<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-21185
APPLIED ANALYTICAL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter
DELAWARE 04-2687849
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2320 SCIENTIFIC DRIVE, WILMINGTON, NC 28405
(Address of principal executive office) (Zip code)
(910) 254-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares of the Registrant's common stock outstanding, as of October
10, 1999, was 17,205,391 shares.
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Applied Analytical Industries, Inc.
Table of Contents
The terms "Company", "Registrant" or "AAI" in this Form 10-Q include
Applied Analytical Industries, Inc. and its subsidiaries, except where the
context may indicate otherwise. Any item which is not applicable or to which the
answer is negative has been omitted.
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 15
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
Exhibit Index 18
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Applied Analytical Industries, Inc.
Condensed Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 22,715 $ 25,164 $ 70,521 $ 69,948
------------ ------------ ----------- -----------
Operating costs and expenses:
Direct costs 12,661 12,655 39,519 35,274
Selling 3,030 2,525 9,105 7,456
General and administrative 5,794 6,069 16,883 16,120
Research and development 2,776 1,372 8,735 4,739
Transaction, integration, and restructuring costs -- -- 6,400 --
------------ ------------ ----------- -----------
24,261 22,621 80,642 63,589
------------ ------------ ----------- -----------
Income (loss) from operations (1,546) 2,543 (10,121) 6,359
Other income (expense):
Interest income (expense), net (274) 82 (708) 343
Other, net 3 119 (46) 100
------------ ------------ ----------- -----------
(271) 201 (754) 443
------------ ------------ ----------- -----------
Income (loss) before income taxes (1,817) 2,744 (10,875) 6,802
Provision (benefit) for income taxes (359) 831 (2,681) 2,283
------------ ------------ ----------- -----------
Net income (loss) $ (1,458) $ 1,913 $ (8,194) $ 4,519
============ ============ =========== ===========
Basic earnings (loss) per share $ (0.08) $ 0.11 $ (0.48) $ 0.26
============ ============ =========== ===========
Weighted average shares outstanding 17,205 17,109 17,203 17,104
============ ============ =========== ===========
Diluted earnings (loss) per share $ (0.08) $ 0.11 $ (0.48) $ 0.26
============ ============ =========== ===========
Weighted average shares outstanding 17,205 17,666 17,203 17,693
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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Applied Analytical Industries, Inc.
Condensed Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 625 $ 12,299
Accounts receivable 27,779 26,138
Work-in-progress 16,796 15,570
Prepaid and other current assets 13,467 7,902
----------------- -----------------
Total current assets 58,667 61,909
Property and equipment, net 43,672 38,802
Goodwill and other intangibles 13,719 15,509
Other assets 3,161 3,288
----------------- -----------------
Total assets $ 119,219 $ 119,508
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and short-term debt $ 19,616 $ 7,038
Accounts payable 6,917 7,169
Customer advances 5,269 6,818
Accrued wages and benefits 3,335 4,522
Other accrued liabilities 7,441 7,836
----------------- -----------------
Total current liabilities 42,578 33,383
Long-term debt 5,547 7,749
Other liabilities 4,812 3,254
Commitments and contingencies -- --
Stockholders' equity:
Common stock 17 17
Paid-in capital 69,633 69,570
Retained earnings/accumulated (deficit) (2,541) 5,653
Accumulated other comprehensive losses (795) (53)
Stock subscriptions receivable (32) (65)
----------------- -----------------
Total stockholders' equity 66,282 75,122
----------------- -----------------
Total liabilities and stockholders' equity $ 119,219 $ 119,508
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Applied Analytical Industries, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------
1999 1998
------------ --------------
<S> <C> <C>
Net income/(loss) $ (8,194) $ 4,519
Adjustments to reconcile net income/(loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 5,719 4,299
Other non-cash items (6) (484)
Changes in assets and liabilities:
Trade and other receivables (1,986) (4,086)
Work-in-progress (1,532) (3,642)
Prepaid and other assets, net (5,555) (1,973)
Accounts payable (80) 291
Customer advances (1,347) 323
Other accrued liabilities 628 208
------------ --------------
Net cash provided by (used in) operating activities: (12,353) (545)
Cash flows from investing activities:
Purchase of property and equipment (10,453) (8,238)
Other (45) (3,047)
------------ --------------
Net cash used in investing activities (10,498) (11,285)
Cash flows from financing activities:
Net (payments) proceeds on short-term debt 13,043 840
Net (payments) proceeds on long-term debt (1,761) (1,783)
Other (22) 157
------------ --------------
Net cash provided by (used in) financing activities 11,260 (786)
------------ --------------
Net decrease in cash and cash equivalents (11,591) (12,616)
Effect of exchange rate changes on cash (83) 34
Cash and cash equivalents, beginning of period 12,299 27,716
------------ --------------
Cash and cash equivalents, end of period $ 625 $ 15,134
============ ==============
Supplemental information, cash paid for:
Interest $ 430 $ 424
Income taxes $ 33 $ 1,402
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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Applied Analytical Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated financial information as of December 31,
1998 has been derived from audited financial statements. It is presumed that
users of this interim financial information have read or have access to the
audited financial statements for the preceding fiscal year. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation have been included. Operating results
for the interim periods presented are not necessarily indicative of the results
that may be expected for the full year.
2. Mergers and acquisitions
On March 16, 1999, the Company merged with Medical and Technical Research
Associates, Inc. ("MTRA"), a clinical contract research organization located
near Boston, Massachusetts, in exchange for approximately 1.3 million shares of
AAI stock including the conversion of MTRA options. The merger has been
accounted for as a pooling-of-interests. The results of operations for the
separate companies and the combined amounts presented in the consolidated
financial statements are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -----------------------------
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
AAI $ 18,118 $ 20,138 $ 56,506 $ 56,677
MTRA 4,597 5,026 14,015 13,271
------------- ------------- ------------ ------------
$ 22,715 $ 25,164 $ 70,521 $ 69,948
============= ============= ============ ============
Net income (loss):
AAI $ (1,603) $ 1,413 $ (8,805) $ 3,792
MTRA 145 500 611 727
------------- ------------- ------------ ------------
$ (1,458) $ 1,913 $ (8,194) $ 4,519
============= ============= ============ ============
</TABLE>
The accompanying consolidated financial statements include operations of the
combined entities for the nine months ended September 30, 1999 and 1998.
In connection with the merger, the Company has recorded a non-recurring charge
to operating income reflecting the costs to complete the transaction, integrate
the businesses and realign its workforce to its new combined operating
structure. The items included in this charge are detailed in Note 7.
6
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3. Earnings Per Share
The weighted average shares used in the calculation of diluted earnings per
share represents the weighted average shares outstanding plus the dilutive
impact of outstanding stock options. The following table presents the changes in
the weighted shares outstanding.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 (1) 1998 1999 (1) 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Weighted average number of shares 17,205 17,109 17,203 17,104
Effect of Dilutive Securities:
Employee and Director stock options 0 546 0 589
----------- ------------ ----------- -----------
Diluted Earnings per Share:
Adjusted weighted average number of
shares and assumed conversions 17,205 17,655 17,203 17,693
=========== ============ =========== ===========
(1) Weighted Average Number of Shares Not
Included in Diluted EPS Since Antidilutive 493 0 535 0
=========== ============ =========== ===========
</TABLE>
4. Comprehensive Income
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. The
following table presents the components of the Company's comprehensive income.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(In thousands) (In thousands)
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,458) $ 1,913 $ (8,194) $ 4,519
Other comprehensive income (loss):
Currency translation adjustments 209 (55) (795) (61)
------------- ------------ ------------ ------------
Comprehensive income (loss) $ (1,249) $ 1,858 $ (8,989) $ 4,458
============= ============ ============ ============
</TABLE>
7
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5. Financial Information by Business Segment and Geographic Area (In
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales:
Clinical $ 6,906 $ 7,052 $ 19,041 $ 19,111
Pharmaceutic 13,712 16,370 44,865 45,333
Internal Product Development 2,097 1,742 6,615 5,504
------------ ------------- ------------- -------------
$ 22,715 $ 25,164 $ 70,521 $ 69,948
============ ============= ============= =============
United States $ 19,094 $ 19,667 $ 57,083 $ 55,032
Non-U.S. 4,255 5,798 15,511 15,774
Less inter-geographic sales (634) (301) (2,073) (858)
------------ ------------- ------------- -------------
$ 22,715 $ 25,164 $ 70,521 $ 69,948
============ ============= ============= =============
Income (loss) from operations:
Clinical $ (34) $ 1,064 $ 108 $ 1,817
Pharmaceutic 298 1,828 2,766 5,023
Internal Product Development (399) 370 (2,719) 764
Corporate (1,411) (719) (3,876) (1,245)
Corporate Restructuring Charges 0 0 (6,400) 0
------------ ------------- ------------- -------------
$ (1,546) $ 2,543 $ (10,121) $ 6,359
============ ============= ============= =============
United States $ (769) $ 2,150 $ (10,470) $ 6,384
Non-U.S. (777) 393 349 (25)
------------ ------------- ------------- -------------
$ (1,546) $ 2,543 $ (10,121) $ 6,359
============ ============= ============= =============
</TABLE>
6. Income Tax Expense
The Company's effective tax rate has been affected by losses in Europe. These
losses have created a tax asset which has been reserved against, thus no tax
benefit is shown related to the European losses. In the future, as European
operations become profitable, the reserves against these deferred assets will
reverse and will either reduce future tax expense or goodwill. Tax benefits have
been recognized on US losses representing refunds available from prior periods
or the benefit of loss carryforwards to future periods.
8
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7. Transaction, Integration and Restructuring Costs
In connection with the Company's merger with MTRA, certain expenses of the
transaction, costs to integrate the two organizations and reorganize the
combined business have been accrued and recorded as an expense. The expenses
were recorded in the first quarter of 1999 and are included in the condensed
consolidated statement of income for the nine months ended September 30, 1999.
Transaction costs are comprised of amounts owed to investment bankers and
advisors as a percentage of the total merger consideration and other expenses
directly related to the completion of the transaction, including financial
reviews and legal fees. Personnel separation costs include the separation of
approximately 58 employees in the US and Europe to combine the clinical
operations of the companies and realign the workforce in the new organization.
Facility and other costs include lease payments required under non-cancelable
leases for vacant properties and the write off of leasehold improvements and
equipment which will become redundant or obsolete due to the transaction. Other
costs include integration costs directly related to the merger and other costs
resulting from actions taken to merge the operations.
The following table presents the components of the expense recorded and the
amounts paid through September 30, 1999.
<TABLE>
<CAPTION>
Total Paid to
Expense Date
-------------- --------------
<S> <C> <C>
Transaction costs $ 1,913 $ 1,913
Personnel separation costs 1,919 785
Facility and other costs 2,568 1,480
-------------- --------------
$ 6,400 $ 4,178
============== ==============
</TABLE>
8. Transactions with Related Parties
The Company has advanced $300,000 to Pharmcomm, Inc. ("Pharmcomm"), a company
whose principal stockholders include Dr. Frederick Sancilio, Mr. James Waters
and Mr. William Underwood, all directors of AAI. One other stockholder of
Pharmcomm is a member of AAI management.
The advance payment was for services to be rendered by Pharmcomm during 1999 and
2000 for scanning and indexing services required as part of AAI's regulatory
compliance and record retention policies. The services will be performed by
Pharmcomm at market rates after considering the timing of the advance payment.
AAI has engaged Pharmcomm to perform these services since 1996 and has
compensated Pharmcomm at favorable rates pursuant to written agreements for the
services.
Pharmcomm also provides computer validation services to AAI at market rates.
These validation services are required for compliance with regulatory
requirements.
Total payments for scanning and validation services provided to AAI by Pharmcomm
were approximately $287,000, $214,000, and $436,000 for the years ended December
31, 1996, 1997, and 1998, respectively. For the nine months ended September 30,
1999, AAI has paid Pharmcomm approximately $268,000 excluding the advance
payment for services discussed above.
9
<PAGE> 10
The Company also has work-in-process and receivables due from Aesgen, Inc.
("Aesgen") and Endeavor Pharmaceuticals Inc. ("Endeavor"). Both Endeavor and
Aesgen were organized by AAI and its principal shareholders, and continue to be
related parties. The total amount of work-in-process and receivables at
September 30, 1999 related to Aesgen was approximately $569,000 and the amount
related to Endeavor was approximately $2,570,000.
9. Debt
At September 30, 1999, the Company was not in compliance with a financial
covenant in connection with a credit arrangement with a bank. The credit
arrangement represents a revolving line of credit (the "Revolver") and certain
off-balance sheet leases (the "Leases"). The Revolver is the primary mechanism
used by the Company to fund capital purchases and operating cash needs. The
balance owed on the Revolver at September 30, 1999 was $13,069,000 and is
secured by all accounts receivable of the Company and substantially all of the
Company's personal property.
Covenant compliance on the Revolver is also required under the Leases which are
secured by real estate made up of a headquarters building in Wilmington, N.C., a
laboratory and clinic facility in Research Triangle Park, N.C. and land
purchased for future construction of a laboratory facility in Shawnee, Kansas.
The Leases are operating leases which allow for the purchase of the facilities
at the end of the lease term at fair market value or the balance of the debt
secured by the facilities. At September 30, 1999, the balance of the debt
secured by the leases was approximately $12,878,000.
The lender has agreed to waive its rights or remedies through November 30, 1999
as a result of the company's failure to comply with this debt covenant. The
lender has agreed to amend and extend the credit facility from November 30,
1999 to May 31, 2000. Since 1996, the company and the lender have been in the
practice of renewing the credit facility annually as of May 31. Borrowings
under this amended and extended credit facility will be subject to additional
financial covenants and security in the form of fixed assets and receivables.
During the extension period, total availability under the credit facility has
been increased to $25 million subject to covenant restrictions; borrowing is
limited to a percentage of the value of pledged security and compliance with
certain additional covenants. The applicable interest rate on the Revolver will
be LIBOR plus 2.25% per annum and the unused commitment fee will be 0.375% per
annum.
10. Contingencies
The Company has started a dispute resolution process, seeking to collect
approximately $3.6 million of billings plus interest on past due amounts from a
customer. Even though the process was initiated to protect the Company's
interests, there can be no assurance that the Company will ultimately be
successful in such collection efforts.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company's quarterly results have been, and are expected to continue to be,
subject to fluctuations. Quarterly results can fluctuate as a result of a number
of factors, including without limitation, the commencement, completion or
cancellation of large contracts, progress of ongoing contracts, achieving
expected levels of licensing and royalty revenues, potential acquisitions, the
timing of start-up expenses for new facilities, timing and level of research and
development expenditures and changes in the mix of services. Since a large
percentage of the Company's operating costs are relatively fixed, variations in
the timing and progress of large contracts or the recognition of licensing and
royalty revenues (on projects for which associated expense may have been
recognized in prior periods) can materially affect quarterly results.
Accordingly, the Company believes that comparisons of its quarterly financial
results may not be meaningful.
Results of Operations - Third Quarter 1999 compared to Third Quarter 1998
Net sales for the third quarter of 1999 decreased 10% to $22.7 million compared
to $25.2 million in 1998. Pharmaceutic revenues were $13.7 million in 1999, down
16% from $16.4 million in 1998 and Clinical revenues were down 2% to $6.9
million in the third quarter of 1999 from $7.1 million in the same period of
1998. 1999 revenues include full period results from the acquisition of KCAS,
which had minimal impact on third quarter 1998 revenues after its acquisition on
September 15, 1998. Revenues from Internal Product Development were $2.1 million
in 1999 compared to $1.7 million last year, reflecting an increase of 21%. The
increase in internal product development revenues was due to the signing of two
new development agreements in the quarter, progress made on existing contracts,
and royalties generated on a product already marketed. The Company expects that
product development revenues will increase in future quarters as additional
agreements are signed but expects that revenues from these contract signings
will be volatile until royalty streams earned from launched products exceeds the
development fees earned. However, there can be no assurance that the company
will be successful in executing additional product development agreements and
increase its future revenue or that the products developed will be commercially
successful.
