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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
NATURADE, INC.
AND
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC.
Dated as of: January 27, 2000
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS...........................................................................1
Section 1.1 Definitions...........................................................................1
Section 1.2 Cross References......................................................................9
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...............................................9
Section 2.1 Revolving Advances....................................................................9
Section 2.2 Interest; Minimum Interest Charge; Default Interest; Participations; Usury...........10
Section 2.3 Fees.................................................................................11
Section 2.4 Computation of Interest and Fees; When Interest Due and Payable......................12
Section 2.5 Capital Adequacy.....................................................................12
Section 2.6 Maturity Date........................................................................13
Section 2.7 Voluntary Prepayment; Reduction of the Maximum Line; Termination of the Credit
Facility by the Borrower.............................................................13
Section 2.8 Termination and Line Reduction fees; Waiver of Termination and Line Reduction Fees...13
Section 2.9 Mandatory Prepayment.................................................................13
Section 2.10 Payment..............................................................................14
Section 2.11 Payment on Non-Baking Days...........................................................14
Section 2.12 Use of Proceeds......................................................................14
Section 2.13 Liability Records....................................................................14
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF.................................................15
Section 3.1 Grant of Security Interest...........................................................15
Section 3.2 Notification of Account Debtors and Other Obligors...................................15
Section 3.3 Assignment of Insurance..............................................................15
Section 3.4 Occupancy............................................................................15
Section 3.5 License..............................................................................16
Section 3.6 Financing Statement..................................................................16
Section 3.7 Setoff...............................................................................16
ARTICLE IV CONDITIONS OF LENDING................................................................17
Section 4.1 Conditions Precedent to the Initial Revolving Advance................................17
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 4.2 Conditions Precedent to All Advances.................................................19
ARTICLE V REPRESENTATIONS AND WARRANTIES.......................................................20
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and
Equipment Locations; Tax Identification Number.......................................20
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements......................20
Section 5.3 Legal Agreements.....................................................................21
Section 5.4 Subsidiaries.........................................................................21
Section 5.5 Financial Condition; No Adverse Change...............................................21
Section 5.6 Litigation...........................................................................21
Section 5.7 Regulation U.........................................................................21
Section 5.8 Taxes................................................................................21
Section 5.9 Titles and Liens.....................................................................22
Section 5.10 Plans................................................................................22
Section 5.11 Default..............................................................................22
Section 5.12 Environmental Matters................................................................22
Section 5.13 Submissions to Lender................................................................23
Section 5.14 Financing Statements.................................................................23
Section 5.15 Rights to Payment....................................................................23
Section 5.16 Bank Accounts........................................................................24
Section 5.17 Financial Solvency...................................................................24
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS.....................................................24
Section 6.1 Reporting Requirements...............................................................24
Section 6.2 Books and Records; Inspection and Examination........................................27
Section 6.3 Account Verification.................................................................27
Section 6.4 Compliance with Laws.................................................................27
Section 6.5 Payment of Taxes and Other Claims....................................................28
Section 6.6 Maintenance of Properties............................................................28
Section 6.7 Insurance............................................................................28
Section 6.8 Preservation of Existence............................................................29
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 6.9 Delivery of Instruments, etc.........................................................29
Section 6.10 Collateral Account...................................................................29
Section 6.11 Performance by Lender................................................................29
Section 6.12 Minimum Book net Worth Plus Subordinated Convertible Debt............................30
Section 6.13 Minimum Net income...................................................................30
Section 6.14 New Covenants Service Coverage Ratio.................................................30
ARTICLE VII NEGATIVE COVENANTS...................................................................31
Section 7.1 Liens................................................................................36
Section 7.2 Indebtedness.........................................................................36
Section 7.3 Guaranties...........................................................................36
Section 7.4 Investments and Subsidiaries.........................................................37
Section 7.5 Dividends............................................................................37
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations........................37
Section 7.7 Consolidation and Merger; Asset Acquisitions.........................................38
Section 7.8 Sale and Leaseback...................................................................38
Section 7.9 Restrictions on Nature of Business...................................................38
Section 7.10 Capital Expenditures.................................................................38
Section 7.11 Accounting...........................................................................38
Section 7.12 Discounts, etc.......................................................................38
Section 7.13 Defined Benefit Pension Plans........................................................38
Section 7.14 Other Defaults.......................................................................38
Section 7.15 Place of Business; Name..............................................................38
Section 7.16 Organizational Documents; S Corporation Status.......................................39
Section 7.17 Salaries.............................................................................39
Section 7.18 Change in Ownership..................................................................39
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES...............................................39
Section 8.1 Events of Default....................................................................39
Section 8.2 Rights and Remedies..................................................................41
Section 8.3 Certain Notices......................................................................42
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE IX MISCELLANEOUS........................................................................42
Section 9.1 No Waiver; Cumulative Remedies.......................................................42
Section 9.2 Amendments, Etc......................................................................42
Section 9.3 Addresses for Notices, Etc...........................................................42
Section 9.4 [Servicing of Credit Facility........................................................43
Section 9.5 Further Documents....................................................................44
Section 9.6 Collateral...........................................................................44
Section 9.7 Costs and Expenses...................................................................44
Section 9.8 Indemnity............................................................................45
Section 9.9 Participants.........................................................................45
Section 9.10 Execution in Counterparts............................................................46
Section 9.11 Binding Effect; Assignment; Complete Agreement; Exchanging Information...............46
Section 9.12 Severability of Provisions...........................................................46
Section 9.13 Headings.............................................................................46
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.............................46
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CREDIT AND SECURITY AGREEMENT
Dated as of January 27, 2000
NATURADE, INC., a Delaware corporation (the "BORROWER"), and
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "LENDER"),
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP.
"ACCOUNTS" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate
unpaid obligations of customers and other account debtors to the
Borrower arising out of the sale or lease of goods or rendition of
services by the Borrower on an open account or deferred payment basis.
"Adjusted Book Net Worth" means Minimum Book Net Worth plus
Subordinated Convertible Debt.
"ADVANCE" means a Revolving Advance.
"AFFILIATE" or "AFFILIATES" means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "CONTROL," when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"AVAILABILITY" means the difference of (i) the Borrowing Base
and (ii) the then outstanding principal balance of the Revolving Note.
"AVAILABILITY RESERVE" means as of any date of determination,
such amount or amounts as Lender may from time to time establish and
revise in good faith reducing the
amount of Revolving Advances which would otherwise be available to
Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined
by Lender in good faith, do or may affect either (i) the Collateral or
its value, (ii) the assets, business or prospects of Borrower, or (iii)
the security interests and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof), or (b)
to reflect Lender's good faith belief that any collateral report or
financial information furnished by or on behalf of Borrower to Lender
is or may have been incomplete, inaccurate or misleading in any
material respect, or (c) in respect of any state of facts which Lender
determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
"BANKING DAY" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Pasadena, California.
"BASE RATE" means the rate of interest publicly announced from
time to time by ▇▇▇▇▇ Fargo Bank, N.A., San Francisco, California, as
its "prime rate" or, if such bank ceases to announce a rate so
designated, any similar successor rate designated by the Lender.
"BOOK NET WORTH" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"BORROWING BASE" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's
sole discretion, the sum of:
(i) seventy five percent (75%) of Eligible
Accounts PLUS
(ii) the lesser of One Million Two Hundred
Thousand Dollars ($1,200,000) or fifty
percent (50%) of Eligible Inventory, and
MINUS
(iii) any Availability Reserves.
"CAPITAL EXPENDITURES" for a period means any expenditure of
money for the purchase or construction of assets, or for improvements
or additions thereto, which are capitalized on the Borrower's balance
sheet or for the lease, purchase or other acquisition of any capital
asset, or for the lease of any other asset whether payable currently or
in the future.
