (1)
percentage point for each percentage point (or
fraction thereof) that the Dilution Percentage
exceeds eight percent (8%).
Eligible Inventory Percentages:
Raw Materials: Forty percent (40%)
Work-In-Process: Twenty five percent (25%)
Finished Goods: Sixty percent (60%)
(c) Inventory Sublimit(s):
$2,500,000.00; provided, however, that advances
against Eligible Inventory of Raw Materials shall
not at any time during the Term exceed $500,000.00
in the aggregate; provided, further, that advances
against Eligible Inventory of Work-In-Process
shall not at any time during the Term exceed
$400,000.00 in the aggregate.
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(d) Maximum days after Invoice Date for Eligible
Accounts:
Sixty (60) days after due date, not to exceed
ninety (90) days after invoice date.
(e) Minimum Borrowing:
$2,000,000.00, calculated annually for each
Contract Year, based upon the average daily
outstandings.
10.2 Term Loans:
Initial Term Loan
(a) Amount: $1,000,000.00
(b) Monthly Amortization: $16,667.00 commencing
September 1, 1999.
(c) Maturity Date: July 31, 2004, subject
to acceleration and
payment in full
pursuant to Section
7.1 hereof.
Additional Term Loans
Following consummation by Borrower of the
Private Placement, and its receipt of the net
proceeds therefrom (so long as and to the
extent that at such time and after giving
effect thereto, Borrower is not and would not
otherwise be in default of any of its
obligations under this Agreement), Lender
agrees to make additional Term Loans to
Borrower in an aggregate amount not to exceed
the lesser of (i) $2,500,000.00 and (ii)
eighty percent (80%) of the invoice cost of
new machinery and equipment, exclusive of all
other costs, expenses, taxes and other
charges incurred in connection therewith
including, without limitation, costs for
shipping, assembly and maintenance.
Additional Term Loans shall be (i) made upon
receipt by Lender of evidence that (a) title
to the newly-purchased machinery and
equipment has passed to Borrower, and (b)
such newly-purchased machinery and equipment
is located at one of the addresses set forth
in Section 10.6(e), (ii) made in increments
of not less than $200,000.00, and (iii)
amortized over sixty (60) months.
10.3 Accommodations: N/A
10.4 Interest, Fees & Charges:
(a) Interest Rate:
Prime Rate plus one and one half percent
(1.5%) per annum; provided, however, that if
Borrower has not consummated the Private
Placement within 120 days of Closing, Lender
shall have the right to increase the Interest
Rate to Prime Rate plus two percent (2.0%)
per annum beginning on the 121st day after
Closing and continuing until Borrower has
consummated the Private Placement.
(b) Clearance: Three (3) Business Days
(c) Closing Fee:
- 16 -
$32,500.00, payable in twelve (12) equal,
consecutive monthly installments of $2,708.33
on the first day of each month, commencing on
August 1, 1999.
(d)(1) Facility Fee for Initial Term:
$65,000.00, payable in twenty four (24)
equal, consecutive monthly installments of
$2,708.33, commencing on the first
anniversary of Closing.
(2) Facility Fee for Renewal Term:
Renewal Date: One half of one percent
(.50%) of the Maximum
Credit
First Anniversary: One half of one percent
(.50%) of the Maximum
Credit
Second Anniversary: One half of one percent
(.50%) of the Maximum
Credit
(e) Collateral Handling Fee: $750.00
(f) Unused Line Fee: None
(g) Field Examination per diem charge per
examiner: $750.00
(h) Early Termination Fee:
First year: Three percent (3%) of
the Maximum Credit
Second year: Two percent (2%) of
the Maximum Credit
Third year
and thereafter: One percent (1%) of
the Maximum Credit
10.5 Financial Covenants: None
10.6 (a) Lender's Office:
1211 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(b) Lender's Bank:
The Chase Manhattan Bank
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(c) Borrower: Enamelon, Inc.
(d) Borrower's Chief Executive Office:
0 Xxxxx Xxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
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(e) Locations of Eligible Inventory Collateral:
0000 Xxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000 (Raw Materials
Inventory only)
00 Xxxxxxxxx Xxxxx
Xxxxx Xxxxx, Xxx Xxxxxx 00000
00 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
000 Xxxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
(f) Borrower's Other Offices and Locations of
Collateral:
00 Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000 (collateral to
be removed on or before August 28, 1999)
(g) Borrower's Trade Names for Invoicing: None
(h) Borrower's State of Incorporation: Delaware
(i) Judgment Amount: $25,000.00
10.7 Term: Three (3) years
IN WITNESS WHEREOF, and intending to be legally bound,
Borrower and Lender have duly executed this Agreement this ___ day of July,
1999.