Pharmaceutic and Clinical sales declined from the amounts in the third quarter
of 1998 due to a number of factors. Management believes that the rate of new
contract signings slowed in the early part of 1999 due to the relative size of
the contracts being negotiated, market consolidation and the lack of focused
selling efforts. Due to the lead time required to begin work on a project, fewer
signings early in the year resulted in less work in the laboratories later in
the year. Management has taken specific steps to increase selling efforts by
increasing the number of professionals devoted to the customer focused selling
approach used in the past. Management believes that with the integration of the
European and US clinical businesses and the increased attention to customer
focused selling, growth will return to historical trends. In the third quarter
of 1999, the Company had adequate capacity to meet its current commitments and
projected growth. The North Brunswick, New Jersey facility is fully operational
and has added to the Company's pharmaceutic capacity. As demand increases, the
existing capacity will be more fully utilized and no further expansion is
anticipated.
Overall gross margin was approximately 44% for the third quarter of 1999
compared to 50% for the same period of 1998. The decrease in gross margin
percentage was due to a decrease in the volume of work without a corresponding
decrease in the related direct costs. Cost of sales was essentially flat in the
third quarter compared with the third quarter of 1998, which reflects the
Company's progress in controlling costs. Major changes in cost of sales include
increases due to full period expenses for KCAS in 1999 which was acquired on
September 15, 1998 and an increase due to the addition of the
11
<PAGE> 12
North Brunswick, New Jersey facility. During the third quarter of 1999, the
company changed its estimated useful lives of certain operating equipment to
reflect more accurately the historical useful lives of the equipment. The effect
of the change has been reflected as a reduction in Cost of Goods Sold for the
third quarter of approximately $250,000.
Selling, general and administrative costs as a percentage of net sales increased
to approximately 38% in 1999 compared to 34% for the same quarter in 1998,
reflecting an increase of approximately $250,000. The increase is made up of
increased selling efforts partially offset by savings in general and
administrative areas. In the third quarter of 1999, some of the general and
administrative savings were realized from the Company's restructuring efforts
started in the second quarter of 1999. During the first quarter of 1999, the
Company increased the size of its salesforce by adding additional technical
support and expertise from its operating units. This increase in selling
activities combined with a decrease in overall revenues resulted in an increase
in selling, general and administrative costs as a percentage of sales. However,
these additions have added to the Company's ability to present the highly
technical aspects of its work to the scientific customer base. Management
expects this investment in selling expertise to increase the ability to sign
additional business and help identify potential customer needs for future growth
opportunities. Due to the lead time required to have work available after the
increase in salesforce, the expected increase in sales due to the increased
sales efforts did not occur in the third quarter. However, management is
committed to the increased selling efforts in order to stimulate demand and
return the Company to its historical rate of revenue growth. The Company expects
to continue its efforts at controlling selling, general and administrative
expenses by maintaining such growth at rates equal to or less than overall net
sales growth and will reduce these costs if required to size them to the
available revenue.
Research and development expenses were approximately 12% of net sales in the
third quarter of 1999, compared with approximately 5% of sales for the same
period in 1998. In the third quarter of 1999, research and development expenses
were approximately $1.4 million higher than the third quarter of 1998. This
increase resulted from an overall increase in the resources devoted to
furthering the Company's internal product development strategy. Internal product
development revenues, which are the resulting benefit of research expenses,
increased to $2.1 million from approximately $1.7 million for the third quarter
of 1998. This increase includes the upfront payments received for signing two
new development contracts. Internal product development revenues are inherently
volatile and contribute to the volatile nature of the Company's earnings.
Management expects internal product development revenues to exceed research and
development expenses in the future as prior investments in research continue to
provide revenues.
Income from operations was a loss of $1.5 million in the third quarter of 1999
and income of $2.5 million for the same period of 1998. The decrease was due to
a decrease in fee for service revenues in the Pharmaceutic business, after the
impact of acquisitions, an increase in facility costs related to the facility in
North Brunswick, New Jersey and an increase in selling, general and
administrative expenses.
For the nine months ended September 30, 1999, revenues increased $.6 million to
$70.5 million in 1999 from $69.9 million in 1998. The increase resulted from a
$.5 million decrease in Pharmaceutic revenues, a $0.1 million decrease in
clinical revenues and a $1.1 million increase in internal product development
revenues. Operating income for the first nine months of 1999 was a loss of $10.1
million compared with income of $6.4 million in 1998. The 1999 loss includes a
$6.4 million charge to operating income related to the consolidation,
integration and acquisition costs of MTRA. The charge also includes certain
costs to restructure existing operations, reduce staff and excess facility
costs.
12
<PAGE> 13
Liquidity and Capital Resources
The Company has historically funded its business through operating cash flows,
proceeds from borrowings and the issuance of equity securities. Working capital
was approximately $16.1 million at September 30, 1999 compared to approximately
$28.5 million at December 31, 1998. The decrease is due to a reduction in
available cash and an increase in short-term borrowings under a revolving credit
facility.
At September 30, 1999, the Company was not in compliance with a financial
covenant in connection with the credit facility. The lender has agreed to waive
its rights or remedies through November 30, 1999 as a result of the company's
failure to comply with this debt covenant. The lender has agreed to amend and
extend the credit facility from November 30, 1999 to May 31, 2000. Since 1996,
the company and the lender have been in the practice of renewing the credit
facility annually as of May 31. Borrowings under this amended and extended
credit facility will be subject to additional financial covenants and security
in the form of fixed assets and receivables. During the extension period, total
availability under the credit facility has been increased to $25 million subject
to covenant restrictions; borrowing is limited to a percentage of the value of
pledged security and compliance with certain additional covenants. The
applicable interest rate on the Revolver will be LIBOR plus 2.25% per annum and
the unused commitment fee will be 0.375% per annum.
Capital expenditures were approximately $10.5 million during the first nine
months of 1999 compared to approximately $8.2 million during the same period
last year. The Company anticipates total capital expenditures for 1999 to be
approximately $12 million.
AAI expects that near term growth can be accommodated utilizing existing
facilities. The Company is reducing capital expenditures and operating costs in
order to increase cash flow available to reduce reliance on bank facilities and
reduce borrowing costs. The Company may from time to time seek to supplement
cash flow from operations with the issuance of equity securities and additional
borrowings. At some point in the future there may be opportunities that require
additional external financing, and the Company may from time-to-time seek to
obtain funds through the public or private issuance of equity or debt
securities. While the Company remains confident that it can secure additional
financing if necessary, there can be no assurances that such financing will be
available or that the terms will be acceptable to the Company.
Year 2000 Disclosure
The Company has an active program to assess and where required, remediate,
issues associated with Year 2000 ("Y2K") issues. Generally defined, Y2K issues
arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.
In addition, imbedded hardware microprocessors may contain time and two-digit
year fields in executing their functions. Much literature has been devoted to
the possible effects such programs may experience in the Year 2000, although
significant uncertainty exists as to the scope and effect the Y2K issues will
have on industry and the Company.
The Company has recognized the need to address the Y2K issue in a comprehensive
and systematic manner and has taken steps to assess the possible Y2K impact on
the Company. The Company has completed a 100% assessment of all its information
technology ("IT") and non-IT systems for Y2K issues. In addition, the Company
has inquired of all its significant vendors and clients their assessment of Y2K
issues on their operations.
In 1996, the Company developed a strategic plan to identify the IT systems
needed to accomplish the Company's overall growth plans. As part of this process
potential Y2K issues were considered and
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<PAGE> 14
addressed through an enterprise resource planning process. The Company's Board
of Directors authorized spending to implement portions of this strategic plan
over several years.
In 1997, the Company established an internal multi-discipline task force to
specifically address Y2K issues by implementation of the strategic plans. The
task force has inventoried IT and non-IT systems and made preliminary
assessments as to Y2K compliance. In those instances where a system would be
replaced or eliminated through the implementation of our strategic plan before
being impacted by Y2K issues, no further action was deemed necessary. All
mission-critical systems not being addressed have been further assessed and
protocols have been developed to test compliance. As issues are identified they
are remedied as soon as possible. In addition, as upgrades are made to the
Company's proprietary software, Company employees are revising the computer code
to ensure Y2K compliance. All Company purchase orders for new equipment and
systems contain representations regarding Y2K compliance. Based on currently
available information, the non-IT systems used by the Company are not expected
to cause significant problems or expense to the Company. While AAI relies
heavily on its technical equipment, Company studies have found that much of it
can be upgraded or, for items that are not mission-critical, can continue to be
operated if they are not linked to other systems.
The Company has communicated with its major customers and suppliers and is not
aware of any such business associates that will cause a material third-party
risk to the Company.
The cost of bringing the Company in full compliance should not result in a
material increase in the recent levels of capital spending or any material
one-time expenses. The Company has not been tracking the direct cost of solving
potential Y2K issues. Since 1996, the Company has expensed approximately $8.8
million for all IT items. It is not reasonably possible to determine what
portion of such spending was directly related to correcting Y2K issues. The
future spending on IT items is expected to be approximately $3 million per year.
The Company has not segregated the direct costs associated with Y2K issues in
its IT capital spending plans. However, all current capital additions are Y2K
compliant. Prior to the merger with MTRA, the systems of MTRA were evaluated for
Y2K readiness. MTRA's separate systems are included in AAI's plans and all
significant systems will be replaced or Y2K compliant in accordance with AAI's
previously established timeline.
The failure of either the Company, its vendors or clients to correct the systems
affected by Y2K issues could result in a disruption or interruption of business
operations. The Company uses computer programs and systems in essentially all of
its operations to collect, assimilate and analyze data. Failure of such programs
and systems could affect the Company's ability to perform contracts to test,
develop, or manufacture pharmaceutical and biotechnology products or perform
clinical trials, thereby causing delays in the development and commercialization
of pharmaceutical and biotechnology products. Similarly, failure of
vendor-provided products and services could result in delay in the Company's
ability to develop pharmaceutical products. Although the Company does not
believe that any of the foregoing worst-case scenarios will occur, there can be
no assurance that unexpected Y2K problems of the Company's and its vendors' and
clients' operations will not have a material adverse effect on the Company.
While it is difficult to classify AAI's state of readiness, the company believes
that its it will have implemented its internal plans and will be able to avoid
any material Y2K issues in December 1999. The company was 88% complete with the
remediation and testing of systems identified as non-compliant during the final
assessment at September 30, 1999 and is confident that it will be complete by
year end. Management is in constant communication with the task force and has
made and will continue to make reports to the Company's Board of Directors.
14
<PAGE> 15
Forward Looking Statements
This quarterly report may contain certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that are based on the
Company's belief and assumptions, as well as information currently available to
the Company. When or if used herein, the words "anticipate," "estimate,"
"expect," and similar expressions may identify forward-looking statements.
Although the Company believes that the expectations reflected in any such
forward-looking statements are reasonable; there can be no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks and uncertainties. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results, performance or financial condition may vary materially from
those anticipated, estimated or expected. Key factors that may have a direct
bearing on the Company's results, performance and financial condition include,
but are not limited to, the Company's dependence on and effect of government
regulation; its management of growth and acquisition risks, including its
integration of acquired operations; the level of outsourcing of research,
development and testing activities in the pharmaceutical and biotechnology
industries; its ability to accurately assess and remediate potential year 2000
problems; its dependence on key personnel, and its dependence on third-party
marketing and distribution of internally developed drugs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company, as a result of global operating activities, is exposed to risks
associated with changes in foreign exchange rates. As foreign exchange rates
change, the U. S. Dollar equivalent of revenues and expensed denominated in
foreign currencies change and can have an adverse impact on the Company's
operating results. To seek to minimize its risk from foreign exchange movement,
the Company uses local debt to fund its foreign operations. If foreign exchange
rates were to change 10%, year to date operating results would have changed by
$92,000 due to the change in reported results from European operations through
September 30, 1999.
The Company is also exposed to changes in interest rates on its variable rate
debt instruments and leases tied to LIBOR. If interest rates were to change 1%,
annual interest expense on variable rate debt and leases tied to interest rates
would change approximately $310,000 or $78,000 per quarter.
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
At September 30, 1999, the Company was not in compliance with a financial
covenant in connection with a credit arrangement with a bank. The credit
arrangement represents a revolving line of credit (the "Revolver") and certain
off-balance sheet leases (the "Leases"). The Revolver is the primary mechanism
used by the Company to fund capital purchases and operating cash needs. The
balance owed on the Revolver at September 30, 1999 was $13,069,000 and is
secured with equipment and receivables.
15
<PAGE> 16
Covenant compliance on the Revolver is also required under the Leases which are
secured by real estate made up of a headquarters building in Wilmington, N.C., a
laboratory and clinic facility in Research Triangle Park, N.C. and land
purchased for future construction of a laboratory facility in Shawnee, Kansas.
The Leases are operating leases which allow for the purchase of the facilities
at the end of the lease term at fair market value or the balance of the debt
secured by the facilities. The balance owed on the debt secured by the leases
was approximately $12,878,000 at September 30, 1999.
The lender has agreed to waive its rights or remedies through November 30, 1999
as a result of the company's failure to comply with this debt covenant. The
lender has agreed to amend and extend the credit facility from November 30,
1999 to May 31, 2000. Since 1996, the company and the lender have been in the
practice of renewing the credit facility annually as of May 31. Borrowings
under this amended and extended credit facility will be subject to additional
financial covenants and security in the form of fixed assets and receivables.
During the extension period, total availability under the credit facility has
been increased to $25 million subject to covenant restrictions; borrowing is
limited to a percentage of the value of pledged security and compliance with
certain additional covenants. The applicable interest rate on the Revolver will
be LIBOR plus 2.25% per annum and the unused commitment fee will be 0.375% per
annum.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
A list of the exhibits required to be filed as part of this Report on Form 10-Q
is set forth in the "Exhibit Index", which immediately precedes such exhibits,
and is incorporated herein by reference.
Reports on Form 8-K:
The Company has recently filed the following Form 8-K's:
Dated July 30, 1999, to file a press release reporting the Company's
expected loss for the quarter ended June 30, 1999;
Dated August 2, 1999, to file a press release reporting the Company's
results of operations for the quarter ended June 30, 1999;
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Applied Analytical Industries, Inc.
Date: November 15, 1999 By: /s/ FREDERICK D. SANCILIO
--------------------------------------
Frederick D. Sancilio, Ph.D.
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: November 15, 1999 By: /s/ EUGENE T. HALEY
--------------------------------------
Eugene T. Haley
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
17
<PAGE> 18
APPLIED ANALYTICAL INDUSTRIES, INC.