"COLLATERAL" means all current or hereafter acquired or
arising Equipment, General Intangibles, Inventory, Receivables,
Investment Property, deposit accounts, letters of
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credit, proceeds of letters of credit, chattel paper and all sums on
deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all substitutions and replacements for and
products of any of the foregoing; (ii) proceeds of any and all of
the foregoing; (iii) in the case of all tangible goods, all
accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in
connection with any tangible goods; (v) all warehouse receipts,
bills of lading and other documents of title now or hereafter
covering such goods; and (vi) the Life Insurance Policy.
"COLLATERAL ACCOUNT" means the "Lender Account" as defined in
the Lockbox Agreement.
"COMMITMENT" means the Lender's commitment to make Advances
to or for the Borrower's account pursuant to Article II.
"CREDIT FACILITY" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"CURRENT MATURITIES OF LONG TERM DEBT" as of a given date
means the amount of the Borrower's long-term debt and capitalized
leases which will become due during the period ending on the designated
date.
"DEBT" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "DEBT" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"DEFAULT" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"DEFAULT PERIOD" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been waived.
"DEFAULT RATE" means an annual rate equal to three percent
(3%) over the Floating Rate, which rate shall change when and as the
Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ELIGIBLE ACCOUNTS" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
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(i) That portion of Accounts unpaid 90 days
or more after the invoice date or, if the Lender in its
discretion has determined that a particular dated Account
may be eligible, that portion of such Account which is
unpaid more than sixty (60) days past the stated due date
or more than one hundred fifty (150) days past the shipping
date;
(ii) That portion of Accounts that is disputed
or subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned
by the final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any federal unit of
government, whether foreign or domestic (provided, however,
that there shall be included in Eligible Accounts that
portion of Accounts owed by such units of government for
which the Borrower has provided evidence satisfactory to
the Lender that (A) the Lender has a first priority
perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of
government under all applicable laws, including, without
limitation, the Federal Assignment of Claims Act of 1940,
as amended, or any similar law);
(v) Accounts owed by an account debtor
located outside the United States or Canada which are not
(A) backed by a bank letter of credit naming the Lender as
beneficiary or assigned to the Lender, in the Lender's
possession and acceptable to the Lender in all respects, in
its sole discretion, or (B) covered by a foreign
receivables insurance policy acceptable to the Lender in
its sole discretion;
(vi) Accounts owed by an account debtor that
is insolvent, the subject of bankruptcy proceedings or has
gone out of business;
(vii) Accounts owed by a shareholder,
Subsidiary, Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are
subject to any lien, security interest or claim in favor of
any Person other than the Lender including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
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(xi) Accounts owed by an account debtor,
regardless of whether otherwise eligible, if ten percent
(10%) or more of the total amount due under Accounts from
such debtor is ineligible under clauses (i), (ii) or (ix)
above, except such percentage shall be fifteen percent
(15%) as to Accounts owed by Tree of Life, Inc.;
(xii) That portion of Accounts of a single
debtor or its affiliates which constitute more than fifteen
percent (15%) of all Accounts, except such percentage shall
be twenty five percent (25%) as to Accounts owed by Tree of
Life, Inc.; and
(xiii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"ELIGIBLE INVENTORY" means all Inventory of the Borrower,
at the lower of cost or market value as determined in accordance
with GAAP; provided, however, that the following shall not in any
event be deemed Eligible Inventory:
(xiv) Inventory that is: in-transit; located at
any warehouse, job site or premises other than Borrower's
Premises located in Irvine, California; located outside of
the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first
priority security interest in such Inventory; covered by
any negotiable or non-negotiable warehouse receipt, ▇▇▇▇ of
lading or other document of title; on consignment from any
Person; on consignment to any Person or subject to any
bailment unless such consignee or bailee has executed an
agreement with the Lender;
(xv) Supplies, packaging, parts or sample
Inventory;
(xvi) Work-in-process Inventory;
(xvii) Inventory that is damaged, obsolete, slow
moving or not currently saleable in the normal course of
the Borrower's operations;
(xviii) Inventory that the Borrower has returned,
has attempted to return, is in the process of returning or
intends to return to the vendor thereof;
(xix) Inventory that is perishable or live;
(xx) Inventory purchased or manufactured by
the Borrower pursuant to a license;
(xxi) Inventory that is subject to a security
interest in favor of any Person other than the Lender; and
(xxii) Inventory otherwise deemed ineligible by
the Lender in its sole discretion.
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"ENVIRONMENTAL LAWS" has the meaning specified in Section
5.12.
"EQUIPMENT" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and recordkeeping equipment, parts, tools,
supplies, and including specifically (without limitation) the goods
described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"EVENT OF DEFAULT" has the meaning specified in Section 8.1.
"FLOATING RATE" means an annual rate equal to the sum of
the Base Rate plus one and one-half percent (1.5%), which annual
rate shall change when and as the Base Rate changes; PROVIDED
HOWEVER, if no Event of Default exists or has occurred and is
continuing, such Floating Rate shall be reduced as follows: (a) if
Borrower generates Net Income of not less than Zero Dollars ($0) for
a consecutive three (3) month period, the Floating Rate shall be
reduced to an annual rate equal to the sum of the Base Rate plus one
and one-quarter percent (1.25%) and (b) if Borrower generates Net
Income of One Hundred Thousand Dollars ($100,000) or more for a
consecutive six (6) month period, the Floating Rate shall be reduced
to an annual rate equal to the sum of the Base Rate plus one percent
(1.0%). Each such reduction in the Floating Rate shall be effective
as of the first day of the month following Lender's receipt of
Borrower's monthly financial statements pursuant to Section 6.1(b)
hereof reflecting such minimum Net Income amounts for the applicable
periods.
"FUNDING DATE" has the meaning specified in Section 2.1.
"GAAP" means generally accepted accounting principles,
applied on a basis consistent with the accounting practices applied
in the financial statements described in Section 5.5, except for any
change in accounting practices to the extent that, due to a
promulgation of the Financial Accounting Standards Board changing or
implementing any new accounting standard, the Borrower either (i) is
required to implement such change, or (ii) for future periods will
be required to and for the current period may in accordance with
generally accepted accounting principles implement such change, for
its financial statements to be in conformity with generally accepted
accounting principles (any such change is herein referred to as a
"REQUIRED GAAP CHANGE"), provided that (1) the Borrower shall fully
disclose in such financial statements any such Required GAAP Change
and the effects of the Required GAAP Change on the Borrower's
income, retained earnings or other accounts, as applicable, and (2)
the Borrower's financial covenants set forth in Sections 6.12, 6.13,
and 7.10 shall be adjusted as necessary to reflect the effects of
such Required GAAP Change.
"GENERAL INTANGIBLES" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned
or hereafter acquired, including (without limitation) all present
and future patents, patent applications, copyrights, trademarks,
trade names, trade secrets, customer or supplier lists and
contracts, manuals, operating
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instructions, permits, franchises, the right to use the Borrower's
name, and the goodwill of the Borrower's business.
"HAZARDOUS SUBSTANCE" has the meaning specified in Section
5.12.
"INVENTORY" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components,
supplies or materials, whether acquired, held or furnished for sale,
for lease or under service contracts or for manufacture or
processing, and wherever located.
"INVESTMENT PROPERTY" means all of the Borrower's
investment property, as such term is defined in the UCC, whether now
owned or hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts, commodity
contracts, commodity accounts, stocks, bonds, mutual fund shares,
money market shares and U.S. Government securities.
"LOAN DOCUMENTS" means this Agreement, the Note, any
Subordination Agreement and the Security Documents.
"LOCKBOX" has the meaning given in the Lockbox Agreement.
"LOCKBOX AGREEMENT" means the Lockbox and Collection
Account Agreement by and among the Borrower, ▇▇▇▇▇ Fargo Bank,
National Association, Regulus West LLC and the Lender, of even date
herewith.