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/ Xxxxx Xxxxxxxxxx
-----------------------------
Title: Assistant Vice President
ENAMELON, INC.
By: /s/ Xxxxxx X. Xxx
-------------------------------------
Xxxxxx X. Xxx, Chief Executive Officer
- 18 -
SCHEDULE A
Permitted Liens
1. Liens created under this Loan and Security Agreement and
related documents in favor of the Lender.
2. Liens upon equipment and machinery granted in connection
with the acquisition of such equipment and machinery by Borrower after the date
hereof (including, without limitation, pursuant to leases and installment sale
contracts), provided that:
(i) each such lien attaches only to the equipment and
machinery acquired with the debt secured thereby; and
(ii) the principal amount of the indebtedness secured by
any item of equipment or machinery shall not exceed 100% of the cost thereof
(excluding labor);
3. Security interests granted by Lender after Closing against
the General Intangibles, so long as and to the extent that prior thereto such
party executes and delivers to Lender an intercreditor agreement in form and
substance satisfactory to Lender, which provides, among other things, that such
party shall (i) subordinate its security interest in the General Intangibles to
the security interests of Lender therein, and (ii) refrain from taking any
action against the General Intangibles, the Collateral or Borrower until all of
the Obligations are indefeasibly paid in full.
4. Liens for taxes (excluding any lien imposed pursuant to any
of the provisions of ERISA) not yet due (or if there is a payment period, such
payment period has not expired) or being Properly Contested (as hereinafter
defined);
5. Statutory liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, and other like persons for
labor, materials, or supplies incurred in the ordinary course of Borrower's
business, but only if the payment thereof is not at the time required or such
claims are being Properly Contested;
6. Statutory liens with respect to deposits made in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws, but only if the
payment thereof is not at the time required or such claims are being Properly
Contested; and
7. Attachment, judgment and other similar non-tax liens
(excluding liens securing environmental claims of governmental entities) arising
in connection with court proceedings, but only if and for so long as (i) the
execution or other enforcement of such liens is and continues to be effectively
stayed and bonded on appeal in a manner satisfactory to Lender for the full
amount thereof, (ii) the validity and amount of the claims secured thereby are
being Properly Contested, (iii) such liens do not, in the aggregate, materially
detract from the value of the property of Borrower or materially impair the use
thereof in the operation of Borrower's business, and (iv) such liens are at all
times junior in priority to the liens in favor of Lender.
For purposes of this Schedule A, the term "Properly Contested"
shall mean in the case of any indebtedness (including, but not limited to, any
taxes or other governmental charges) of Borrower that is not paid as and when
due or payable by reason of Borrower's bona fide dispute concerning its
liability to pay same or concerning the amount thereof, provided that (i) such
indebtedness is being properly contested in good faith by appropriate
proceedings promptly instituted and diligently conducted; (ii) Borrower has
established appropriate reserves as shall be required in conformity with GAAP;
(iii) the non-payment of such indebtedness during the pendency of such
proceedings will not have a material adverse effect on, and will not result in a
forfeiture of any material assets of, Borrower; (iv) no lien is imposed upon any
of Borrower's assets with respect to such
- 19 -
indebtedness unless the lien is at all times junior and subordinate to the liens
in favor of Lender (other than a lien (including without limitation a lien for
taxes), the priority of which has priority as a matter of applicable state or
federal law); and (v) if such contest is abandoned, settled or determined
adversely to Borrower, Borrower forthwith pays such indebtedness and all
penalties and interest in connection therewith.
----------------------------------
SCHEDULE B
Subsidiaries and Joint Venture Partners
None
-------------------------------------
SCHEDULE C
Litigation and Violations
Xxxxxxx Partnership #102, as landlord, has given notice to Borrower that it is
in default in the timely payment of rent for the month of June 1999 for the
premises located at 0 Xxxxxxxx Xxxx, Xxxx Xxxxxxxxx, Xxx Xxxxxx 00000, that the
total amount of rent, late charges and interest due is $4,432.30, and that the
matter has been referred to legal counsel for further action.
--------------------------------------
SCHEDULE D
Jurisdictions where Borrower is required to be qualified
New Jersey