Exhibit Index
Exhibit No. Description
- ----------- -----------
3.1 - Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
3.2 - Restated By-laws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
4.1 - Articles Fourth, Seventh, Eleventh and Twelfth of the form of
Amended and Restated Certificate of Incorporation of the
Company (included in Exhibit 3.1)
4.2 - Article II of the form of Restated By-laws of the Company
(included in Exhibit 3.2)
4.3 - Specimen Certificate for shares of Common Stock, $.001 par
value, of the Company (incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-1
(Registration No. 333-5535))
10.1 - Employment Agreement dated November 17, 1995 between the
Company and Frederick D. Sancilio (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
10.2 - Applied Analytical Industries, Inc. 1995 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5535))
10.3 - Applied Analytical Industries, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5535))
10.4 - Applied Analytical Industries, Inc. 1997 Stock Option Plan,
as amended on May 8, 1998, (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998)
10.5 - Stockholder Agreement dated as of November 17, 1995 among the
Company, GS Capital Partners II, L.P., GS Capital Partners II
Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone
Street Fund 1995, L.P., Bridge Street Fund 1995, L.P.,
Noro-Moseley Partners III, L.P., Wakefield Group Limited
Partnership, James L. Waters, Frederick D. Sancilio and the
parties listed on Schedule 1 thereto (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
18
<PAGE> 19
10.6 - Lease Agreement dated as of March 7, 1994 between 5051 New
Centre Drive, L.L.C., as landlord, and the Company, as tenant
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5535))
10.7 - Development Agreement dated as of April 25, 1994 between the
Company and Endeavor Pharmaceuticals Inc. (formerly, GenerEst,
Inc.) (incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-5535))
10.8 - Development Agreement dated as of April 4, 1995 between the
Company and Aesgen, Inc. (incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
10.9 - Loan Agreement dated as of December 30, 1996 between
NationsBank, N.A. and the Company (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996)
10.10 - Amendment No. 1, dated as of February 13, 1998, to the Loan
Agreement dated as of December 30, 1996 between
NationsBank, N.A. and the Company, (incorporated by reference
to exhibit 10.10 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998)
10.11 - Underwriting Agreement dated September 19, 1996 between the
Company and Goldman Sachs & Co., Cowen & Company and Lehman
Brothers, Inc., as representatives of the underwriters listed
on Schedule 1 thereto (incorporated by reference to
Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996)
10.12 - Partnership Agreement dated as of October 2, 1998 between the
Company, First Security Bank, N. A. and the Various Banks and
Other Lending Institutions Which are Parties Hereto from time
to time, as the Holders and as the Lenders and NationsBank,
N. A. (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998)
10.13 - Security Agreement dated as of October 2, 1998 between First
Security Bank, N. A., and NationsBank, N. A. (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998)
10.14 - Amendment No. 1 to the Employment Agreement dated November 17,
1995 between the Company and Frederick D. Sancilio
(incorporated by reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999)
10.15 - Amendment and Forbearance Agreement dated August 26, 1999
between the Company and the Bank of America, N.A.
10.16 - Pledge Agreement dated August 26, 1999 between the Company and
the Bank of America, N.A.
10.17 - Security Agreement dated August 26, 1999 between the Company
and the Bank of America, N.A.
19
<PAGE> 20
27 - Financial Data Schedule (for SEC use only)
20
<PAGE> 1
EXHIBIT 10.15
AMENDMENT AND FORBEARANCE AGREEMENT
This Amendment and Forbearance Agreement, dated as of August 26, 1999
(this "Agreement"), is by and between APPLIED ANALYTICAL INDUSTRIES, INC., a
Delaware corporation having its principal place of business in Wilmington, North
Carolina (the "Borrower"), each of the direct subsidiaries of the Borrower
identified on the signature pages hereof (the "Guarantors"), and BANK OF
AMERICA, N.A., a national banking association formerly known as NationsBank,
N.A. (the "Lender").
RECITALS:
A. Pursuant to that certain Loan Agreement, dated December 30, 1996, as
amended February 13, 1998 and May 19, 1999 (the "Revolving Credit Agreement"),
the Lender has extended revolving credit loans (the "Revolving Loans") to the
Borrower in the amount of up to $20,000,000. The Borrower's obligations to the
Lender arising under the Revolving Credit Agreement, including without
limitation all principal, interest, fees, and other charges in respect of the
Revolving Loans, shall be referred to herein as the "Revolving Loan
Obligations".
B. Pursuant to (i) that certain promissory note dated December 31, 1997
made by the Borrower in favor of the Lender in the original principal amount of
$2,083,155.00 and having a maturity date of December 31, 2002, and (ii) that
certain promissory note dated March 28, 1996 made by the Borrower in favor of
the Lender in the original principal amount of $998,000.00 and having a maturity
date of December 31, 2000 (collectively, the "Term Notes" and each a "Term
Note"; the Lender's advances to or for the benefit of the Borrower as evidenced
by the Term Notes shall be referred to as the "Term Loans"). The Borrower's
obligations to the Lender arising under the Term Notes, including without
limitation all principal, interest, fees and other charges in respect of the
Term Loans shall be referred to as the "Term Loan Obligations".
C. The Lender has also issued, on the application and request of the
Borrower as account party, four letters of credit described as follows: (i)
letter of credit no. 919888 in the amount of DM 10,000,000 designating Deutsche
Bank as the beneficiary and having an expiry date of August 31, 1999 (the
"Deutsche Bank Letter of Credit"); (ii) letter of credit no. 919887 in the
amount of DM 2,100,000 designating Bayerishe Vereinsbank as the beneficiary and
having an expiry date of August 31, 1999 (the "Vereinsbank Letter of Credit");
(iii) letter of credit no. 972664 in the amount of U.S. $279,756 designating
North Brunswick II LLC as the beneficiary and having an expiry date of July 31,
2000; and (iv) that certain letter of credit no. 035606 in the amount of
$920,625.00 in relation to certain industrial revenue bond financing of the
Borrower and having an expiry date of June 30, 2000 (collectively, the "Letters
of Credit"). For purposes hereof, "LOC Obligations" shall mean, at any time, the
sum of (i) the maximum amount which is, or at any time thereafter may become,
available to be drawn under the Letters of Credit, as amended from time to time,
plus (ii) the aggregate amount of all drawings under the Letters of Credit
honored by the Lender but not therefore reimbursed by the Borrower, and all
fees, charges, expenses and related obligations of the Borrower to the Lender
arising under the applications for the Letters of Credit, any amendments
thereto, or under any documents delivered in connection therewith.
<PAGE> 2
D. The Lender has also enabled the establishment of a lease financing
facility in favor of the Borrower pursuant to the terms of (i) that certain
Participation Agreement, dated as of October 2, 1998 (the "Participation
Agreement"), among the Borrower, First Security Bank, N.A., as Owner Trustee
(the "Owner Trustee") under the AAI Realty Trust 1998-1, the lenders and holders
identified therein and from time to time party thereto, and NationsBank, N.A.
(now known as Bank of America, N.A.) as Agent; (ii) that certain Lease
Agreement, dated as of October 2, 1998, between the Owner Trustee as lessor and
the Borrower as lessee; (iii) that certain Agency Agreement, dated as of October
2, 1998, between the Borrower as construction agent and the Owner Trustee as
lessor, and (iv) each of the other Operative Agreements (as defined in the
Participation Agreement), in each case as amended, modified, supplemented,
extended or renewed from time to time. The foregoing documents, instruments and
agreements shall be referred to collectively as the "TROL Transaction Documents"
and the Borrower's obligations thereunder, in any capacity, shall be referred to
collectively as the "TROL Obligations". The Revolving Credit Agreement, the Term
Notes, the Letters of Credit, and the TROL Transaction Documents shall be
referred to collectively as the "Existing Credit Documents".
E. The Borrower has failed to comply with the financial covenants set
forth in Section 6.01(p)(v) of the Revolving Credit Agreement for the fiscal
quarter ending June 30, 1999 (the "Existing Default"). The occurrence of the
Existing Default under the Revolving Credit Agreement causes a cross-default
under the terms of the TROL Transaction Documents and the Term Notes.
F. The Borrower has requested that (i) the Lender forbear from
exercising its remedies with respect to the Existing Default, (ii) that the
Lender continue to make available to the Borrower the credit and related
facilities established by the Existing Credit Documents, and (iii) that the
Lender extend the expiry dates on the Deutsche Bank Letter of Credit and the
Vereinsbank Letter of Credit until November 30, 1999.
G. The Lender is willing to forbear from exercising its remedies on
account of the Existing Default, to continue to make available to the Borrower
the credit and related facilities established by the Existing Credit Documents,
and to extend the expiry dates on the Deutsche Bank Letter of Credit and the
Vereinsbank Letter of Credit until November 30, 1999 based upon and subject to
the terms and conditions specified in this Agreement.
NOW, THEREFORE, based upon the foregoing, and for good and valuable
consideration, the sufficiency and receipt of which is hereby acknowledged, the
parties hereby agree as follows:
2
<PAGE> 3
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Terms defined in the recitals of
this Agreement shall have the meanings ascribed to them therein. Unless
otherwise defined herein or the context otherwise requires, the following terms
used in this Agreement have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
"Amended Credit Documents" means the Existing Credit Documents as
amended hereby.
"Effective Date" shall have the meaning ascribed to such term in
Subpart 4.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement have the meanings
provided in the Amended Credit Documents.
PART II
FORBEARANCE
SUBPART 2.1. Reaffirmation of Existing Debt. The Borrower
acknowledges and confirms (a) that the outstanding unpaid principal balance of
the Revolving Loans, as of the date hereof, is $10,442,000; (b) the Borrower is
indebted to the Lender in respect of the LOC Obligations in the aggregate
outstanding amount of $7,982,718.30, as of the date hereof; (c) the Borrower is
indebted to the Lender in respect of the Term Loans in the aggregate unpaid
principal balance of $1,765,462.00, as of the date hereof; (d) the Borrower's
obligations arising under or in connection with the TROL Transaction Documents
are valid, binding and enforceable against the Borrower; (e) that the Borrower's
obligation to repay the Revolving Loan Obligations, the Term Loan Obligations,
the LOC Obligations and the TROL Obligations are unconditional and not subject
to any offsets, defenses or counterclaims; (f) that the Lender (in each of its
varying capacities under the Existing Credit Documents) has performed fully all
of its obligations under the Existing Credit Documents; and (g) by entering into
this Agreement, the Lender does not waive or release any term or condition of
the Existing Credit Documents, the Amended Credit Documents, or any of the other
document or instrument, or any of its rights or remedies under such Existing
Credit Documents, Amended Credit Documents, or applicable law or any of the
Borrower's obligations thereunder.
SUBPART 2.2. Agreement to Forbear. Subject to the other terms and
conditions of this Agreement, the Lender agrees that, so long as (a) no Event of
Default (other than the Existing Default) shall have occurred under the Amended
Credit Documents, (b) no other Person or entity shall have commenced any suit or
other legal proceeding against the Borrower or any of its assets to enforce any
obligations for funded indebtedness of the Borrower to such Person or entity,
and (c) the Borrower shall have complied with all of the provisions of this
Agreement and shall have made all payments required to be made by it hereunder
when due, the Lender shall forbear through and including November 30, 1999 (i)
from exercising its rights and remedies
3
<PAGE> 4
under the Amended Credit Documents and the Existing Credit Documents in respect
of the Existing Default, and (ii) from demanding immediate repayment of the
Revolving Loan Obligations, Term Loan Obligations, LOC Obligations, and the TROL
Obligations. Nothing herein contained shall be deemed to constitute a waiver of
any rights or remedies the Lender may have under the Amended Credit Documents or
any other documents or instruments or under applicable law.
SUBPART 2.3. Forbearance Fee. The Borrower hereby agrees to pay to
the Lender, on or before the Effective Date, a forbearance fee in the amount of
$50,000.00 (the "Forbearance Fee") in consideration of the Lender's forbearance
as set forth in this Agreement and in consideration of the amendments made to
the Existing Credit Documents as hereinafter described. The Forbearance Fee
shall be fully earned by the Lender as of the Effective Date.
SUBPART 2.4. Release of Claims. In consideration of the Lender's
forbearance set forth herein and the modifications effected by this Agreement
to the Existing Credit Documents, the Borrower hereby releases the Lender and
its affiliates, directors, officers, shareholders, employees, attorneys, and
representatives (collectively, the "Released Parties") from the following to the
extent arising from or in connection with any of the Revolving Loan Obligations,
the Term Loan Obligations, the LOC Obligations, or the TROL Obligations: (i)
damages, claims, liabilities, causes of action, contracts, or controversies of
any type, kind, nature, description or character; (ii) breaches of contract or
duty of any other type of relationship; (iii) acts or omissions, misfeasance or
malfeasance; and (iv) commitments or promises of any type made prior to the date
hereof (the matters described in the preceding clauses (i) through (iv) being
referred to collectively as the "Claims"), whether or not the Claims are now
known, unknown, or unforeseen, or are liquidated or unliquidated, which in any
way arise out of, or relate to, the Existing Credit Documents or any failure of
any of the Released Parties to honor any prior commitment or any documents,
agreements or other instruments in any way related to the Existing Credit
Documents.
PART III
AMENDMENTS TO EXISTING CREDIT DOCUMENTS
Subject to satisfaction of the conditions specified in Part IV of this
Agreement, the Existing Credit Documents are hereby amended in accordance with
this Part III. Except as so amended, the Existing Credit Documents shall
continue in full force and effect.
SUBPART 3.1. AMENDMENTS TO REVOLVING LOAN AGREEMENT. The
Revolving Loan Agreement shall be amended in each of the following respects as
of the Effective Date.
3.1.1 Maturity Date. The definition of "Revolving Loan
Maturity Date" in Section 1.01 of Revolving Loan Agreement is amended
in its entirety so that such definition now reads as follows:
"Revolving Loan Maturity Date" means November 30,
1999.
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<PAGE> 5
3.1.2 Deletion of Definition "Applicable Percentage".
Section 1.01 of the Revolving Loan Agreement is amended by deleting
the definition of "Applicable Percentage."
3.1.3 Addition of Definition of "Funded TROL Obligations".
Section 1.01 of the Revolving Loan Agreement is amended by adding, in
the appropriate alphabetical place, the following definition:
"Funded TROL Obligations" means, at any time, the sum
of the then outstanding amount of each of (i) the Loans, (ii)
the accrued but unpaid interest on the Loans, (iii) the Holder
Advances, and (iv) the accrued but unpaid Holder Yield, as
each of such capitalized terms is defined in the Participation
Agreement.
3.1.4 Addition of Definition of "Participation Agreement".
Section 1.01 of the Revolving Loan Agreement is amended by adding, in
the appropriate alphabetical place, the following definition:
"Participation Agreement" means that certain
Participation Agreement, dated as of October 2, 1998 among the
Borrower, First Security Bank, N.A., as Owner Trustee under
the AAI Realty Trust 1998-1, the lenders and holders
identified therein and from time to time party thereto, and
NationsBank, N.A. (now known as Bank of America, N.A.) as
Agent, such Participation Agreement comprising part of the
documentation relating to the tax retention operating lease
transaction entered into by the Borrower.
3.1.5 Amendment to Section 2.01. Section 2.01 of the
Revolving Loan Agreement is amended in its entirety to read as follows:
2.01 Revolving Loans. Subject to the terms and
conditions and relying upon the representations and warranties
herein set forth, the Bank agrees to make Revolving Loans to
the Borrower, at any time and from time to time on or after
the date hereof and until the Revolving Loan Maturity Date, in
an aggregate principal amount at any time outstanding not to
exceed TWENTY MILLION DOLLARS ($20,000,000.00) (the "Revolving
Loan Committed Amount") for purposes of financing the
Borrower's capital expenditures, acquisitions and working
capital needs. The Borrower may borrow, repay and reborrow
hereunder on or after the date hereof and prior to the
Revolving Loan Maturity Date, subject to the terms, provisions
and limitations set forth herein. The outstanding principal
balance of the Revolving Loans, together with all accrued but
unpaid interest, fees and other charges, shall be due and
payable in full on the Revolving Loan Maturity Date.
3.1.6 Interest Rate. Section 2.03 of the Revolving Loan
Agreement is amended in its entirety so that such section now reads as
follows:
5
<PAGE> 6
2.03 Interest. Subject to section 3.01 hereof,
the outstanding principal balance of the Revolving Loans shall
bear interest at a rate equal to the Adjusted LIBOR Rate plus
2.25%. Interest calculated at the foregoing rate shall be due
and payable monthly in arrears on the last day of each
calendar month.