"MATURITY DATE" has the meaning specified in Section 2.6.
"MAXIMUM LINE" means Three Million Dollars ($3,000,000),
unless said amount is reduced pursuant to Section 2.7, in which
event it means the amount to which said amount is reduced.
"MINIMUM INTEREST CHARGE" has the meaning specified in
Section 2.2(a).
"NET INCOME" means fiscal year-to-date after-tax net
income, DECREASED by the sum of any extraordinary, non-operating or
non-cash income recorded by the Borrower and INCREASED by any
extraordinary, non-cash or non-operating expense or loss recorded by
the Borrower, as determined in accordance with GAAP.
"NOTE" means the Revolving Note.
"OBLIGATIONS" means the Note and each and every other debt,
liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving
the Lender alone or in a transaction involving other creditors of
the Borrower, and whether it is direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated
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or unliquidated, or sole, joint, several or joint and several, and
including specifically, but not limited to, all indebtedness of the
Borrower arising under this Agreement, the Note or any other loan or
credit agreement or guaranty between the Borrower and the Lender,
whether now in effect or hereafter entered into.
"PERMITTED LIEN" has the meaning specified in Section 7.1.
"PERSON" means any individual, corporation, partnership,
joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"PLAN" means an employee benefit plan or other plan
maintained for the Borrower's employees and covered by Title IV of
ERISA.
"PREMISES" means all premises where the Borrower conducts
its business and has any rights of possession, including (without
limitation) the premises legally described in EXHIBIT C attached
hereto.
"RECEIVABLES" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a
sale, lease or other disposition of goods or other property, out of
a rendering of services, out of a loan, out of the overpayment of
taxes or other liabilities, or otherwise arises under any contract
or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right
to payment is or is not already earned by performance, and howsoever
such right to payment may be evidenced, together with all other
rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against
any account debtor or other obligor obligated to make any such
payment or against any property of such account debtor or other
obligor; all including but not limited to all present and future
accounts, contract rights, loans and obligations receivable, chattel
papers, bonds, notes and other debt instruments, tax refunds and
rights to payment in the nature of general intangibles.
"REPORTABLE EVENT" shall have the meaning assigned to that
term in Title IV of ERISA.
"REVOLVING ADVANCE" has the meaning specified in Section
2.1.
"REVOLVING NOTE" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form
of EXHIBIT A hereto, as the same may hereafter be amended,
supplemented or restated from time to time, and any note or notes
issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time and any note or
notes issued in substitution therefor.
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"SECURITY DOCUMENTS" means this Agreement, the Lockbox
Agreement, Trademark Security Agreement, and any other document
delivered to the Lender from time to time to secure the Obligations,
as the same may hereafter be amended, supplemented or restated from
time to time.
"SECURITY INTEREST" has the meaning specified in Section
3.1.
"SUBORDINATION AGREEMENTS" means collectively the
Subordination Agreement of even date herewith, executed by
Performance Nutrition, Inc. and the Subordination Agreement of even
date herewith, executed by Health Holdings and Botanicals, Inc.,
both in the Lender's favor and acknowledged by the Borrower, and any
other subordination agreement accepted by the Lender from time to
time, as the same may hereafter be amended, supplemented or restated
from time to time.
"SUBORDINATED CONVERTIBLE DEBT" means debt that is
convertible into common stock of Borrower and is subordinated to
indebtedness to financial institutions for borrowed money including
Obligations.
"SUBORDINATED CREDITORS" means Performance Nutrition, Inc.
and Health Holdings and Botanicals, Inc.
"SUBSIDIARY" means any corporation of which more than fifty
percent (50%) of the outstanding shares of capital stock having
general voting power under ordinary circumstances to elect a
majority of the board of directors of such corporation, irrespective
of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the
Borrower, by the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries.
"TERMINATION DATE" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after
an Event of Default pursuant to Section 8.2.
"TRADEMARK SECURITY AGREEMENT" means the Trademark Security
Agreement by the Borrower in favor of the Lender of even date
herewith.
"UCC" means the Uniform Commercial Code as in effect from
time to time in the state designated in Section 9.13 as the state
whose laws shall govern this Agreement, or in any other state whose
laws are held to govern this Agreement or any portion hereof.
Section 1.2 CROSS REFERENCES. All references in this
Agreement to Articles, Sections and subsections, shall be to Articles, Sections
and subsections of this Agreement unless otherwise explicitly specified.
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ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 REVOLVING ADVANCES. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances to the
Borrower from time to time from the date all of the conditions set forth in
Section 4.1 are satisfied (the "FUNDING DATE") to the Termination Date (the
"REVOLVING ADVANCES"). The Lender shall have no obligation to make a Revolving
Advance if, after giving effect to such requested Revolving Advance, the sum of
the outstanding and unpaid Revolving Advances would exceed the Borrowing Base.
The Borrower's obligation to pay the Revolving Advances shall be evidenced by
the Revolving Note and shall be secured by the Collateral as provided in Article
III. Within the limits set forth in this Section 2.1, the Borrower may borrow,
prepay pursuant to Section 2.6 and reborrow. The Borrower agrees to comply with
the following procedures in requesting Revolving Advances under this Section
2.1:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 10:30 a.m. (Los Angeles time) of the day
of the requested Revolving Advance. Requests may be made in writing or
by telephone, specifying the date of the requested Revolving Advance
and the amount thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set
forth in Article IV, the Lender shall disburse the proceeds of the
requested Revolving Advance by crediting the same to the Borrower's
demand deposit account maintained with ▇▇▇▇▇ Fargo Bank, National
Association, unless the Lender and the Borrower shall agree in writing
to another manner of disbursement. Upon the Lender's request, the
Borrower shall promptly confirm each telephonic request for an Advance
by executing and delivering an appropriate confirmation certificate to
the Lender. The Borrower shall repay all Advances even if the Lender
does not receive such confirmation and even if the person requesting an
Advance was not in fact authorized to do so. Any request for an
Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the time of the request.
Section 2.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT
INTEREST; PARTICIPATIONS; USURY.
(a) REVOLVING NOTE. Except as set forth in Sections
2.2(c) and 2.2(e), the outstanding principal balance of the Revolving
Note shall bear interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Section 2.2(a), the Borrower shall pay to the
Lender interest of not less than
-▇▇-
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Dollars ($20,000) per calendar quarter (the "MINIMUM
INTEREST CHARGE") during the term of this Agreement, and the
Borrower shall pay any deficiency between the Minimum Interest
Charge and the amount of interest otherwise calculated under
Sections 2.2(a) and 2.2(d) quarterly in arrears on the first day of
each calendar quarter and on the Termination Date and on the date
and in the manner provided in Section 2.4.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the Obligations outstanding from time to
time shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall
be obligated to the Lender to pay the full amount of all interest
calculated under Section 2.2(a), along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a lower
rate than the Floating Rate, or otherwise elects to accept less than
its prorata share of such fees, charges and other amounts due under
this Agreement.
(e) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law. Notwithstanding anything to the contrary contained in
any Loan Document, all agreements which either now are or which shall
become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total
liability for payments in the nature of interest, additional interest
and other charges exceed the applicable limits imposed by any
applicable usury laws. If any payments in the nature of interest,
additional interest and other charges made under any Loan Document are
held to be in excess of the limits imposed by any applicable usury
laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total
liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower
and the Lender. This provision shall never be superseded or waived and
shall control every other provision of the Loan Documents and all
agreements between the Borrower and the Lender, or their successors and
assigns.