3.1.7 Commitment Fee. Section 2.04 of the Revolving Loan
Agreement is amended in its entirety so that such section now reads as
follows:
2.04 Commitment Fee. The Borrower agrees to pay
the Bank a commitment fee in an amount equal to 0.375% per
annum of the average daily unused portion of the Commitment,
such fee to be paid monthly in arrears on the last day of each
calendar month.
3.1.8 Interim Financial Statements. Section 6.01 of the
Revolving Loan Agreement is amended by deleting section 6.01(b) in its
entirety and replacing it with the following new section 6.01(b):
(b) deliver:
(1) within forty-five (45) days after the end of
each fiscal quarter of each fiscal year, either (i) the copy
of Form 10-Q for such quarter as filed with the Securities and
Exchange Commission or (ii) financial information and reports
as of the end of such fiscal quarter (including a balance
sheet and income statement, in form and detail satisfactory to
the Lender) of the Borrower and its Subsidiaries (in
consolidated form) certified by the chief financial officer of
the Borrower to be true and correct, and
(2) as soon as available, and in any event
within 20 days after the close of each of the first eleven
calendar months of the fiscal year of the Borrower, (i) a
consolidated balance sheet and income statement of the
Borrower and its Subsidiaries, as of the end of such month,
together with related consolidated statements of operations
and consolidated statements of retained earnings and of cash
flows for such month, in each case setting forth in
comparative form consolidated figures for (A) the
corresponding period of the preceding fiscal year and (B)
management's proposed budget for such period, all such
financial information to be in form and detail reasonably
acceptable to the Lender, and (ii) an accounts receivable
aging, accounts payable aging, and a collateral value
maintenance calculation, each in form and detail reasonably
acceptable to the Lender.
3.1.9 New Financial Covenant. Section 6.01(p) of the
Revolving Loan Agreement is amended by deleting the word "and" at the
end of section 6.01(p)(iv), replacing the period at the end of section
6.01(p)(v) with a semi-colon, followed by the word "and", and adding a
new section 6.01(p)(vi) which reads in its entirety as follows:
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(vi) the Borrower shall maintain a ratio of (i)
Funded Debt minus an amount equal to 85% of the Funded TROL
Obligations to (ii) the sum of the net book value of accounts
receivable and the net book value of equipment (each as stated
on the Borrower's most recent monthly financial statement)
less than or equal to 0.50 to 1.0 at all times.
3.1.10 Shawnee, Kansas Facility. Section 7.01 of the
Revolving Loan Agreement is amended by deleting the word "or" at the
end of section 7.01(j), replacing the period at the end of section
7.01(k) with a semi-colon, followed by the word "or," and adding a new
section 7.01(1) reading in its entirety as follows:
(1) take any action, incur any liability, or
make any financial commitment, or allow or cause any of its
Subsidiaries to do so, to commence construction or development
of the proposed laboratory for the Borrower in Shawnee,
Kansas, or other similar location, prior to November 30, 1999.
SUBPART 3.2. AMENDMENT TO TERM NOTES. Notwithstanding any other
term or condition in either of the Term Notes or any other agreement or
instrument evidencing the Term Loan Obligations, from and after the Effective
Date, the Term Loans shall bear interest at the Adjusted LIBOR Rate plus 2.25%
per annum (except to the extent that a default rate of interest applies under
the specific terms of the Term Notes or such other agreement or instrument). For
purposes hereof, the Adjusted LIBOR Rate means the rate as determined by the
Lender at which deposits in the amount of the outstanding balance of the Term
Loans and for one month interest periods are offered to prime banks in the
London Interbank Market, as published weekly by the Federal Reserve Bank of New
York in its H-15 Statistical Release, such rate being adjusted for the cost of
reserve requirements as prescribed by the Federal Reserve System. The Adjusted
LIBOR Rate for any Saturday or Sunday or any other day on which the London
Interbank Market is not open shall be the Adjusted LIBOR Rate for the
immediately preceding day on which the London Interbank Market is open. Each of
the Term Notes is hereby amended to incorporate the application of this interest
rate to all Term Loan Obligations.
SUBPART 3.3. AMENDMENTS TO LETTERS OF CREDIT.
3.3.1. Extension of Expiry Dates. The expiry date of each of
the Deutsche Bank Letter of Credit and the Vereinsbank Letter of Credit
shall be extended to November 30, 1999.
3.3.2. Increase in Letter of Credit Fees. Notwithstanding
any other term or condition in the reimbursement agreement, the letter
of credit applications, or any other document, instrument or agreement
relating to the Letters of Credit the Borrower shall pay to the Lender
a per annum fee equal to 2.25% on the average daily maximum amount
available to be drawn under each Letter of Credit from the Effective
Date through and including the expiry date of each such Letter of
Credit. Such letter of credit fees shall be payable monthly in arrears
(i) on the last day of each calendar month for the immediately
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<PAGE> 8
preceding calendar month and (ii) on the expiry date of each Letter of
Credit, beginning with the first of such dates to occur after the
Effective Date.
SUBPART 3.4. AMENDMENT TO TROL TRANSACTION DOCUMENTS. The Participation
Agreement shall be amended in each of the following respects as of the Effective
Date.
3.4.1 Amendment to Unused Fee. Section 7.4 of the
Participation Agreement is amended so as to read in its entirety as
follows:
7.4 Unused Fee.
During the Commitment Period the Lessee agrees to pay
or cause to be paid to the Agent for the account of (a) the
Lenders, respectively, an unused fee (the "Lender Unused Fee")
equal to the product of the average daily Available Commitment
of each Lender during the Commitment Period multiplied by a
rate of three-eighths of one percent (0.375%) per annum and
(b) the Holders, respectively an unused fee (the "Holder
Unused Fee") equal to the product of the average daily
Available Holder Commitment of each Holder during the
Commitment Period multiplied by a rate of three-eighths of one
percent (0.375%) per annum. Such Unused Fees are payable
quarterly in arrears on each Unused Fee Payment Date. If all
or a portion of any such Unused Fee shall not be paid when
due, such overdue amount shall bear interest, payable by the
Lessee on demand, at a rate per annum equal to the ABR (or in
the case of Holder Yield, the ABR plus the Applicable
Percentage for Eurodollar Holder Advances) plus two percent
(2%) from the date of such non-payment until such amount is
paid in full (as well as before judgment).
3.4.2 Amendment of Definition of Applicable Percentage. The
definition of "Applicable Percentage," contained in Appendix A to the
Participation Agreement, is amended to read in its entirety as follows:
"Applicable Percentage" shall mean for Eurodollar
Loans, two and thirty-five one-hundredths of one percent
(2.35), and for Eurodollar Holder Advances, three percent
(3.00%).
3.4.3 Amendment of Incorporated Covenants. The Incorporated
Covenants (as defined in the Participation Agreement) are hereby
amended to the extent provided in Subpart 3.1 of this Agreement,
including, without limitation, the addition of the covenants set forth
in Subparts 3.1.9 and 3.1.10.
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PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1 Effective Date. This Agreement shall be and become
effective as of the date hereof (the "Effective Date) when all of the conditions
set forth in this Subpart 4.1 shall have been satisfied.
4.1.1. Execution of Agreement. The Lender shall have
received an original duly executed counterpart of this Agreement from
the Borrower.
4.1.2. Closing Certificate. The Lender shall have received
a certificate from the Borrower, in form and substance satisfactory to
the Lender, certifying inter alia that (i) no Default or Event of
Default (as such terms are defined in the Revolving Loan Agreement and
the TROL Transaction Documents) exists as of the Effective Date other
than the Existing Default, and (iii) the representations and warranties
of the Borrower made in or pursuant to the Existing Credit Documents
are true in all material respects on and as of the Effective Date.
4.1.3. Forbearance Fee. The Lender shall have received the
Borrower's payment of the Forbearance Fee.
4.1.4. Security Agreement and Financing Statements. The
Lender shall have received from the Borrower, and each subsidiary
guarantor designated by the Lender, (i) the duly executed original of
the form of Security Agreement attached hereto as Exhibit "A", (ii)
executed UCC-1 financing statements from the Borrower with respect to
each location in which the Borrower has or maintains personal property,
and (iii) searches of Uniform Commercial Code filings in the
jurisdiction of the Borrower's chief executive office and each
jurisdiction where any Collateral (as defined in such Security
Agreement) is located or where a filing would need to be made in order
to perfect the Lender's security interest in the Collateral, together
with copies of the financing statements on file in each such
jurisdiction and evidence that no Liens exist thereon other than as
expressly approved by the Lender or permitted by the Existing Credit
Documents.
4.1.5. Pledge Agreement. The Lender shall have received from
the Borrower (i) the duly executed original of the form of Pledge
Agreement attached hereto as Exhibit "B" effecting a first priority
pledge of 100% of the Borrower's ownership interests in each of its
domestic subsidiaries and a first priority pledge of 65% of the
Borrower's ownership interests in each of its foreign subsidiaries;
(ii) all stock certificates evidencing the stock pledged to the Lender
pursuant to the Pledge Agreement, together with duly executed in blank
undated stock powers attached thereto, and (iii) evidence and
information satisfactory to the Lender regarding the capital and
ownership structure of the Borrower and its subsidiaries.
4.1.6. Guaranty. Each of the Guarantors shall have executed
this Agreement.
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4.1.7. Corporate Documents. The Lender shall have received,
in form and content satisfactory to the Lender, (i) copies of
resolutions of the board of directors of the Borrower (and each
subsidiary guarantor) approving and adopting the execution and delivery
of this Agreement, the Security Agreement, the Pledge Agreement, and
each other document or instrument executed and delivered in connection
herewith, certificate by a secretary or assistant secretary of the
Borrower (and as applicable, each subsidiary guarantor) to be true and
correct and in force and effect as of the Effective Date; (ii) an
incumbency certified of the Borrower (and each subsidiary guarantor)
certified by a secretary or assistant secretary to be true and correct
as of the Effective Date; and (iii) an opinion of legal counsel to the
Borrower, which shall cover, among other things, authority, legality,
validity, binding effect and enforceability of the Amended Credit
Documents and the attachment, perfection and validity of liens),
addressed to the Lender and dated as of the Effective Date.
PART V
MISCELLANEOUS
SUBPART 5.1 Cross-References. References in this Agreement to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of this
Agreement.
SUBPART 5.2 Instrument Pursuant to Existing Credit Agreement.
This Agreement is a document executed pursuant to the Existing Credit Documents
and shall (unless otherwise expressly indicated therein) be construed,
administered and applied in accordance with the terms and provisions of the
Existing Credit Documents.
SUBPART 5.3 Credit Documents. The Borrower hereby confirms and
agrees that the Existing Credit Documents are, and shall continue to be, in full
force and effect, except as amended hereby, and except that, on and after the
Effective Date references in each Existing Credit Document to the "Revolving
Loan Agreement", the "Term Notes", the "Letters of Credit", "thereunder",
"thereof" or words of like import referring to any Existing Credit Agreement
shall mean the applicable Amended Credit Document.
SUBPART 5.4. Representations and Warranties. The Borrower hereby
represents and warrants that (i) it has the requisite corporate power and
authority to execute, deliver and perform this Agreement, (ii) it is duly
authorized to, and has been authorized by all necessary corporate action, to
execute, deliver and perform this Agreement, (iii) it has no claims,
counterclaims, offsets, or defenses to the Existing Credit Documents and the
performance of its obligations thereunder, or if the Borrower has any such
claims, counterclaims, offsets, or defenses to the Existing Credit Documents or
any transaction related to the Existing Credit Documents, the same are hereby
waived, relinquished and released in consideration of the Lender's execution and
delivery of this Agreement, (iv) the representations and warranties contained in
the Existing Credit Documents are, subject to the limitations set forth therein,
true and correct in all material respects on and as of the date hereof as though
made on and as of such date (except for those which expressly relate to an
earlier date), (v) no event of default under any other agreement, document or
instrument to which the Borrower is a party will occur as a result of the
transactions contemplated
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hereby, and (vi) as of the date of this Agreement, no Event of Default (or any
agent or condition which, but for the lapse of time or the giving of notice,
would constitute an "event of default" under any of the Existing Credit
Documents or the Amended Credit Documents) exists except for the Existing
Default.
SUBPART 5.5. Costs and Expenses. The Borrower hereby agrees to pay
on demand all costs and expenses (including without limitation the reasonable
fees and expenses of counsel to the Lender) incurred by the Lender in connection
with the negotiation, preparation, execution, and delivery of this Agreement and
the enforcement or preservation of any rights and remedies of the Lender
hereunder (including without limitation any such fees and expenses subsequently
incurred by the Lender in any subsequent bankruptcy or insolvency proceeding
involving the Borrower).
SUBPART 5.6. Counterparts, Effectiveness, Etc. This Agreement may
be executed by the parties hereto in several counterparts, each of which shall
be deemed to be an original and all of which shall constitute together but one
and the same agreement.
SUBPART 5.7. Captions. The captions in this Agreement are inserted
only as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Agreement or any provision hereof.
SUBPART 5.8 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NORTH
CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SUBPART 5.9 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
PART VI
GUARANTY
SUBPART 6.1 Guaranty of Payment. Subject to Subpart 6.7 below,
each of the Guarantors hereby, jointly and severally, unconditionally guarantees
to the Lender the prompt payment of the Revolving Loan Obligations, the Term
Loan Obligations, the LOC Obligations and the TROL Obligations (collectively,
the "Guaranteed Obligations") in full when due (whether at stated maturity, as a
mandatory prepayment by acceleration or otherwise). This Guaranty is a guaranty
of payment and not of collection and is a continuing guaranty and shall apply to
all Guaranteed Obligations whenever arising.
SUBPART 6.2 Obligations Unconditional. The obligations of the
Guarantors hereunder are absolute and unconditional, irrespective of the value,
genuineness, validity, regularity or enforceability of any of the Amended Credit
Documents or any other agreement or instrument referred to therein, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor. Each Guarantor agrees that this
Guaranty may be enforced by the Lender
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without the necessity at any time of resorting to or exhausting any other
security or collateral and without the necessity at any time of having recourse
to any of the notes or any other of the Amended Credit Documents or any
collateral, if any, hereafter securing the Guaranteed Obligations or otherwise
and each Guarantor hereby waives the right to require the Lender to proceed
against the Borrower or any other Person (including a co-guarantor) or to
require the Lender to pursue any other remedy or enforce any other right. Each
Guarantor further agrees that it shall have no right of subrogation, indemnity,
reimbursement or contribution against the Borrower or any other Guarantor of the
Guaranteed Obligations for amounts paid under this Guaranty until such time as
the Lender has been paid in full, all Commitments under the Revolving Credit
Agreement have been terminated and no Person or Governmental Authority shall
have any right to request any return or reimbursement of funds from the Lender
in connection with monies received under the Amended Credit Documents. Neither
any Guarantor's obligations under this Guaranty nor any remedy for the
enforcement thereof shall be impaired, modified, changed or released in any
manner whatsoever by an impairment, modification, change, release or limitation
of the liability of the Borrower or by reason of the bankruptcy or insolvency of
the Borrower. Each Guarantor waives any and all notice of the creation,
renewal, extension or accrual of any of the Guaranteed Obligations and notice of
or proof of reliance of by the Lender upon this Guarantee or acceptance of this
Guarantee. The Guaranteed Obligations, and any of them, shall conclusively be
deemed to have been created, contacted or incurred, or renewed, extended,
amended or waived, in reliance upon this Guarantee. All dealings between the
Borrower and any of the Guarantors, on the one hand, and the Lender, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon this Guarantee.
SUBPART 6.3 Modifications. Each Guarantor agrees that (a) all or
any part of the Collateral now or hereafter held for the Guaranteed Obligations,
if any, may be exchanged, compromised or surrendered from time to time; (b) the
Leader shall not have any obligation to protect, perfect, secure or insure any
such security interests, liens or encumbrances now or hereafter held, if any,
for the Guaranteed Obligations or the properties subject thereto; (c) the time
or place of payment of the Guaranteed Obligations may be changed or extended, in
whole or in part to a time certain or otherwise, and may be renewed or
accelerated, in whole or in part; (d) the Borrower and any other party liable
for payment under the Amended Credit Documents may be granted indulgences
generally; (e) any of the provisions of the notes or any of the other Amended
Credit Documents may be modified, amended or waived; (f) any party (including
any co-guarantor) liable for the payment thereof may be granted indulgences or
be released; and (g) any deposit balance for the credit of the Borrower or any
other party liable for the payment of the Guaranteed Obligations or liable upon
any security therefor may be released, in whole or in part, at, before or after
the stated, extended or accelerated maturity of the Guaranteed Obligations, all
without notice to or further assent by such Guarantor, which shall remain bound
thereon, notwithstanding any such exchange, compromise, surrender, extension,
renewal, acceleration, modification, indulgence or release.
SUBPART 6.4 Waiver of Rights. Each Guarantor expressly waives to
the fullest extent permitted by applicable law: (a) notice of acceptance of this
Guaranty by the Lender and of all extensions of credit to the Borrower by the
Lender; (b) presentment and demand for payment or performance of any of the
Guaranteed Obligations; (c) protest and notice of dishonor or of default
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(except as specifically required in the Amended Credit Agreement) with respect
to the Guaranteed Obligations or with respect to any security therefor; (d)
notice of the Lender's obtaining, amending, substituting for, releasing, waiving
or modifying any security interest, lien or encumbrance, if any, hereafter
securing the Guaranteed Obligations, or the Lender's subordinating,
compromising, discharging or releasing such security interests, liens or
encumbrances, if any; (e) all other notices to which such Guarantor might
otherwise be entitled; and (f) demand for payment under this Guaranty.
SUBPART 6.5 Reinstatement. The obligations of the Guarantors
under this Part VI shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of any Person in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, and each Guarantor agrees that it
will indemnify the Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by such
Lender in connection with such rescission or restoration, including any such
costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under
any bankruptcy, insolvency or similar law.
SUBPART 6.6 Remedies. The Guarantors agree that, as between the
Guarantors, on the one hand, and the Lender, on the other hand, the Guaranteed
Obligations may be declared to be forthwith due and payable as provided in the
Amended Credit Documents, and that, in the event of such declaration (or such
Guaranteed Obligations being deemed to have become automatically due and
payable), such Guaranteed Obligations (whether or not due and payable by any
other Person) shall forthwith become due and payable by the Guarantors. The
Guarantors acknowledge and agree that their obligations hereunder are secured in
accordance with the terms of the Security Agreement and that the Lender may
exercise remedies thereunder in accordance with the terms thereof.
SUBPART 6.7 Limitation of Guaranty. Notwithstanding any provision
to the contrary contained herein or in any of the other Amended Credit
Documents, to the extent the obligations of any Guarantor shall be adjudicated
to be invalid or unenforceable for any reason (including, without limitation,
because of any applicable state or federal law relating to fraudulent
conveyances or transfers) then the obligations of such Guarantor hereunder shall
be limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the
Bankruptcy Code).
[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
THE BORROWER: APPLIED ANALYTICAL INDUSTRIES, INC.
a Delaware corporation
/s/ Eugene T. Haley
- ----------------------- By: /s/ Frederick D. Sancilio
Eugene T. Haley -------------------------------------
- ----------------------- Name: Frederick D. Sancilio
Exec. Vice President -----------------------------------
- ----------------------- Title: Chief Executive Officer
----------------------------------
THE GUARANTORS: AAI LEARNING CENTER INC.
AAI TECHNOLOGIES, INC.
AAI PROPERTIES, INC.
KANSAS CITY ANALYTICAL SERVICES, INC.
MEDICAL AND TECHNICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Frederick D. Sancilio
-------------------------------------
Name: Frederick D. Sancilio
-----------------------------------
Title: Chairman of the Board
----------------------------------
THE LENDER: BANK OF AMERICA, N.A.,
formerly known as NationsBank, N.A.,
in each of its respective capacities under
each of the Existing Credit Documents
By: /s/ David C. Houston
-------------------------------------
Name: David C. Houston
-----------------------------------
Title: Vice President
----------------------------------
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EXHIBIT 10.16
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of August
26, 1999 among APPLIED ANALYTICAL INDUSTRIES, INC., a Delaware corporation (the
"Borrower"), each of the undersigned domestic subsidiaries of the Borrower
(individually a "Guarantor", and collectively the "Guarantors"; together with
the Borrower, individually a "Pledgor", and collectively the "Pledgors") and
BANK OF AMERICA, N.A., a national banking association (the "Lender").
RECITALS
A. Pursuant to that certain Loan Agreement, dated December 30, 1996, as
amended February 13, 1998 and May 19, 1999 (the "Revolving Credit Agreement"),
the Lender has extended revolving credit loans (the "Revolving Loans") to the
Borrower in the amount of up to $20,000,000. The Borrower's obligations to the
Lender arising under the Revolving Credit Agreement, including without
limitation all principal, interest, fees, and other charges in respect of the
Revolving Loans, shall be referred to herein as the "Revolving Loan
Obligations".
B. Pursuant to (i) that certain promissory note dated December 31, 1997
made by the Borrower in favor of the Lender in the original principal amount of
$2,083,155.00 and having a maturity date of December 31, 2002, and (ii) that
certain promissory note dated March 28, 1996 made by the Borrower in favor of
the Lender in the original principal amount of $998,000.00 and having a
maturity date of December 31, 2000 (collectively, the "Term Notes" and each a
"Term Note"; the Lender's advances to or for the benefit of the Borrower as
evidenced by the Term Notes shall be referred to as the "Term Loans"). The
Borrower's obligations to the Lender arising under the Term Notes, including
without limitation all principal, interest, fees and other charges in respect of
the Term Loans shall be referred to as the "Term Loan Obligations".
C. The Lender has also issued, on the application and request of the
Borrower as account party, four letters of credit described as follows: (i)
letter of credit no. 919888 in the amount of DM 10,000,000 designating Deutsche
Bank as the beneficiary and having an expiry date of August 31, 1999 (the
"Deutsche Bank Letter of Credit"); (ii) letter of credit no. 919887 in the
amount of DM 2,100,000 designating Bayerishe Vereinsbank as the beneficiary and
having an expiry date of August 31, 1999 (the "Vereinsbank Letter of Credit");
(iii) letter of credit no. 972664 in the amount of U.S. $279,750 designating
North Brunswick II LLC as the beneficiary and having an expiry date of July 31,
2000; and (iv) that certain letter of credit issued by the Lender in connection
with certain industrial revenue bond financing of the Borrower (collectively,
the "Letters of Credit"). For purposes hereof, "LOC Obligations" shall mean, at
any time, the sum of (i) the maximum amount which is, or at any time thereafter
may become, available to be drawn under the Letters of Credit, as amended from
time to time, plus (ii) the aggregate amount of all drawings under the Letters
of Credit honored by the Lender but not therefore reimbursed by the Borrower,
and all fees, charges, expenses and related obligations of the Borrower to the
Lender arising under the applications for the Letters of Credit, any amendments
thereto, or under any documents delivered in connection therewith.
<PAGE> 2
D. The Lender has also enabled the establishment of a lease financing
facility in favor of the Borrower pursuant to the terms of (i) that certain
Participation Agreement, dated as of October 2, 1998 (the "Participation
Agreement"), among the Borrower, First Security Bank, N.A., as Owner Trustee
(the "Owner Trustee") under the AAI Realty Trust 1998-1, the lenders and holders
identified therein and from time to time party thereto, and NationsBank, N.A.
(now known as Bank of America, N.A.) as Agent; (ii) that certain Lease
Agreement, dated as of October 2, 1998, between the Owner Trustee as lessor and
the Borrower as lessee; (iii) that certain Agency Agreement, dated as of
October 2, 1998, between the Borrower as construction agent and the Owner
Trustee as lessor; and (iv) each of the other Operative Agreements (as defined
in the Participation Agreement), in each case as amended, modified,
supplemented, extended or renewed from time to time. The foregoing documents,
instruments and agreements shall be referred to collectively as the "TROL
Transaction Documents" and the Borrower's obligations thereunder, in any
capacity, shall be referred to collectively as the "TROL Obligations". The
Revolving Credit Agreement, the Term Notes, the Letters of Credit, and the TROL
Transaction Documents shall be referred to collectively as the "Existing Credit
Documents".
E. The Borrower has failed to comply with the financial covenants set
forth in Section 6.01(p)(v) of the Revolving Credit Agreement for the fiscal
quarter ending June 30, 1999 (the "Existing Default"). The occurrence of the
Existing Default under the Revolving Credit Agreement causes a cross-default
under the terms of the TROL Transaction Documents and the Term Notes.
F. The Borrower has requested that (i) the Lender forbear from exercising
its remedies with respect to the Existing Default, (ii) that the Lender
continue to make available to the Borrower the credit and related facilities
established by the Existing Credit Documents, and (iii) that the Lender extend
the expiry dates on the Deutsche Bank Letter of Credit and the Vereinsbank
Letter of Credit until November 30, 1999. The Lender has agreed to do so upon
the terms and subject to the conditions set forth in that certain Amendment and
Forbearance Agreement (the "Amendment Agreement") by and between the Borrower
and the Lender, dated as of even date herewith, including, without limitation,
the Pledgors' execution and delivery of this Pledge Agreement.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Amendment
Agreement or in the Amended Credit Documents. For purposes of this Agreement,
(a) the term "Domestic Subsidiary" shall mean each direct and indirect
Subsidiary of the Borrower that is incorporated or organized under the laws of
any state of the United States or the District of Columbia, whether existing as
of the date hereof or hereafter created or acquired; and (b) the term "Foreign
Subsidiary" shall mean any direct or indirect Subsidiary of the Borrower that
is not a Domestic Subsidiary.
<PAGE> 3
2. Pledge and Grant of Security Interest. To secure the prompt payment and
performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Lender, and grants to the Lender, a continuing
security interest in any and all right, title and interest of such Pledgor in
and to the following, whether now owned or existing or owned, acquired, or
arising hereafter (collectively, the "Pledged Collateral"):
(a) Pledged Shares. (i) 100% (or, if less, the full amount owned by
such Pledgor) of the issued and outstanding shares of capital stock of each
Domestic Subsidiary set forth on Schedule 2(a) attached hereto and (ii) 65%
(or, if less, the full amount owned by such Pledgor) of the issued and
outstanding shares of each class of capital stock or other ownership
interests entitled to vote (within the meaning of Treas. Reg. Section
1.956-2(c)(2)) "Voting Equity") and 100% (or, if less, the full amount owned
by such Pledgor) of the issued and outstanding shares of each class of
capital stock or other ownership interests not entitled to vote (within the
meaning of Treas. Reg. Section 1.956-2(c)(2)) ("Non-Voting Equity") owned by
such Pledgor of each Foreign Subsidiary set forth on Schedule 2(a) attached
hereto, in each case together with the certificates (or other agreements or
instruments), if any, representing such shares, and all options and other
rights, contractual or otherwise, with respect thereto (collectively,
together with the shares of capital stock described in Section 2(b) and
2(c) below, the "Pledged Shares"), including, but not limited to, the
following:
(1) all shares or securities representing a dividend on any of
the Pledged Shares, or representing a distribution or return of capital
upon or in respect of the Pledged Shares, or resulting from a stock
split, revision, reclassification or other exchange therefor, and any
subscriptions, warrants, rights or options issued to the holder of, or
otherwise in respect of, the Pledged Shares; and
(2) without affecting the obligations of the Pledgors under any
provision prohibiting such action hereunder or under any of the Amended
Credit Documents, in the event of any consolidation or merger involving
the issuer of any Pledged Shares and in which such issuer is not the
surviving corporation, all shares of each class of the capital stock of
the successor corporation formed by or resulting from such
consolidation or merger.
(b) Additional Shares. 100% (or, if less, the full amount owned by
such Pledgor) of the issued and outstanding shares of capital stock of any
Person which hereafter becomes a Domestic Subsidiary and 65% (or, if less,
the full amount owned by such Pledgor) of the Voting Equity and 100% (or, if
less, the full amount owned by such Pledgor) of the Non-Voting Equity owned
by such Pledgor of any Person which hereafter becomes a Foreign Subsidiary,
including, without limitation, the certificates representing such shares
(provided, however, that no Person that is a Foreign Subsidiary shall be
required to pledge any shares hereunder).
<PAGE> 4
(c) Proceeds. All proceeds and products of the foregoing, however and
whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby specifically
understood and agreed that a Pledgor may from time to time hereafter deliver
additional shares of stock to the Lender as collateral security for the Pledgor
Obligations. Upon delivery to the Lender, such additional shares of stock shall
be deemed to be part of the Pledged Collateral of such Pledgor and shall be
subject to the terms of this Pledge Agreement whether or not Schedule 2(a) is
amended to refer to such additional shares.
3. Security for Pledgor Obligations. The security interest created hereby
in the Pledged Collateral of each Pledgor constitutes continuing collateral
security for all of the Revolving Loan Obligations, the Term Loan Obligations,
the LOC Obligations, and the TROL Obligations, now existing or hereafter
arising pursuant to the Existing Credit Documents or the Amended Credit
Documents, owing from the Borrower or any other Pledgor to the Lender or any
affiliate of the Lender in any capacity, howsoever evidenced, created, incurred
or acquired, whether primary, secondary, direct, contingent, or joint and
several, including, without limitation, all obligations and liabilities
incurred in connection with collecting and enforcing the foregoing
(collectively, the "Pledgor Obligations").
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
(a) Each Pledgor shall deliver to the Lender (i) simultaneously with
or prior to the execution and delivery of this Pledge Agreement, all
certificates representing the Pledged Shares of such Pledgor and (ii)
promptly upon the receipt thereof by or on behalf of a Pledgor, all other
certificates and instruments constituting Pledged Collateral of a Pledgor.
Prior to delivery to the Lender, all such certificates and instruments
constituting Pledged Collateral of a Pledgor shall be held in trust by such
Pledgor for the benefit of the Lender pursuant hereto. All such
certificates shall be delivered in suitable form for transfer by delivery
or shall be accompanied by duly executed instruments of transfer or
assignment in blank, substantially in the form provided in Exhibit 4(a)
attached hereto.
(b) Additional Securities. If such Pledgor shall receive by virtue of
its being or having been the owner of any Pledged Collateral, any (i) stock
certificate, including without limitation, any certificate representing a
stock dividend or distribution in connection with any increase or reduction
of capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock splits, spin-off or split-off, promissory
notes or other instrument; (ii) option or right, whether as an addition to,
substitution for, or an exchange for, any Pledged Collateral or otherwise;
(iii) dividends payable in securities; or (iv) distributions of securities
in connection with a partial or total liquidation, dissolution or reduction
of capital, capital surplus or paid-in surplus, then such Pledgor shall
receive such stock certificate, instrument, option, right or distribution
in trust for the benefit of the Lender, shall segregate it from such
Pledgor's other property and shall deliver it forthwith to the Lender in
the exact form received together with any
<PAGE> 5
necessary endorsement and/or appropriate stock power duly executed in
blank, substantially in the form provided in Exhibit 4(a), to be held by
the Lender as Pledged Collateral and as further collateral security for the
Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute and deliver to
the Lender such UCC or other applicable financing statements as may be
reasonably requested by the Lender in order to perfect and protect the
security interest created hereby in the Pledged Collateral of such Pledgor.