Section 2.3 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay
the Lender a fully earned and non-refundable origination fee of Thirty
Thousand Dollars ($30,000) due and payable upon the execution of this
Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section
2.3(b), "UNUSED AMOUNT" means the Maximum Line reduced by outstanding
Revolving Advances . The Borrower agrees to pay to the Lender an unused
line fee at the rate of one-quarter of one
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percent (0.25%) per annum on the average daily Unused Amount from
the date of this Agreement to and including the Termination Date,
due and payable quarterly in arrears on the first day of the
calendar quarter and on the Termination Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the
Lender, on demand, audit fees in connection with any audits or
inspections conducted by the Lender of any Collateral or the Borrower's
operations or business at the rates established from time to time by
the Lender as its audit fees (which fees are currently Seventy Five
Dollars ($75) per hour per auditor), together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit
or inspection.
Section 2.4 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST
DUE AND PAYABLE. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be due and payable in arrears on the first day of each month and on the
Termination Date.
Section 2.5 CAPITAL ADEQUACY. If any Related Lender
determines at any time that its Return has been reduced as a result of any Rule
Change, such Related Lender may require the Borrower to pay it the amount
necessary to restore its Return to what it would have been had there been no
Rule Change. For purposes of this Section 2.5:
(a) "CAPITAL ADEQUACY RULE" means any law, rule,
regulation, guideline, directive, requirement or request regarding
capital adequacy, or the interpretation or administration thereof by
any governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender. Such rules include rules requiring financial
institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters
of credit.
(b) "RETURN", for any period, means the return as
determined by such Related Lender on the Advances based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules then in effect. Return may be
calculated for each calendar quarter and for the shorter period between
the end of a calendar quarter and the date of termination in whole of
this Agreement.
(c) "RULE CHANGE" means any change in any Capital
Adequacy Rule occurring after the date of this Agreement, but the term
does not include any changes in applicable requirements that at the
Closing Date are scheduled to take place under the existing Capital
Adequacy Rules or any increases in the capital that any Related Lender
is required to maintain to the extent that the increases are required
due to a regulatory authority's assessment of the financial condition
of such Related Lender.
(d) "RELATED LENDER" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any
interest of the Lender hereunder and any participant in the loans made
hereunder.
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Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.6 MATURITY DATE. This Agreement and the other Loan
Documents 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 January
27, 2003 (the "MATURITY DATE"), unless earlier terminated by Lender or Borrower
pursuant to the terms hereof. Upon the Termination Date, Borrower shall
immediately pay to Lender, in full, all outstanding and unpaid Obligations and
shall furnish cash collateral to Lender in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including checks and other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment.
Section 2.7 VOLUNTARY PREPAYMENT; REDUCTION OF THE MAXIMUM
LINE; TERMINATION OF THE CREDIT FACILITY BY THE BORROWER. Except as otherwise
provided herein, the Borrower may prepay the Advances in whole at any time or
from time to time in part. The Borrower may terminate the Credit Facility or
reduce the Maximum Line at any time if it (i) gives the Lender at least thirty
(30) days' prior written notice and (ii) pays the Lender termination or line
reduction fees in accordance with Section 2.8. Any reduction in the Maximum Line
must be in an amount not less than Two Hundred Fifty Thousand Dollars ($250,000)
or an integral multiple thereof. If the Borrower reduces the Maximum Line to
zero, all Obligations shall be immediately due and payable. Upon termination of
the Credit Facility and payment and performance of all Obligations, the Lender
shall release or terminate the Security Interest and the Security Documents to
which the Borrower is entitled by law.
Section 2.8 TERMINATION AND LINE REDUCTION FEES; WAIVER OF
TERMINATION AND LINE REDUCTION FEES.
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit
Facility is terminated for any reason as of a date other than the
Maturity Date, or the Borrower reduces the maximum Line, the Borrower
shall pay to the Lender a fee in an amount equal to a percentage of the
Maximum Line or the reduction, as the case may be as follows: (A) three
percent (3.0%) if the termination or reduction occurs on or before the
first anniversary of the Funding Date; (B) two percent (2.0%) if the
termination or reduction occurs after the first anniversary of the
Funding Date but on or before the second anniversary of the Funding
Date; and (C) one percent (1.0%) if the termination or reduction occurs
after the second anniversary of the Funding Date.
(b) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The
Borrower will not be required to pay the termination or line reduction
fees otherwise due under this Section
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2.8 if such termination or line reduction is made because of
refinancing by an affiliate of the Lender.
Section 2.9 MANDATORY PREPAYMENT. Without notice or demand,
if the outstanding principal balance of the Revolving Advances shall at any time
exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess. Any payment received
by the Lender under this Section 2.9 or under Section 2.6 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.10 PAYMENT. For purposes of calculating the amount
of Revolving Advances available to Borrower, each payment will be applied
(conditional upon final collection) to the outstanding principal balance of the
Revolving Note on the Banking Day of receipt by Lender of advices of deposit in
the Collateral Account, if such advices are received within sufficient time (in
accordance with Lender's usual and customary practices as in effect from time to
time) to credit Borrower's loan account on such day, and if not, then on the
next Banking Day. Such payment shall be applied in any order or manner of
application satisfactory to Lender. For purposes of calculating interest, Lender
shall be entitled to charge Borrower for one (1) Banking Day of clearance at the
Floating Rate on all payments deposited into the Collateral Account, whether or
not such payments are applied to reduce the outstanding principal balance of the
Revolving Note. This clearance charge is acknowledged to constitute an integral
part of the pricing of the loans and financial accommodations contemplated
herein, and shall apply whether or not the amount of payments deposited exceeds
the obligations outstanding. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Loan Documents may be
charged directly to the loan account(s) of Borrower.
Section 2.11 PAYMENT ON NON-BANKING DAYS. Whenever any
payment to be made hereunder shall be stated to be due on a day which is not a
Banking Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.12 USE OF PROCEEDS. The Borrower shall use the
initial proceeds of Advances only for: (a) payment 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
Loan Documents. All other Advances made to Borrower 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.
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Section 2.13 LIABILITY RECORDS. The Lender may maintain from
time to time, at its discretion, liability records as to the Obligations. All
entries made on any such record shall be presumed correct until the Borrower
establishes the contrary. Upon the Lender's demand, the Borrower will admit and
certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception within
thirty (30) days after receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "SECURITY INTEREST") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER
OBLIGORS. The Lender may at any time (whether or not a Default Period then
exists) notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
▇▇▇ for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
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Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender
the right to take possession of the Premises at any time during a
Default Period.
(b) The Lender may use the Premises only to hold,
process, manufacture, sell, use, store, liquidate, realize upon or
otherwise dispose of goods that are Collateral and for other purposes
that the Lender may in good ▇▇▇▇▇ ▇▇▇▇ to be related or incidental
purposes.
(c) The Lender's right to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and discharge of
all Obligations and termination of the Commitment, and (ii) final sale
or disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account
for any rent or other compensation for the possession, occupancy or use
of any of the Premises; provided, however, that if the Lender does pay
or account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 LICENSE. Without limiting the generality of the
Patent Security Agreement, Copyright Security Agreement, Trademark Security
Agreement, the Borrower hereby grants to the Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all trademarks, franchises,
trade names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Naturade, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Federal Tax Identification No. ▇▇-▇▇▇▇▇▇▇
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Name and address of Secured Party:
▇▇▇▇▇ Fargo Business Credit, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Section 3.7 SETOFF. The Borrower agrees that the Lender may
at any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING
ADVANCE. The Lender's obligation to make the initial Revolving Advance hereunder
shall be subject to the condition precedent that the Lender shall have received
all of the following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases
pursuant to which the Borrower is leasing the Premises, together with a
landlord's disclaimer and consent with respect to each such lease.
(d) A true and correct copy of any and all mortgages
pursuant to which the Borrower has mortgaged the Premises, together
with a mortgagee's disclaimer and consent with respect to each such
mortgage.
(e) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any
Person other than the Borrower, together with, in the case of any goods
held by such Person for resale, (i) a consignee's acknowledgment and
waiver of liens, (ii) UCC financing statements sufficient to protect
the Borrower's and the Lender's interests in such goods, and (iii) UCC
searches showing that no other secured party has filed a financing
statement against such Person and covering property similar to the
Borrower's other than the Borrower, or if there exists any such secured
party, evidence that each such secured party has received notice from
the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such
secured party.
(f) An acknowledgment and waiver of liens from each
warehouse in which the Borrower is storing Inventory.
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(g) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any
Person other than the Borrower, together with, (i) an acknowledgment
and waiver of liens from each subcontractor who has possession of the
Borrower's goods from time to time, (ii) UCC financing statements
sufficient to protect the Borrower's and the Lender's interests in such
goods, and (iii) UCC searches showing that no other secured party has
filed a financing statement covering such Person's property other than
the Borrower, or if there exists any such secured party, evidence that
each such secured party has received notice from the Borrower and the
Lender sufficient to protect the Borrower's and the Lender's interests
in the Borrower's goods from any claim by such secured party.
(h) The Lockbox Agreement, properly executed by the
Borrower, ▇▇▇▇▇ Fargo Bank, National Association and Regulus West LLC.
(i) Trademark Security Agreement, properly executed by
the Borrower.
(j) The Subordination Agreements properly executed by the
Subordinated Creditors and acknowledged by Borrower.
(k) Current searches of appropriate filing offices
showing that (i) no state or federal tax liens have been filed and
remain in effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(l) A certificate of the Borrower's Secretary or
Assistant Secretary certifying as to (i) the resolutions of the
Borrower's directors and, if required, shareholders, authorizing the
execution, delivery and performance of the Loan Documents, (ii) the
Borrower's articles of incorporation and bylaws, and (iii) the
signatures of the Borrower's officers or agents authorized to execute
and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.
(m) A current certificate issued by the Secretary of
State of Delaware, certifying that the Borrower is in compliance with
all applicable organizational requirements of the State of Delaware.
(n) Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where the character
of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary
(except in those jurisdictions where the failure to so qualify will not
have a materially
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adverse effect on the Borrower, its financial condition, or ability
to repay the Obligations under this Agreement).
(o) A certificate of an officer of the Borrower
confirming, in his personal capacity, the representations and
warranties set forth in Article V.
(p) Receipt of background checks on Borrower's principals
satisfactory to Lender at its sole discretion.
(q) An opinion of counsel to the Borrower, addressed to
the Lender.
(r) Certificates of the insurance required hereunder,
with all hazard insurance containing a lender's loss payable
endorsement in the Lender's favor and with all liability insurance
naming the Lender as an additional insured.
(s) Evidence of the settlement of the action arising
under the Performance Nutrition, Inc. bankruptcy on terms and
conditions satisfactory to Lender, and completion of payments according
to the terms of such settlement.
(t) Payment of the fees and commissions due through the
date of the initial Advance under Section 2.3 and expenses incurred by
the Lender through such date and required to be paid by the Borrower
under Section 9.6, including all legal expenses incurred through the
date of this Agreement.
(u) Evidence that Availability as of the Funding Date is
not less than One Million Two Hundred Fifty Thousand Dollars
($1,250,000) after giving effect to the amount paid or to be paid to
Borrower's prior lender to retire Borrower's line of credit with such
prior lender and bringing all other obligations to a current status
satisfactory to Lender.
(v) At Borrower's cost, an appraisal of all Inventory,
issued by an appraiser acceptable to Lender and in form, substance and
reflecting values satisfactory to Lender in its sole discretion.
(w) Completion of a field review of the books and records
of Borrower and such other information with respect to the Collateral
as Lender may require and a review of Borrower's projections, budgets,
business plans, cash flows and such other financial information as
Lender may require, the results of all of which shall be satisfactory
to Lender in its sole discretion.
(x) Evidence that there has been no material adverse
change, as determined by Lender, in the financial condition or business
of Borrower, nor any material decline, as determined by Lender, in the
market value of any Collateral or a substantial or material portion of
the assets of Borrower since the date of the latest financial
statements of Borrower delivered to Lender prior to the Funding Date.
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(y) Evidence that Borrower has opened bank accounts of a
type mutually acceptable to Borrower and Lender, including, without
limitation, the Collateral Account and any other account contemplated
by the Lockbox Agreement.
(z) Such other documents as the Lender in its sole
discretion may require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The
Lender's obligation to make each Advance shall be subject to the further
conditions precedent that on such date:
(a) the representations and warranties contained in
Article V are correct on and as of the date of such Advance as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date;
(b) no material adverse change, as determined by
Lender, shall have occurred in the financial condition or business
of Borrower nor any material decline, as determined by Lender, in
the market value of any Collateral or a substantial or material
portion of the assets of Borrower since the date of the latest
financial statements delivered to Lender prior to the Funding Date;
and
(c) no event has occurred and is continuing, or would
result from such Advance which constitutes a Default or an Event of
Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF
EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER.
The Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware and is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary, except where the failure to so
qualify would not have a materially adverse effect on the Borrower, its
financial condition, or ability to repay the Obligations under this Agreement.
The Borrower has all requisite power and authority, corporate or otherwise, to
conduct its business, to own its properties and to execute and deliver, and to
perform all of its obligations under, the Loan Documents. During its existence,
the Borrower has done business solely under the names set forth in SCHEDULE 5.1
hereto. The Borrower's chief executive office and principal place of business is
located at the address set forth in SCHEDULE 5.1 hereto, and all of the
Borrower's records relating to its business or the Collateral are kept at that
location. All Inventory and Equipment is located at that location or at one of
the other locations set forth in SCHEDULE 5.1 hereto. The Borrower's tax
identification number is correctly set forth in Section 3.6 hereto.
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Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW
OR AGREEMENTS. The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in SCHEDULE
5.4, the Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The
Borrower has heretofore furnished to the Lender audited financial statements of
the Borrower for its fiscal year ended December 31, 1998 and unaudited financial
statements of the Borrower for the fiscal year-to-date period ended October 31,
1999, and those statements fairly present the Borrower's financial condition on
the dates thereof and the results of its operations and cash flows for the
periods then ended and were prepared in accordance with GAAP. Since the date of
the most recent financial statements, there has been no material adverse change
in the Borrower's business, properties or condition (financial or otherwise).
Section 5.6 LITIGATION. There are no actions, suits or
proceedings pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or the properties of the Borrower before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower, would have
a material adverse effect on the financial condition, properties or operations
of the Borrower.
Section 5.7 REGULATION U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of
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Regulation U of the Board of Governors of the Federal Reserve System, as
amended), and no part of the proceeds of any Advance will be used to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or to retire any indebtedness which
was originally incurred to purchase or carry any margin stock or for any
other purpose which might cause any of the Advances 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 5.8 TAXES. The Borrower has paid or caused to be paid
to the proper authorities when due all federal, state and local taxes required
to be withheld by each of them. The Borrower has filed all federal, state and
local tax returns which to the knowledge of the officers of the Borrower, are
required to be filed, and the Borrower has paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by it to the extent such taxes have become due.
Section 5.9 TITLES AND LIENS. The Borrower has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets reflected in the
latest financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in
writing prior to the date hereof, the Borrower does not maintain or has not
maintained any Plan. The Borrower has not received any notice and has no
knowledge to the effect that it is not in full compliance with any of the
requirements of ERISA. No Reportable Event or other fact or circumstance which
may have an adverse effect on the Plan's tax qualified status exists in
connection with any Plan. The Borrower does not have:
(a) Any accumulated funding deficiency within the meaning
of ERISA; or
(b) Any liability or knows of any fact or circumstances
which could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
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(i) "ENVIRONMENTAL LAW" means any federal,
state, local or other governmental statute, regulation, law
or ordinance dealing with the protection of human health
and the environment.