5. Representations and Warranties. Each Pledgor hereby represents and
warrants to the Lender that so long as any of the Pledgor Obligations remain
outstanding (other than unasserted indemnity claims), or any Amended Credit
Document is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated:
(a) Authorization of Pledged Shares. The Pledged Shares are duly
authorized and validly issued, are fully paid and nonassessable and are not
subject to the preemptive rights of any Person. All other shares of stock
constituting Pledged Collateral will be duly authorized and validly issued,
fully paid and nonassessable and not subject to the preemptive rights of
any Person.
(b) Title. Each Pledgor has good and indefeasible title to the
Pledged Collateral of such Pledgor and will at all times be the legal and
beneficial owner of such Pledged Collateral free and clear of any Lien,
other than Permitted Liens. There exists no "adverse claim" within the
meaning of Section 8-302 of the Uniform Commercial Code as in effect in the
State of North Carolina (the "UCC") with respect to the Pledged Shares of
such Pledgor.
(c) Exercising of Rights. The exercise by the Lender of its rights
and remedies hereunder will not violate any law or governmental regulation
or any material contractual restriction binding on or affecting a Pledgor
or any of its property.
(d) Pledgor's Authority. No authorization, approval or action by, and
no notice or filing with any Governmental Authority or with the issuer of
any Pledged Stock is required either (i) for the pledge made by a Pledgor or
for the granting of the security interest by a Pledgor pursuant to this
Pledge Agreement or (ii) for the exercise by the Lender of its rights and
remedies hereunder (except as may be required by laws affecting the offering
and sale of securities).
(e) Security Interest/Priority. This Pledge Agreement creates a valid
security interest in favor of the Lender in the Pledged Collateral. The
taking possession by the Lender of the certificates representing the
Pledged Shares and all other certificates and instruments constituting
Pledged Collateral will perfect and establish the first priority of the
Lender's security interest in the Pledged Shares and, when properly
perfected by filing or registration, in all other Pledged Collateral
represented by such Pledged Shares
<PAGE> 6
and instruments securing the Pledgor Obligations. Except as set forth in
this Section 5(e), no action is necessary to perfect or otherwise protect
such security interest.
(f) No Other Shares. No Pledgor owns any shares of stock other than
as set forth on Schedule 2(a) attached hereto.
6. Covenants. Each Pledgor hereby covenants, that so long as any of the
Pledgor Obligations remain outstanding (other than unasserted indemnity claims)
or any Amended Credit Document is in effect or any Letter of Credit shall
remain outstanding, and until all of the Commitments shall have been
terminated, such Pledgor shall:
(a) Books and Records. Mark its books and records (and shall cause
the issuer of the Pledged Shares of such Pledgor to mark its books and
records) to reflect the security interest granted to the Lender pursuant to
this Pledge Agreement.
(b) Defense of Title. Warrant and defend title to and ownership of
the Pledged Collateral of such Pledgor at its own expense against the
claims and demands of all other parties claiming an interest therein, keep
the Pledged Collateral free from all Liens, except for Permitted Liens (as
defined in the Security Agreement executed by and among the Pledgors and
the Lender as of even date herewith), and not sell, exchange, transfer,
assign, lease or otherwise dispose of Pledged Collateral of such Pledgor or
any interest therein.
(c) Further Assurances. Promptly execute and deliver at its expense
all further instruments and documents and take all further action that may
be necessary and desirable or that the Lender may reasonably request in
order to (i) perfect and protect the security interest created hereby in
the Pledged Collateral of such Pledgor (including without limitation any
and all action necessary to satisfy the Lender that the Lender has obtained
a first priority perfected security interest in any capital stock); (ii)
enable the Lender to exercise and enforce its rights and remedies hereunder
in respect of the Pledged Collateral of such Pledgor; and (iii) otherwise
effect the purposes of this Pledge Agreement, including, without limitation
and if requested by the Lender, delivering to the Lender irrevocable
proxies in respect of the Pledged Collateral of such Pledgor.
(d) Amendments. Not make or consent to any amendment or other
modification or waiver with respect to any of the Pledged Collateral of
such Pledgor or enter into any agreement or allow to exist any restriction
with respect to any of the Pledged Collateral of such Pledgor.
(e) Compliance with Securities Laws. File all reports and other
information now or hereafter required to be filed by such Pledgor with the
United States Securities and Exchange Commission and any other state,
federal or foreign agency in connection with the ownership of the Pledged
Collateral of such Pledgor.
<PAGE> 7
7. Advances by Lender. On failure of any Pledgor to perform any of the
covenants and agreements contained herein, the Lender may, at its sole option
and in its reasonable discretion, perform the same and in so doing may expend
such sums as the Lender may reasonably deem advisable in the performance
thereof, including, without limitation, the payment of any insurance premiums,
the payment of any taxes, a payment to obtain a release of a Lien or potential
Lien, expenditures made in defending against any adverse claim and all other
expenditures which the Lender may make for the protection of the security
hereof or which may be compelled to make by operation of law. All such sums and
amounts so expended shall be repayable by the Pledgors on a joint and several
basis promptly upon timely notice thereof and demand therefor, shall constitute
additional Pledgor Obligations and shall bear interest from the date said
amounts are expended at the default rate specified in Section 3.01 of the
Revolving Credit Agreement. No such performance of any covenant or agreement by
the Lender on behalf of any Pledgor, and no such advance or expenditure
therefor, shall relieve the Pledgors of any default under the terms of this
Pledge Agreement or the other Amended Credit Documents. The Lender may make any
payment hereby authorized in accordance with any bill, statement or estimate
procured from the appropriate public office or holder of the claim to be
discharged without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax
lien, title or claim except to the extent such payment is being contested in
good faith by a Pledgor in appropriate proceedings and against which adequate
reserves are being maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event which under the
Revolving Credit Agreement, the Term Notes, or the TROL Transaction Documents
shall constitute an Event of Default shall be an Event of Default hereunder (an
"Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default and
during the continuation thereof, the Lender shall have, in respect of the
Pledged Collateral of any Pledgor, in addition to the rights and remedies
provided herein, in the Amended Credit Documents, the rights and remedies
of a secured party under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an Event of
Default and during the continuation thereof, without limiting the
generality of this Section and without notice, the Lender may, in its sole
discretion, sell or otherwise dispose of or realize upon the Pledged
Collateral, or any part thereof, in one or more parcels, at public or
private sale, at any exchange or broker's board or elsewhere, at such price
or prices and on such other terms as the Lender may deem commercially
reasonable, for cash, credit or for future delivery or otherwise in
accordance with applicable law. To the extent permitted by law, the Lender
may in such event bid for the purchase of such securities. Each Pledgor
agrees that, to the extent notice of sale shall be required by law and has
not been waived by such Pledgor, any requirement of reasonable notice shall
be met if notice, specifying the place of any public sale or the time after
which any private sale is to be made, is personally served on or mailed
postage prepaid to such Pledgor in accordance with the notice provisions of
the Revolving Credit Agreement at least 10 days before the
<PAGE> 8
time of such sale. The Lender shall not be obligated to make any sale of
Pledged Collateral of such Pledgor regardless of notice of sale having been
given. The Lender may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(c) Private Sale. Upon the occurrence of an Event of Default and
during the continuation thereof, the Pledgors recognize that the Lender may
deem it impracticable to effect a public sale of all or any part of the
Pledged Shares or any of the securities constituting Pledged Collateral and
that the Lender may, therefore, determine to make one or more private sales
of any such securities to a restricted group of purchasers who will be
obligated to agree, among other things, to acquire such securities for
their own account, for investment and not with a view to the distribution
or resale thereof. Each Pledgor acknowledges that any such private sale may
be at prices and on terms less favorable to the seller than the prices and
other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sale shall be
deemed to have been made in a commercially reasonable manner and that the
Lender shall have no obligation to delay sale of any such securities for
the period of time necessary to permit the issuer of such securities to
register such securities for public sale under the Securities Act of 1933.
Each Pledgor further acknowledges and agrees that any offer to sell such
securities which has been (i) publicly advertised on a bona fide basis in a
newspaper or other publication of general circulation in the financial
community of New York, New York (to the extent that such offer may be
advertised without prior registration under the Securities Act of 1933), or
(ii) made privately in the manner described above shall be deemed to
involve a "public sale" under the UCC, notwithstanding that such sale may
not constitute a "public offering" under the Securities Act of 1933, and
the Lender may, in such event, bid for the purchase of such securities.
(d) Retention of Pledged Collateral. In addition to the rights and
remedies hereunder, upon the occurrence of an Event of Default, the Lender
may, after providing the notices required by Section 9-505(2) of the UCC or
otherwise complying with the requirements of applicable law of the relevant
jurisdiction, retain all or any portion of the Pledged Collateral in
satisfaction of the Pledgor Obligations. Unless and until the Lender shall
have provided such notices, however, the Lender shall not be deemed to have
retained any Pledged Collateral in satisfaction of any Pledgor Obligations
for any reason.
(e) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which the
Lender is legally entitled, the Pledgors shall be jointly and severally
liable for the deficiency, together with interest thereon at the default
rate specified in Section 3.01 of the Revolving Credit Agreement, together
with the costs of collection and the reasonable fees of any attorneys
employed by the Lender to collect such deficiency. Any surplus remaining
after the full payment and satisfaction of the Pledgor Obligations shall be
returned to the Pledgors or to whomsoever a court of competent jurisdiction
shall determine to be entitled thereto.
<PAGE> 9
10. Rights of the Lender.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Pledgor hereby designates and appoints the Lender
and each of its designees or agents as attorney-in-fact of such Pledgor,
irrevocably and with power of substitution, with authority to take any or
all of the following actions upon the occurrence and during the continuance
of an Event of Default:
(i) to demand, collect, settle, compromise, adjust and give
discharges and releases concerning the Pledged Collateral of such
Pledgor, all as the Lender may reasonably determine;
(ii) to commence and prosecute any actions at any court for the
purposes of collecting any of the Pledged Collateral of such Pledgor
and enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action brought and, in
connection therewith, give such discharge or release as the Lender may
deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against the Pledged
Collateral of such Pledgor;
(v) to direct any parties liable for any payment under any of
the Pledged Collateral to make payment of any and all monies due and to
become due thereunder directly to the Lender or as the Lender shall
direct;
(vi) to receive payment of and receipt for any and all monies,
claims, and other amounts due and to become due at any time in respect
of or arising out of any Pledged Collateral of such Pledgor;
(vii) to sign and endorse any drafts, assignments, proxies, stock
powers, verifications, notices and other documents relating to the
Pledged Collateral of such Pledgor;
(viii) to settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Lender may deem reasonably appropriate;
<PAGE> 10
(ix) execute and deliver all assignments, conveyances, statements,
financing statements, renewal financing statements, pledge agreements,
affidavits, notices and other agreements, instruments and documents
that the Lender may determine necessary in order to perfect and
maintain the security interests and liens granted in this Pledge
Agreement and in order to fully consummate all of the transactions
contemplated therein;
(x) to exchange any of the Pledged Collateral of such Pledgor or
other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Pledged Collateral of such
Pledgor with any committee, depository, transfer agent, registrar or
other designated agency upon such terms as the Lender may determine;
(xi) to vote for a shareholder resolution, or to sign an
instrument in writing, sanctioning the transfer of any or all of the
Pledged Shares of such Pledgor into the name of the Lender or into the
name of any transferee to whom the Pledged Shares of such Pledgor or
any part thereof may be sold pursuant to Section 9 hereof; and
(xii) to do and perform all such other acts and things as the
Lender may reasonably deem to be necessary, proper or convenient in
connection with the Pledged Collateral of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding (other than unasserted indemnity claims), any Amended Credit
Document or any Letter of Credit shall remain outstanding and (ii) until all of
the Commitments shall have been terminated. The Lender shall be under no duty
to exercise or withhold the exercise of any of the rights, powers, privileges
and options expressly or implicitly granted to the Lender in this Pledge
Agreement, and shall not be liable for any failure to do so or any delay in
doing so. The Lender shall not be liable for any act or omission or for any
error of judgment or any mistake of fact or law in its individual capacity or
its capacity as attorney-in-fact except acts or omissions resulting from its
gross negligence or willful misconduct. This power of attorney is conferred on
the Lender solely to protect, preserve and realize upon its security interest
in Pledged Collateral.
(b) Performance by the Lender of Pledgor's Obligations. If any
Pledgor fails to perform any agreement or obligation contained herein, the
Lender itself may perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of the Lender incurred in connection
therewith shall be payable by the Pledgors on a joint and several basis pursuant
to Section 13 hereof.
(c) Assignment by the Lender. The Lender may from time to time assign
the Pledgor Obligations and any portion thereof and/or the Pledged Collateral
and any
<PAGE> 11
portion thereof, and the assignee shall be entitled to all of the rights
and remedies of the Lender under this Pledge Agreement in relation thereto.
(d) The Lender's Duty of Care. Other than the exercise of reasonable
care to assure the safe custody of the Pledged Collateral while being held
by the Lender hereunder, the Lender shall have no duty or liability to
preserve rights pertaining thereto, it being understood and agreed that
Pledgors shall be responsible for preservation of all rights in the Pledged
Collateral of such Pledgor, and the Lender shall be relieved of all
responsibility for Pledged Collateral upon surrendering it or tendering the
surrender of it to the Pledgors. The Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if such Pledged Collateral is accorded
treatment substantially equal to that which the Lender accords its own
property, which shall be no less than the treatment employed by a
reasonable and prudent agent in the industry, it being understood that the
Lender shall not have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Pledged Collateral, whether or not the Lender has
or is deemed to have knowledge of such matters; or (ii) taking any
necessary steps to preserve rights against any parties with respect to any
Pledged Collateral.
(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have occurred and be
continuing, to the extent permitted by law, each Pledgor may exercise
any and all voting and other consensual rights pertaining to the
Pledged Collateral of such Pledgor or any part thereof for any purpose
not inconsistent with the terms of this Pledge Agreement or the Amended
Credit Documents; and
(ii) Upon the occurrence and during the continuance of an Event
of Default, all rights of a Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to paragraph (i) of this Section shall cease and all such
rights shall thereupon become vested in the Lender which shall then
have the sole right to exercise such voting and other consensual
rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have occurred and be
continuing and subject to Section 4(b) hereof, each Pledgor may receive
and retain any and all dividends (other than stock dividends and other
dividends constituting Pledged Collateral which are addressed
hereinabove) or interest paid in respect of the Pledged Collateral to
the extent they are allowed under the Amended Credit Documents.
<PAGE> 12
(ii) Upon the occurrence and during the continuance of an Event of
Default:
(A) all rights of a Pledgor to receive the dividends and
interest payments which it would otherwise be authorized to receive
and retain pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the Lender which
shall then have the sole right to receive and hold as Pledged
Collateral such dividends and interest payments; and
(B) all dividends and interest payments which are received by
a Pledgor contrary to the provisions of paragraph (A) of this
Section shall be received in trust for the benefit of the Lender,
shall be segregated from other property or funds of such Pledgor,
and shall be forthwith paid over to the Lender as Pledged
Collateral in the exact form received, to be held by the Lender as
Pledged Collateral and as further collateral security for the
Pledgor Obligations.
(g) Release of Pledged Collateral. The Lender may release any of the
Pledged Collateral from this Pledge Agreement or may substitute any of the
Pledged Collateral for other Pledged Collateral without altering, varying
or diminishing in any way the force, effect, lien, pledge or security
interest of this Pledge Agreement as to any Pledged Collateral not
expressly released or substituted, and this Pledge Agreement shall continue
as a first priority lien on all Pledged Collateral not expressly released
or substituted.
11. Application of Proceeds. Upon the occurrence and during the continuance
of an Event of Default, any payments in respect of the Pledgor Obligations and
any proceeds of any Pledged Collateral, when received by the Lender in cash or
its equivalent, will be applied in reduction of the Pledgor Obligations in the
order determined by the Lender in its sole and absolute discretion, and each
Pledgor irrevocably waives the right to direct the application of such payments
and proceeds and acknowledges and agrees that the Lender shall have the
continuing and exclusive right to apply and reapply any and all such payments
and proceeds in the Lender's sole discretion, notwithstanding any entry to the
contrary upon any of its books and records.
12. Costs of Counsel. At all times hereafter, the Pledgors agree to
promptly pay upon demand any and all reasonable costs and expenses of the
Lender, (a) as required under the Amended Credit Documents or the Amendment
Agreement, and (b) as necessary to protect the Pledged Collateral or to
exercise any rights or remedies under this Pledge Agreement or with respect to
any Pledged Collateral. All of the foregoing costs and expenses shall
constitute Pledgor Obligations hereunder.
<PAGE> 13
13. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in every
respect and shall remain in full force and effect so long as any of the
Pledgor Obligations remain outstanding (other than unasserted indemnity
claims) or any Amended Credit Document or any Letter of Credit shall remain
outstanding, and until all of the Commitments thereunder shall have
terminated. Upon such payment and termination, this Pledge Agreement shall
be automatically terminated and the Lender shall, upon the request and at
the expense of the Pledgors, (i) promptly return all certificates
representing the Pledged Shares, all other certificates and instruments
constituting Pledged Collateral and all instruments of transfer or
assignment which have been delivered to the Lender pursuant to this Pledge
Agreement and (ii) forthwith release all of its liens and security
interests hereunder and shall execute and deliver all UCC termination
statements and/or other documents reasonably requested by the Pledgors
evidencing such termination. Notwithstanding the foregoing all releases and
indemnities provided hereunder shall survive termination of this Pledge
Agreement.
(b) This Pledge Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in
whole or in part, of any of the Pledgor Obligations is rescinded or must
otherwise be restored or returned by the Lender as a preference, fraudulent
conveyance or otherwise under any bankruptcy, insolvency or similar law,
all as though such payment had not been made; provided that in the event
payment of all or any part of the Pledgor Obligations is rescinded or must
be restored or returned, all reasonable costs and expenses (including
without limitation any reasonable legal fees and disbursements) incurred by
the Lender in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Pledgor Obligations.
14. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except in a writing signed by a duly authorized officer of the
Lender.
15. Successors in Interest. This Pledge Agreement shall create a continuing
security interest in the Collateral and shall be binding upon each Pledgor, its
successors and assigns and shall inure, together with the rights and remedies
of the Lender hereunder, to the benefit of the Lender and its successors and
permitted assigns; provided, however, that none of the Pledgors may assign its
rights or delegate its duties hereunder without the prior written consent of
the Lender. To the fullest extent permitted by law, each Pledgor hereby
releases the Lender, and its successors and assigns, from any liability for any
act or omission relating to this Pledge Agreement or the Collateral, except for
any liability arising from the gross negligence or willful misconduct of the
Lender or its officers, employees or agents.
16. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be in conformance with the terms of the Revolving Credit
Agreement.
17. Counterparts. This Pledge Agreement may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which
<PAGE> 14
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Pledge Agreement to produce or account for more than one
such counterpart.
18. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
19. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action
or proceeding with respect to this Pledge Agreement may be brought in the
courts of the State of North Carolina, or of the United States for the
Western District of North Carolina, and, by execution and delivery of this
Pledge Agreement, each Pledgor hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of
such courts. Each Pledgor further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the Borrower at the address for notices pursuant
to the terms of the Revolving Credit Agreement, such service to become
effective 30 days after such mailing. Nothing herein shall affect the right
of the Lender to serve process in any other manner permitted by law or to
commence legal proceedings or to otherwise proceed against any Pledgor in
any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Pledge
Agreement brought in the courts referred to in subsection (a) hereof and
hereby further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
20. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
21. Severability. If any provision of any of the Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
22. Entirety. This Pledge Agreement, Amendment Agreement, the Security
Agreement, and the Amended Credit Documents represent the entire agreement of
the parties
<PAGE> 15
hereto and thereto, and supersede all prior agreements and understandings, oral
or written, if any, among the parties hereto.
23. Survival. All representations and warranties of the Pledgors hereunder
shall survive the execution and delivery of this Pledge Agreement, the
Amendment Agreement, the Amended Credit Documents and the Security Agreement.
24. Other Security. To the extent that any of the Pledgor Obligations are
now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Lender shall have the right to proceed against such other property,
guarantee or endorsement upon the occurrence of any Event of Default, and the
Lender has the right, in its sole discretion, to determine which rights,
security, liens, security interests or remedies the Lender shall at any time
pursue, relinquish, subordinate, modify or take with respect thereto, without
in any way modifying or affecting any of them or any of the Lender's rights or
the Pledgor Obligations under this Pledge Agreement, or under any other of the
Amended Credit Documents or under the Security Agreement.
25. Joint and Several Obligations of Pledgors.
(a) Each of the Pledgors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided by
the Lender under the Amended Credit Documents, for the mutual benefit,
directly and indirectly, of each of the Pledgors and in consideration of
the undertakings of each of the Pledgors to accept joint and several
liability for the obligations of each of them.
(b) Each of the Pledgors jointly and severally hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Pledgors with respect to the
payment and performance of all of the Pledgor Obligations arising under
this Pledge Agreement, the other Amended Credit Documents and the Security
Agreement, it being the intention of the parties hereto that all the
Pledgor Obligations shall be the joint and several obligations of each of
the Pledgors without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained herein or
in any other of the Credit Documents, to the extent the obligations of a
Guarantor shall be adjudicated to be invalid or unenforceable for any
reason (including, without limitation, because of any applicable state or
federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum
amount that is permissible under applicable law (whether federal or state
and including, without limitation, the Bankruptcy Code).
<PAGE> 16
WHEREFORE, each of the parties hereto has caused a counterpart of this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
BORROWER: APPLIED ANALYTICAL INDUSTRIES, INC.,
a Delaware corporation
/s/ Eugene T. Haley By: /s/ Frederick D. Sancilio
- ---------------------------------- -----------------------------------
Eugene T. Haley Name: Frederick D. Sancilio
- ---------------------------------- ---------------------------------
Executive Vice President Title Chief Executive Officer
- ---------------------------------- ---------------------------------
GUARANTORS:
AAI LEARNING CENTER INC.
AAI TECHNOLOGIES, INC.
AAI PROPERTIES, INC.
KANSAS CITY ANALYTICAL SERVICES, INC.
MEDICAL AND TECHNICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Frederick D. Sancilio
-----------------------------------
Name: Frederick D. Sancilio
---------------------------------
Title Chairman of the Board
---------------------------------
Accepted and agreed to in Wilmington, North Carolina as of the date first
above written.
BANK OF AMERICA, N.A.,
as Lender
By: /s/ David C. Houston
-----------------------------------
Name: David C. Houston
---------------------------------
Title Vice President
---------------------------------
<PAGE> 17
Schedule 2(a)
to
Pledge Agreement
dated as of August _____, 1999
in favor of Bank of America, N.A.
as Lender
PLEDGED STOCK
PLEDGOR: APPLIED ANALYTICAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ ------ ------ ---------
<S> <C> <C> <C>
AAI Learning Center Inc. 100%
AAI Technologies, Inc. 100%
Kansas City Analytical 100%
Services, Inc.
Medical and Technical 100%
Research Associates, Inc.
AAI Properties, Inc. 100%
</TABLE>
<PAGE> 18
Exhibit 4(a)
to
Pledge Agreement
dated as of August __, 1999
in favor of Bank of America, N.A.
as Lender
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of__________________________,
a _________________________ corporation:
No. of Shares Certificate No.
and irrevocably appoints _____________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent and
attorney-in-fact may substitute and appoint one or more persons to act for him.
APPLIED ANALYTICAL INDUSTRIES,
INC.
By:
-----------------------------------
Name:
---------------------------------
Title
---------------------------------
<PAGE> 1
EXHIBIT 10.17
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of August 26, 1999 (as amended and
modified, the "Security Agreement" or this "Agreement"), is made by and among
APPLIED ANALYTICAL INDUSTRIES, INC., a Delaware corporation (the "Company"),
the subsidiaries of the Company that are identified on the signature pages
attached hereto (the "Subsidiaries" and collectively with the Company, the
"Credit Parties"), and BANK OF AMERICA, N.A. (the "Lender").
RECITALS:
A. Pursuant to that certain Loan Agreement, dated December 30,
1996, as amended February 13, 1998 and May 19, 1999 (the "Revolving Credit
Agreement"), the Lender has extended revolving credit loans (the "Revolving
Loans") to the Company in the amount of up to $20,000,000. The Company's
obligations to the Lender arising under the Revolving Credit Agreement,
including without limitation all principal, interest, fees, and other charges
in respect of the Revolving Loans, shall be referred to herein as the
"Revolving Loan Obligations".
B. Pursuant to (i) that certain promissory note dated December
31, 1997 made by the Company in favor of the Lender in the original principal
amount of $2,083,155.00 and having a maturity date of December 31, 2002, and
(ii) that certain promissory note dated March 28, 1996 made by the Company in
favor of the Lender in the original principal amount of $998,000.00 and having
a maturity date of December 31, 2000 (collectively, the "Term Notes" and each a
"Term Note"; the Lender's advances to or for the benefit of the Company as
evidenced by the Term Notes shall be referred to as the "Term Loans"). The
Company's obligations to the Lender arising under the Term Notes, including
without limitation all principal, interest, fees and other charges in respect
of the Term Loans shall be referred to as the "Term Loan Obligations".
C. The Lender has also issued, on the application and request of
the Company as account party, four letters of credit described as follows: (i)
letter of credit no. 919888 in the amount of DM 10,000,000 designating Deutsche
Bank as the beneficiary and having an expiry date of August 31, 1999 (the
"Deutsche Bank Letter of Credit"); (ii) letter of credit no. 919887 in the
amount of DM 2,100,000 designating Bayerishe Vereinsbank as the beneficiary and
having an expiry date of August 31, 1999 (the "Vereinsbank Letter of Credit");
(iii) letter of credit no. 972664 in the amount of U.S. $279,750 designating
North Brunswick II LLC as the beneficiary and having an expiry date of July 31,
2000; and (iv) that letter of credit issued by the Lender in connection with
certain industrial revenue bond financing of the Borrower (collectively, the
"Letters of Credit"). For purposes hereof, "LOC Obligations" shall mean, at any
time, the sum of (i) the maximum amount which is, or at any time thereafter
may become, available to be drawn under the Letters of Credit, as amended from
time to time, plus (ii) the aggregate amount of all drawings under the Letters
of Credit honored by the Lender but not therefore reimbursed by the Company,
and all fees, charges, expenses and related obligations of the Company to the
Lender arising under the applications for the Letters of Credit, any amendments
thereto, or under any documents delivered in connection therewith.
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<PAGE> 2
D. The Lender has also enabled the establishment of a lease
financing facility in favor of the Company pursuant to the terms of (i) that
certain Participation Agreement, dated as of October 2, 1998 (the
"Participation Agreement", among the Company, First Security Bank, N.A., as
Owner Trustee (the "Owner Trustee") under the AAI Realty Trust 1998-1, the
lenders and holders identified therein and from time to time party thereto, and
NationsBank, N.A. (now known as Bank of America, N.A.) as Agent; (ii) that
certain Lease Agreement, dated as of October 2, 1998, between the Owner Trustee
as lessor and the Company as lessee; (iii) that certain Agency Agreement, dated
as of October 2, 1998, between the Company as construction agent and the Owner
Trustee as lessor; and (iv) each of the other Operative Agreements (as defined
in the Participation Agreement), in each case as amended, modified,
supplemented, extended or renewed from time to time. The foregoing documents,
instruments and agreements shall be referred to collectively as the "TROL
Transaction Documents" and the Company's obligations thereunder, in any
capacity, shall be referred to collectively as the "TROL Obligations". The
Revolving Credit Agreement, the Term Notes, the Letters of Credit, and the TROL
Transaction Documents shall be referred to collectively as the "Existing Credit
Documents".
E. The Company has failed to comply with the financial covenants
set forth in Section 6.01(p)(v) of the Revolving Credit Agreement for the
fiscal quarter ending June 30, 1999 (the "Existing Default"). The occurrence of
the Existing Default under the Revolving Credit Agreement causes a
cross-default under the terms of the TROL Transaction Documents and the Term
Notes.
F. The Company has requested that (i) the Lender forbear from
exercising its remedies with respect to the Existing Default, (ii) that the
Lender continue to make available to the Company the credit and related
facilities established by the Existing Credit Documents, and (iii) that the
Lender extend the expiry dates on the Deutsche Bank Letter of Credit and the
Vereinsbank Letter of Credit until November 30, 1999. The Lender has agreed to
do so upon the terms and subject to the conditions set forth in that certain
Amendment and Forbearance Agreement (the "Amendment Agreement") by and between
the Company and the Lender, dated as of even date herewith, including, without
limitation, the Credit Parties' execution and delivery of this Security
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lenders to make their respective loans and extensions of credit thereunder, the
Credit Parties hereby agree with the Lender as follows:
1. Defined Terms.
1.1 Definitions. (a) Unless otherwise defined herein, terms
defined in the Amendment Agreement and used herein shall have the meanings
given to them in the Amendment Agreement and the Amended Credit Documents, and
the following terms which are defined in the Uniform Commercial Code in effect
in the State of North Carolina on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, Farm
2
<PAGE> 3
Products, Fixtures, General Intangibles, Instruments, Inventory, Investment
Property and Proceeds.
(b) The following terms shall have the following meanings:
"Agency Agreement": such term as referenced and defined in
Appendix A of the Participation Agreement.
"Collateral": as defined in Section 2 of this Agreement;
provided, however that Collateral shall not include any property which
is subject to a lien or security interest created pursuant to the TROL
Transaction Documents.
"Collateral Account": any collateral account established by
the Lender as provided in subsection 3.3 hereof or subsection 7.2
hereof.
"Contracts": all other contracts and agreements to which a
Credit Party is a party, as each may be amended, supplemented or
otherwise modified from time to time, including, without limitation,
(i) all rights of a Credit Party to receive moneys due and to become
due to it thereunder or in connection therewith, (ii) all rights of a
Credit Party to damages arising out of or for breach or default in
respect thereof and (iii) all rights of a Credit Party to exercise all
remedies thereunder.
"Copyright Licenses": any written agreement, naming any
Credit Party as licensor, granting any right under any Copyright
including, without limitation, any thereof referred to in Schedule 3
hereto.
"Copyrights": (i) all United States copyrights in all Works,
now existing or hereafter created or acquired, all registrations and
recordings thereof, and all applications in connection therewith,
including, without limitation, registrations, recordings and
applications in the United States Copyright office including, without
limitation, any thereof referred to in Schedule 3 hereto, and (ii) all
renewals thereof including, without limitation, any thereof referred
to in Schedule 3 hereto.
"Guarantors": the Persons which give a guaranty in respect of
any of the Secured Obligations.
"Lease Agreement": such term as referenced and defined in
Appendix A of the Participation Agreement.
"Operative Agreements": such term as referenced and defined
in Appendix A of the Participation Agreement.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to a Credit Party of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule 4 hereto.
3
<PAGE> 4
"Patents": (a) all letters patent of the United States or any
other country and all reissues and extensions thereof, including,
without limitation, any thereof referred to in Schedule 4 hereto, and
(b) all applications for letters patent of the United States or any
other country and all divisions, continuations and
continuations-in-part thereof, including, without limitation, any
thereof referred to in Schedule 4 hereto.