(ii) "HAZARDOUS SUBSTANCES" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not
present in, on or under the Premises any Hazardous Substances in such
form or quantity as to create any liability or obligation for either
the Borrower or the Lender under common law of any jurisdiction or
under any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has
not disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are
not and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all
environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or
Borrower's businesses.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's
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request for the credit facilities contemplated hereby is true and correct in
all material respects and, as to projections, valuations or pro forma
financial statements, present a good faith opinion as to such projections,
valuations and pro forma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided
to the Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which is
capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and
each instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 BANK ACCOUNTS. All of the deposit accounts,
investment accounts or other accounts in the name of or used by Borrower
maintained at any bank or other financial institution are set forth on SCHEDULE
5.16 hereto.
Section 5.17 FINANCIAL SOLVENCY. Both before and after giving
effect to all of the transactions contemplated in the Loan Documents, Borrower
will not:
(a) be or was not insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy Code and
Section 2 of the Uniform Fraudulent Transfer Act;
(b) have unreasonably small capital or is not engaged or
about to engage in a business or a transaction for which any remaining
assets of the Borrower are unreasonably small;
(c) by executing, delivering or performing its
obligations under the Loan Documents or other documents to which it is
a party or by taking any action with respect thereto, intends to, nor
believes that it will, incur debts beyond its ability to pay them as
they mature;
(d) by executing, delivering or performing its
obligations under the Loan Documents or other documents to which it is
a party or by taking any action with respect thereto, intends to
hinder, delay or defraud either its present or future creditors; and
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(e) at this time contemplates filing a petition in
bankruptcy or for an arrangement or reorganization or similar
proceeding under any law any jurisdiction, nor, to the best knowledge
of the Borrower, is the subject of any actual, pending or threatened
bankruptcy, insolvency or similar proceedings under any law of any
jurisdiction.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will
deliver, or cause to be delivered, to the Lender each of the following, which
shall be in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Borrower, the
Borrower's audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall
include the Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income, retained earnings
and cash flows for the fiscal year then ended, all in reasonable detail
and prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; (ii) a report signed
by such accountants stating that in making the investigations necessary
for said opinion they obtained no knowledge, except as specifically
stated, of any Default or Event of Default hereunder and all relevant
facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set
forth in Sections 6.12, 6.13, and 7.10; and (iii) a certificate of the
Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP and whether or
not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable detail the
facts with respect thereto;
(b) as soon as available and in any event within twenty
(20) days after the end of each month, an unaudited/internal balance
sheet and statements of income and retained earnings of the Borrower as
at the end of and for such month and for the year to date period then
ended, in reasonable detail and stating in comparative form the figures
for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit B hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, (ii)
whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder not theretofore reported and
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remedied and, if so, stating in reasonable detail the facts with
respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.12, 6.13, and
7.10;
(c) No later than Monday of each week, as of the end of
the prior calendar week, or more frequently if the Lender so requires,
reports of Borrower's sales, credit memos, collections, and other
accounts receivable activity;
(d) within fifteen (15) days after the end of each month
or more frequently if the Lender so requires, agings of the Borrower's
accounts receivable and its accounts payable, an inventory
certification report, reports of inventory levels, and a calculation of
the Borrower's Accounts, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time period;
(e) at least thirty (30) days before the beginning of
each fiscal year of the Borrower, the projected balance sheets and
income statements for each month of such year, each in reasonable
detail, representing the Borrower's good faith projections and
certified by the Borrower's chief financial officer as being the most
accurate projections available and identical to the projections used by
the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its
discretion require;
(f) promptly upon knowledge thereof, notice in writing of
all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in
Section 5.12 or which seek a monetary recovery against the Borrower in
excess of Twenty Five Thousand Dollars ($25,000);
(g) as promptly as practicable (but in any event not
later than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(h) as soon as possible and in any event within thirty
(30) days after the Borrower knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, the statement
of the Borrower's chief financial officer setting forth details as to
such Reportable Event and the action which the Borrower proposes to
take with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within ten (10)
days after the Borrower fails to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action
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which the Borrower proposes to take with respect thereto, together with
a copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding Twenty Five
Thousand Dollars ($25,000) individually or Fifty Thousand Dollars
($50,000) in the aggregate during any fiscal year; (ii) credit memos;
(iii) any goods returned to or recovered by the Borrower; and (iv) any
change in the persons constituting the Borrower's officers and
directors;
(k) promptly upon knowledge thereof, notice of any loss
of or material damage to any Collateral or other collateral covered by
the Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the Borrower
shall have sent to its stockholders;
(m) promptly after the sending or filing thereof, copies
of all regular and periodic reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities
exchange;
(n) promptly upon knowledge thereof, notice of the
Borrower's violation of any law, rule or regulation, the non-compliance
with which could materially and adversely affect the Borrower's
business or its financial condition; and
(o) from time to time, with reasonable promptness, any
and all receivables schedules, collection reports, deposit records,
equipment schedules, copies of invoices to account debtors, shipment
documents and delivery receipts for goods sold, and such other
material, reports, records or information as the Lender may request,
including, without limitation, daily or weekly borrowing base
certificates.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION.
The Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower's business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of the Borrower at all times
during ordinary business hours, to send and discuss with account debtors and
other obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
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Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time
and from time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the
Borrower specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral,
the other collateral covered by the Security Documents and all of its
other properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all
claims or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
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(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear of all
security interests, liens and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all
times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times maintain business interruption insurance including
coverage for force majeure and keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft, collision (for
Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lender may reasonably request, with any loss payable to the
Lender to the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit acceptable
to the Lender. All policies of liability insurance required hereunder shall name
the Lender as an additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 COLLATERAL ACCOUNT.
(a) If, notwithstanding the instructions to debtors to
make payments to the Lockbox, the Borrower receives any payments on
Receivables, the Borrower shall deposit such payments into the
Collateral Account. Until so deposited, the Borrower shall hold all
such payments in trust for and as the property of the Lender and shall
not commingle such payments with any of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not
bear interest and shall not be subject to withdrawal by the Borrower,
except after full payment and discharge of all Obligations. All
deposits in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations.
(c) All items deposited in the Collateral Account shall
be subject to final payment. If any such item is returned uncollected,
the Borrower will immediately pay the Lender, or, for items deposited
in the Collateral Account, the bank maintaining such account, the
amount of that item, or such bank at its discretion may charge any
uncollected item to the Borrower's commercial account or other account.
The Borrower
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shall be liable as an endorser on all items deposited in the Collateral
Account, whether or not in fact endorsed by the Borrower.
Section 6.11 PERFORMANCE BY THE LENDER. If the Borrower at
any time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten (10) calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.7 and
6.10, immediately upon the occurrence of such failure, without notice or lapse
of time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.11.
Section 6.12 MINIMUM BOOK NET WORTH PLUS SUBORDINATED
CONVERTIBLE DEBT. The Borrower will maintain, during each period described
below, its Book Net Worth plus Subordinated Convertible Debt ("Adjusted Book Net
Worth"), determined as at the end of each month, at an amount not less than the
amount set forth opposite such period:
Period Adjusted Book Net Worth
------ -----------------------
through 1/31/2000 $0
2/29/2000 through 3/31/2000 ($225,000)
4/30/2000 through 6/30/2000 ($450,000)
7/31/2000 through 9/30/2000 ($475,000)
10/31/2000 through 12/31/2000 ($500,000) and thereafter
Section 6.13 MINIMUM NET INCOME. The Borrower will maintain
during each period described below, Minimum Net Income determined as at the end
of each calendar quarter measured on a year-to-date basis, of not less than the
amount set forth opposite such period:
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Quarter Ending Minimum Net Income
-------------- ------------------
3/31/2000 ($675,000)
6/30/2000 ($900,000)
9/30/2000 ($925,000)
12/31/2000 ($950,000)
Section 6.14 NEW COVENANTS. On or before January 1 of each
year Lender shall set new covenant levels for Sections 6.12, 6.13, and 7.10 for
periods after such date. The new covenant levels will be based on the Borrower's
projections for such periods received by Lender pursuant to Section 6.1(e) and
shall be no less stringent than the present levels.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 LIENS. The Borrower will not create, incur or
suffer to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; EXCLUDING, HOWEVER, from the operation of
the foregoing, the following (collectively, "PERMITTED LIENS"):
(a) in the case of any of the Borrower's property which
is not Collateral or other collateral described in the Security
Documents, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with the
Borrower's business or operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
SCHEDULE 7.1 hereto;
(c) the Security Interest and liens and security
interests created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding
the cost or fair market value thereof, not exceeding Fifty Thousand
Dollars ($50,000) for any one purchase or One Hundred Thousand Dollars
($100,000) in the aggregate during any fiscal year and so long as no
Default Period is then in existence and none would exist immediately
after such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur,
create, assume or permit to exist any indebtedness or liability on account of
deposits or advances or any
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indebtedness for borrowed money or letters of credit issued on the Borrower's
behalf, or any other indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in SCHEDULE 7.2 hereto; and
(c) indebtedness relating to liens permitted in
accordance with Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the
ordinary course of business; and
(b) guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of other
Persons, in existence on the date hereof and listed in SCHEDULE 7.2
hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially
any stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the
United States of America or any agency or instrumentality
thereof whose obligations constitute full faith and credit
obligations of the United States of America having a
maturity of one year or less, commercial paper issued by
U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by ▇▇▇▇▇'▇ Investors Service
or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of One
Hundred Million Dollars ($100,000,000) (which certificates
of deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) travel advances or loans to the
Borrower's officers and employees not exceeding at any one
time an aggregate of Ten Thousand Dollars ($10,000); and
(iii) advances in the form of progress
payments, prepaid rent not exceeding three (3) months or
security deposits.
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(b) The Borrower will not create or permit to exist any
Subsidiary.
Section 7.5 DIVIDENDS. Except as set forth below, the
Borrower will not declare or pay any dividends (other than dividends payable
solely in stock of the Borrower) on any class of its stock or make any payment
on account of the purchase, redemption or other retirement of any shares of such
stock or make any distribution in respect thereof, either directly or
indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF
BUSINESS OPERATIONS. The Borrower will not sell, lease, assign, transfer or
otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial
part of its assets, or (iii) any Collateral or any interest therein (whether in
one transaction or in a series of transactions) to any other Person other than
the sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower
will not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not
incur or contract to incur Capital Expenditures of more than One Hundred
Thousand Dollars ($100,000) in the aggregate during any fiscal year, or more
than Fifty Thousand Dollars ($50,000) in any one transaction.
Section 7.11 ACCOUNTING. The Borrower will not adopt any
material change in accounting principles other than as required by GAAP. The
Borrower will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. The Borrower will not, after
notice from the Lender, grant any discount, credit or allowance to any customer
of the Borrower or accept any return of goods sold, or at any time (whether
before or after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower
(collectively referred to herein as "Discounts"); provided, however, that
Borrower
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may grant such Discounts in manner and amount which are in accordance with
Borrower's past practice.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will
not adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS; S CORPORATION STATUS.
The Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than ten percent (10%) in any one year, either
individually or for all such persons in the aggregate, or pay any such increase
from any source other than profits earned in the year of payment.
Section 7.18 CHANGE IN OWNERSHIP. The Borrower will not issue
or sell any stock of the Borrower in amounts so that Health Holdings and
Botanicals, Inc. ceases to own in excess of fifty percent (50%) of the issued
and outstanding shares of common stock of the Borrower.
Section 7.19 TRANSACTIONS WITH AFFILIATES. Borrower shall not
enter into any transaction for the purchase, sale or exchange of property or the
rendering of any service to or by any Affiliate, 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 Borrower than Borrower would
obtain in a comparable arms length transaction with an unaffiliated Person.
Section 7.20 ADDITIONAL BANK ACCOUNTS. Borrower shall not,
directly or indirectly, open, establish or maintain any deposit account,
investment account or any other account with any bank or other financial
institution, other than the Collateral Account and the accounts set forth in
SCHEDULE 5.16 hereto.
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ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "EVENT OF DEFAULT", wherever
used herein, means any one of the following events, which Event of Default shall
exist or continue or be continuing until such Event of Default is waived in
accordance with Section 9.2 hereof:
(a) Default in the payment of the Obligations when they
become due and payable;
(b) Default in the payment of any fees, commissions,
costs or expenses required to be paid by the Borrower under this
Agreement;
(c) Borrower shall fail to comply with any covenant or
agreement of the Borrower contained in this Agreement and such failure
shall continue for five (5) days; provided, that, such five (5) day
period shall not apply in the case of: (i) any failure to observe any
such covenant or agreement which is not capable of being cured at all
or within such five (5) day period or which has been the subject of a
prior failure within a twelve (12) month period or (ii) an intentional
breach of Borrower of any such covenant or agreement;
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower or any Guarantor shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower
or any such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower
or any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(f) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within thirty (30) days and the Borrower shall not have
delivered a satisfactory renewal thereof to the Lender; or the Borrower
shall fail to pay any premium on the Life Insurance Policy when due; or
the Borrower shall take any other action that impairs the value of the
Life Insurance Policy.
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(g) Any representation or warranty made by the Borrower
in this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(h) The rendering against the Borrower of a final
judgment, decree or order for the payment of money in excess of Fifty
Thousand Dollars ($50,000) (not covered by insurance or for which an
insurer has reserved its rights) and, absent procurement of a stay of
execution, such judgment, decree or order unsatisfied and in effect for
any period of thirty (30) consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines in
good faith might constitute grounds for the termination of any Plan or
for the appointment by the appropriate United States District Court of
a trustee to administer any Plan, shall have occurred and be continuing
thirty (30) days after written notice to such effect shall have been
given to the Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when assessed or due (other than any
tax deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books
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adequate reserves therefor) or notice of any state or federal tax liens
shall be filed or issued;
(n) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or
fail to perform any such Guarantor's obligations under such Guarantor's
guaranty in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;
(p) The Borrower shall take or participate in any action
which would be prohibited under the provisions of any Subordination
Agreement or make any payment on the Subordinated Indebtedness (as
defined in the Subordination Agreement) that any Person was not
entitled to receive under the provisions of the Subordination
Agreement;
Section 8.2 RIGHTS AND REMEDIES. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare
the Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare
the Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any kind,
all of which the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the Lender to
the Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
UCC, including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
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Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten (10)
calendar days before the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or
delay by the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Naturade, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
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If to the Lender:
▇▇▇▇▇ Fargo Business Credit, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
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Section 9.7 INDEMNITY. In addition to the payment of
expenses pursuant to Section 9.6, the Borrower agrees to indemnify, defend
and hold harmless the Lender, and any of its participants, parent
corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees,
attorneys and agents of the foregoing (the "INDEMNITEES") from and against
any of the following (collectively, "INDEMNIFIED LIABILITIES"):
(i) any and all transfer taxes, documentary
taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of the
Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or
warranty contained in Section 5.12 proves to be incorrect
in any respect or as a result of any violation of the
covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements
of counsel) in connection with the foregoing and any other
investigative, administrative or judicial proceedings,
whether or not such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or
arising out of or in connection with the making of the
Advances and the Loan Documents or the use or intended use
of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants,
if any, are not partners or joint venturers, and the Lender shall not have
any liability or responsibility for any obligation, act or omission of any of
its participants. All rights and powers specifically conferred upon the
Lender may be transferred or delegated to any of the Lender's participants,
successors or assigns.
Section 9.9 EXECUTION IN COUNTERPARTS. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and
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delivered shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE
AGREEMENT; EXCHANGING INFORMATION. The Loan Documents shall be binding upon
and inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights thereunder or any interest therein without the Lender's
prior written consent. This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof. Lender agrees to hold any confidential information
that it may receive from the Borrower in confidence, except for disclosure:
(1) to affiliates of lender; (b) to legal counsel and accountants for the
Lender; (c) to professional advisors to the Lender; (d) to another financial
institution in connection with a disposition or proposed disposition to that
financial institution of all or part of Lender's interests hereunder or a
participation interest in the Revolving note, provided that the recipient has
accepted such information subject to a confidentiality agreement
substantially similar to this Section; (e) to regulatory officials having
jurisdiction over Lender; and (f) as required by law or legal process.
Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of
this Agreement which is prohibited or unenforceable shall be ineffective to
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in
this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF
JURY TRIAL. This Agreement and the other Loan Documents shall be governed by
and construed in accordance with the substantive laws (other than conflict
laws) of the State of California. The Guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws)
of the State of California. Each of the parties hereto hereby (i) consents to
the personal jurisdiction of the state and federal courts located in the
State of California in connection with any controversy related to this
Agreement or the other Loan Documents; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated
by the Lender or the Borrower in connection with this Agreement or the other
Loan Documents shall be venued in either the State Courts of the County of
Los Angeles, State of California, or the United States District Court for the
Central District of California; and (iv) agrees that a final judgment in any
such suit, action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided
by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
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▇▇▇▇▇ FARGO BUSINESS CREDIT, INC., NATURADE, INC.
a Minnesota corporation a Delaware corporation
By By
--------------------------------- ------------------------------
Name: Name:
------------------------------ ---------------------------
Its Its
--------------------------- ------------------------
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TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
-------------------------------------------------------------------------
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 5.16 Bank Accounts
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$3,000,000 Pasadena, California
January 27, 2000
For value received, the undersigned, NATURADE, INC., a Delaware
corporation (the "BORROWER"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of ▇▇▇▇▇ FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the "LENDER"), at its main
office in Pasadena, California, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Three Million Dollars
($3,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (as the same may hereafter
be amended, supplemented or restated from time to time, the "CREDIT
AGREEMENT") by and between the Lender and the Borrower. The principal hereof
and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Revolving Note referred to in the Credit Agreement. This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
NATURADE, INC.,
a Delaware corporation
By:
--------------------------------
Its:
-------------------------------
A-1
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To:
----------------------------------------------
▇▇▇▇▇ Fargo Business Credit, Inc.
Date: __________________, 200__
Subject: Naturade, Inc.
Financial Statements
--------------------
In accordance with our Credit and Security Agreement dated as
of January 27, 2000 (the "CREDIT AGREEMENT"), attached are the financial
statements of NATURADE, INC. (the "BORROWER") as of and for ________________,
200__ (the "REPORTING Date") and the year-to-date period then ended (the
"CURRENT FINANCIALS"). All terms used in this certificate have the meanings
given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly
present the Borrower's financial condition and the results of its operations
as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the
Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit
Agreement and attached hereto is a statement of the
facts with respect to thereto.
I hereby certify to the Lender as follows:
|_| The Reporting Date does not ▇▇▇▇ the end of one of
the Borrower's fiscal quarters, hence I am completing
only paragraph __ below.
|_| The Reporting Date marks the end of one of the
Borrower's fiscal quarters, hence I am completing all
paragraphs below except paragraph __.
|_| The Reporting Date marks the end of the Borrower's
fiscal year, hence I am completing all paragraphs
below.
FINANCIAL COVENANTS. I further hereby certify as follows:
1. MINIMUM BOOK NET WORTH PLUS SUBORDINATED CONVERTIBLE DEBT.
Pursuant to Section 6.12 of the Credit Agreement, as of the Reporting
Date, the Borrower's Minimum
B-1
Book Net Worth Plus Subordinated Convertible Debt ("Adjusted Book Net
Worth") was ___________ which |_| satisfies |_| does not satisfy the
requirement that such amount be no less than ________ as set forth in the
table below:
Period Adjusted Book Net Worth
------ -----------------------
through $________
through $________
through $________
through $________
through $________
2. MINIMUM NET INCOME. Pursuant to Seciton 6.13 of the Credit
Agreement, as of the Reporting Date, the Borrower's Net Income was
__________ which |_| satisfies |_| does not satisfy the requirement that
such amount be not less than $________ as set forth in the table below:
Quarter Ending Minimum Net Income
-------------- ------------------
$--------
$--------
$--------
$--------
3. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________
year ended ______________, 199___, for Capital Expenditures,
$__________________ in the aggregate and at most $______________ in any
one transaction, which |_| satisfies |_| does not satisfy the requirement
that such expenditures not exceed $__________ in the aggregate and
$___________ for any one transaction during such year.
4. SALARIES. As of the Reporting Date, the Borrower |_| is |_| is
not in compliance with Section 7.17 of the Credit Agreement concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
NATURADE, INC.,
a Delaware corporation
By
-------------------------------
Its Chief Financial Officer
B-2
Exhibit C to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
Parcel Number: ▇▇▇-▇▇▇-▇▇
Schedule 5.1 to Credit and Security Agreement
TRADE NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF
BUSINESS, AND LOCATIONS OF COLLATERAL
TRADE NAMES
Naturade Products, Inc.
Scientific Botanicals
Pure Life
Health Life Products Ltd.
FORMER CORPORATE NAME OF BORROWER:
Springton Capital Corp.
(changed by amendment to Borrower's Certificate of
Incorporation on April 13, 1989)
----------------------------------------------------------------------
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
OTHER INVENTORY AND EQUIPMENT LOCATIONS
Inventory not to exceed One Hundred Fifty Thousand Dollars ($150,000)
at any one time may be from time to time turned over to
various co-packers and processors for the Borrower.
Schedule 5.1
Schedule 5.4 to Credit and Security Agreement
SUBSIDIARIES
Schedule 5.1
Schedule 5.16 to Credit and Security agreement
BANK ACCOUNTS
Bank Purpose Account
---- ------- -------
South Bay Bank General Account 0002-110946
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇-▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ Bank Payroll Account 0002-110954
▇▇▇▇▇ Fargo Bank Money Market 2202102139
Pacific Century Bank ▇▇▇▇▇ Cash 0213070535
Schedule 5.1
Schedule 7.1 to Credit and Security Agreement
PERMITTED LIENS
Creditor Collateral Jurisdiction Filing Date Filing No.
-------- ---------- ------------ ----------- ----------
See attached UCC Financing Statements.
Schedule 7.1 - 1
Schedule 7.2 to Credit and Security Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
INDEBTEDNESS
Creditor Principal Amount Maturity Date Monthly Payment Collateral
-------- ---------------- ------------- --------------- ----------
Health Holdings Secured $1,467,362; 3/7/00: $1M; 8% Interest: Substantially all of
Debt with Warrants monthly debt the Company's assets
discount amort 5/31/00: $600K $10,900
of $34k. Will
cap out at
$1.6M by 4/00
Health Holdings $3,650,000 July 31, 2004 8% Interest; Unsecured
Convertible Debt $24,500 (approx)
PNI Trustee $282,666 August 1, 2000 $36,500 Substantially all of
the Company's assets
▇▇▇▇▇▇ ▇▇▇▇▇▇ $143,434 February 2005 8% Interest; Unsecured
$2,832
Crown Credit Co. $14,135 March 2002 9.5%; 603 Equipment
Crown Credit Co. $2,534 March 2001 11.5% Equipment
GUARANTIES
Amount and Description of
Primary Obligor Obligation Guaranteed Beneficiary of Guaranty
--------------- ------------------------- -----------------------
None
Schedule 7.2