"Secured Obligations": the collective reference to the
following:
(i) the Revolving Loan Obligations, including
without limitation, all unpaid principal of and interest on (including
interest accruing after maturity and after the commencement of
bankruptcy or insolvency proceedings) the Revolving Loans and other
obligations owing under the Revolving Credit Agreement, and all other
indebtedness, liabilities and obligations owing thereunder, whether
now existing or hereafter arising, and whether primary, secondary,
direct, contingent, or joint and several;
(ii) the Term Loan Obligations, including
without limitation, all unpaid principal of and interest on (including
interest accruing after the maturity and after the commencement of
bankruptcy or insolvency proceedings) the Term Loans and other
obligations owing under the Term Notes, or any other documents or
instruments evidencing the Term Loans, whether now existing or
hereafter arising, and whether primary, secondary, direct, contingent,
or joint and several;
(iii) the LOC Obligations;
(iv) the TROL Obligations, including without
limitation, any and all obligations now existing or hereafter arising,
owing by the Company, the Guarantors and/or any of their affiliates
under or pursuant to the TROL Transaction Documents, including
specifically without limitation all obligations and liabilities of the
Company, the Guarantors and their affiliates under or with respect to
the Participation Agreement, the Lease Agreement, the Agency Agreement
and each of the other Operative Agreements;
(v) all indebtedness, liabilities and
obligations of any kind or nature, now existing or hereafter arising,
owing by the Credit Parties to the Lender, arising under this Security
Agreement or any of the other Amended Credit Documents.
"Trademark License": any agreement, written or oral,
providing for the grant by or to a Credit Party of any right to use
any Trademark, including, without limitation, any thereof referred to
in Schedule 5 hereto.
"Trademarks": (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
and the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
4
<PAGE> 5
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Schedule 5 hereto, and (b) all renewals thereof.
"Uniform Commercial Code": the Uniform Commercial Code as
from time to time in effect in the State of North Carolina.
"Work": any work which is subject to copyright protection
pursuant to Title 17 of the United States Code.
1.2 Other Definitional Provisions. (a) The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and section and paragraph references are to this Agreement
unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, each of the
Credit Parties hereby grants to the Lender, a security interest in all of the
following property now owned or at any time hereafter acquired by such Credit
Party or in which such Credit Party now has or at any time in the future may
acquire any right, title or interest (collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Copyrights;
(e) all Copyright Licenses;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles, including Contracts;
(j) all Instruments;
5
<PAGE> 6
(k) all Inventory;
(1) all Investment Property;
(m) all Patents;
(n) all Patent Licenses;
(o) all Trademarks;
(p) all Trademark Licenses;
(q) all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks, and
related data processing software (owned by such
Credit Party or in which it has an interest) that at
any time evidence or contain information relating to
any Collateral or are otherwise necessary or helpful
in the collection thereof or realization thereupon;
and
(r) to the extent not otherwise included, all Proceeds
and products of any and all of the foregoing;
provided that this Agreement shall not constitute an assignment of, or a grant
of a security interest in or lien on, any fixtures, contract, lease or other
agreement to which any Credit Party is a party if such assignment or grant of a
security interest or lien is prohibited by the terms of such contract, lease or
agreement.
This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until all the Secured Obligations
(other than unasserted indemnity claims), now existing or hereafter arising,
have been paid in full, the commitments relating thereto have been terminated
and the Amended Credit Documents shall no longer be in effect.
3. Provisions Relating to Accounts.
3.1 Credit Parties Remain Liable under Accounts. Anything herein
to the contrary notwithstanding, each of the Credit Parties shall remain liable
under each of the Accounts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account. The Lender
shall not have any obligation or liability under any Account (or any agreement
giving rise thereto) by reason of or arising out of this Agreement or the
receipt by the Lender of any payment relating to such Account pursuant hereto,
nor shall the Lender be obligated in any manner to perform any of the
obligations of a Credit Party under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to
6
<PAGE> 7
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
3.2 Analysis of Accounts. The Lender shall have the right, from
time to time or at any time after the occurrence of an Event of Default, to
make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Credit Parties shall furnish
all such assistance and information as the Lender may require in connection
with such test verifications. At any time after the occurrence, and during the
continuance of, an Event of Default, upon the Lender's request and at the
expense of the Credit Parties, the Credit Parties shall cause independent
public accountants or others satisfactory to the Lender to furnish to the
Lender reports showing reconciliations, aging and test verifications of, and
trial balances for, the Accounts. The Lender in its own name or in the name of
others may communicate with account debtors on the Accounts to verify with them
to the Lender's satisfaction the existence, amount and terms of any Accounts.
3.3 Collections on Accounts. (a) The Lender hereby authorizes the
Credit Parties to collect the Accounts, provided that the Lender may curtail or
terminate said authority at any time after the occurrence of an Event of
Default. If required by the Lender at any time after the occurrence of an Event
of Default, any payments of Accounts, when collected by the Credit Parties, (i)
shall be forthwith (and, in any event, within two Business Days) deposited by
the Credit Parties in a Collateral Account maintained under the sole dominion
and control of the Lender, subject to withdrawal by the Lender only as provided
in Section 7.3 hereof, and (ii) until so turned over, shall be held by the
Credit Parties in trust for the Lender, segregated from other funds of the
Credit Parties.
(b) Each such deposit of Proceeds of Accounts shall be
accompanied by a report identifying in reasonable detail the nature and source
of the payments included in the deposit.
(c) At the Lender's request after the occurrence of an Event of
Default, the Credit Parties shall deliver to the Lender copies of documents in
its possession or control (or as to which they have a right or ability to get)
evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts which are necessary for collection of such Accounts by the Lender.
4. Provisions Relating to Contracts.
4.1 Credit Parties Remain Liable under Contracts. Anything herein
to the contrary notwithstanding, each of the Credit Parties shall remain liable
under each of the Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with and pursuant to the terms, and provisions of each Contract. The Lender
shall not have any obligation or liability under any Contract by reason of or
arising out of this Agreement or the receipt by the Lender of any payment
relating to such Contract pursuant hereto, nor shall the Lender be obligated in
any manner to perform any of the obligations of a Credit Party under or
pursuant to any Contract, to make any payment, to make any inquiry as to the
nature or the sufficiency of any payment received by it or as to the
7
<PAGE> 8
sufficiency of any performance by any party under any Contract, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
4.2 Communication with Contracting Parties. The Lender in its own
name or in the name of others, at any time after the occurrence of an Event of
Default or in connection with any audit of a Contract by the Lender or any
other Person designated by the Lender, may communicate with parties to the
Contracts to verify with them to the Lender's satisfaction the existence,
amount and terms of any Contract.
5. Representations and Warranties. Each Credit Party hereby
represents and warrants that:
5.1 Title; No Other Liens. Except for liens permitted
specifically under the terms of the Amended Credit Documents (hereinafter
referred to as "Permitted Liens"), the Credit Party owns each item of the
Collateral free and clear of any and all Liens or claims of others. No security
agreement, financing statement or other public notice with respect to all or
any part of the Collateral is on file or of record in any public office, except
such as have been filed in favor of the Lender, pursuant to this Agreement or
as are permitted pursuant to the TROL Transaction Documents.
5.2 Perfected First Priority Liens. Except as otherwise expressly
provided in this Agreement, the security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions specified on
Schedule 2 attached hereto, and possession of such Collateral with respect to
which perfection is acquired by possession, will constitute perfected security
interests in the Collateral in favor of the Lender, (b) are prior to all other
Liens on the Collateral in existence on the date hereof except for Permitted
Liens and (c) are enforceable as such against (i) all creditors of and
purchasers from the Credit Party (except purchasers of Inventory in the
ordinary course of business) and (ii) any Person having any interest in the
real property where any of the Equipment is located.
5.3 Inventory and Equipment. The Inventory and the Equipment of
the Credit Party are kept at the locations listed on Schedule 1 hereto.
5.4 Chief Executive Office. Each Credit Party's chief executive
office and chief place of business, and the place where it keeps its books and
records, is located at the address shown on Schedule I hereto.
5.5 Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
5.6 Representations and Warranties Relating to Contracts. (a) No
consent of any party (other than the Credit Party) to any Contract is required,
or purports to be required, in connection with the execution, delivery and
performance of this Agreement.
8
<PAGE> 9
(b) Each Contract is in full force and effect and constitutes a
valid and legally enforceable obligation of the parties thereto, except as
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
(c) No consent or authorization of, filing with or other act by
or in respect of any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of any of the
Contracts by any party thereto other than those which have been duly obtained,
made or performed, are in full force and effect and do not subject the scope of
any such Contract to any material adverse limitation, either specific or
general in nature.
(d) Neither the Credit Party nor (to the best of the Credit
Party's knowledge) any other party to any Contract is in default or is likely
to become in default in any material respects in the performance or observance
of any of the terms thereof.
(e) The Credit Party has fully performed in all material respects
all its obligations under each Contract.
(f) The right, title and interest of the Credit Party in, to and
under each Contract are not subject to any defense, offset, counterclaim or
claim which would materially adversely affect the value of such Contract as
Collateral, nor have any of the foregoing been asserted or alleged against the
Credit Party as to any Contract which would materially adversely affect the
value of such Contract.
(g) No amount payable to any Credit Party under or in connection
with any Contract is evidenced by any Instrument or Chattel Paper which has not
been delivered to the Lender.
(h) Except as set forth on Schedule 6 hereto, none of the parties
to any Contracts is a Governmental Authority.
5.7 Copyrights, Patents and Trademarks. (a) Schedule 3 hereto
includes all Copyrights and Copyright Licenses owned by each Credit Party in
its own name as of the date hereof. Schedule 4 hereto includes all Patents and
Patent Licenses owned by each Credit Party in its own name as of the date
hereof. Schedule 5 hereto includes all Trademarks and Trademark Licenses owned
by each Credit Party in its own name as of the date hereof.
(b) To the best of each Credit Party's knowledge, each Copyright
registration, issued Patent and Trademark registration of the Credit Party is
valid, subsisting, unexpired, enforceable and has not been abandoned.
(c) Except as set forth in either Schedule 4 hereto or Schedule 5
hereto, no Copyright registration, issued Patent and Trademark registration of
any Credit Party is the subject of any licensing or franchise agreement.
9
<PAGE> 10
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of
any Copyright registration, issued Patent or Trademark registration of any
Credit Party.
(e) No action or proceeding is pending seeking to limit, cancel
or question the validity of any Copyright registration, issued Patent or
Trademark registration of any Credit Party, or which, if adversely determined,
would have a material adverse effect on the value of any Copyright
registration, issued Patent or Trademark registration.
6. Covenants. Each Credit Party covenants and agrees with the
Lender that, from and after the date of this Agreement until the Secured
Obligations (other than unasserted indemnity claims) have been satisfied in
full and the Commitments have been terminated:
6.1 Delivery of Instruments and Chattel Paper. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper
shall be immediately delivered to the Lender, duly indorsed in a manner
satisfactory to the Lender, to be held as Collateral pursuant to this
Agreement.
6.2 Marking of Records. Each Credit Party will mark its books and
records pertaining to the Collateral to evidence this Agreement and the
security interests created hereby.
6.3 Maintenance of Perfected Security Interest; Further
Documentation. (a) Each Credit Party shall maintain the security interest
created by this Agreement as a perfected security interest subject only to
Permitted Liens and shall defend such security interest against claims and
demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request
of the Lender, and at the sole expense of the Credit Parties, the Credit Party
will promptly and duly execute and deliver such further instruments and
documents and take such further action (including without limitation all
actions required under the Federal Assignment of Claims Act or any similar
state statute) as the Lender may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests created
hereby.
6.4 Changes in Locations, Name, etc. No Credit Party will:
(a) permit any of the Inventory or Equipment to be kept
at a location other than those listed on Schedule 1 hereto, unless it
shall have given the Lender at least 30 days' prior written notice of
such change and any filings required under the Uniform Commercial Code
in effect in the affected jurisdiction to maintain the perfected
security interest granted pursuant to this Agreement shall have been
made, except that Equipment may be moved from such location for a
reasonable period of time for purposes of repair of such Equipment or
for testing in the ordinary cause of business;
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(b) change the location of its chief executive office
and chief place of business or the location at which it maintains its
books and records from that specified on Schedule 1 hereto, unless it
shall have given the Lender at least 30 days' prior written notice of
such change and any filings required under the Uniform Commercial Code
in effect in the affected jurisdiction to maintain the perfected
security interest granted pursuant to this Agreement shall have been
made; or
(c) change its name, identity or corporate structure to
such an extent that any financing statement filed by the Lender in
connection with this Agreement would become seriously misleading,
unless it shall have given the Lender at least 30 days' prior written
notice of such change and any filings required under the Uniform
Commercial Code in effect in the affected jurisdiction to maintain the
perfected security interest granted pursuant to this Agreement shall
have been made.
6.5 Further Identification of Collateral. Each Credit Party will
furnish to the Lender from time to time upon request, but prior to the
occurrence and during the continuance of an Event of Default, not more than
once in any calendar year, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
6.6 Indemnification. The Credit Parties agree to pay, and to save
the Lender harmless from, any and all liabilities, costs and expenses
(including, without limitation, reasonable legal fees and expenses) (i) with
respect to, or resulting from any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to
any of the Collateral, (ii) with respect to, or resulting from, any delay in
complying with any requirement of law applicable to any of the Collateral and
(iii) in connection with any of the transactions contemplated by this
Agreement, except for any such liabilities which result from the gross
negligence or willful misconduct of the Lender. In any suit, proceeding or
action brought by the Lender under any Account for any sum owing thereunder,
the Credit Parties will save, indemnify and keep the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor thereunder, arising out of a breach by any Credit Party of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or its
successors from any Credit Parties.
6.7 Covenants Relating to Accounts Upon Default. At any time
after the occurrence of an Event of Default:
(a) the amount represented by each Credit Party to the
Lender from time to time as owing by each account debtor or by all
account debtors in respect of the Accounts will at such time be the
correct amount and believed by such Credit Party to be actually owing
by such account debtor or debtors thereunder;
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(b) each Credit Party will not amend, modify, terminate
or waive any agreement giving rise to an Account in any manner which
would reasonably be expected to materially adversely affect the value
of the Accounts as Collateral;
(c) each Credit Party will not fail to exercise promptly
and diligently each and every material right which it may have under
each agreement giving rise to an Account (other than any right of
termination);
(d) each Credit Party will not fail to deliver to the
Lender a copy of each material demand, notice or document received by
it relating in any way to any agreement giving rise to an Account; and
(e) other than in the ordinary course of business as
generally conducted by each Credit Party, each Credit Party will not
grant any extension of the time of payment of any of the Accounts,
compromise, compound or settle the same for less than the full amount
thereof, release, wholly or partially, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon.
6.8 Covenants Relating to Contracts. (a) Each Credit Party will
perform and comply in all material respects with all its obligations under the
Contracts and all its other Contractual Obligations relating to the Collateral.
(b) Each Credit Party will promptly provide upon request to the
Lender copies of particular Contracts and each material demand, notice or
document relating thereto.
(c) In any suit, proceeding or action brought by the Lender under
any Contract for any sum owing thereunder, or to enforce any provisions of any
Contract, each Credit Party will save, indemnify and keep the Lender harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
Credit Party thereunder, arising out of a breach by the Credit Party of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such obligor or its successors
from the Credit Party except for any such expense, loss or damage which results
from the gross negligence of the willful misconduct of the Lender.
6.9 Covenants Relating to Copyrights. (a) Each Credit Party will
employ the Copyright for each Work with such notice of copyright as may be
required by law to secure copyright protection.
(b) Each Credit Party will not do any act or knowingly omit to do
any act whereby any material Copyright may become invalidated and (i) will not
do any act, or omit to do any act, whereby any material Copyright may become
injected into the public domain; (ii) shall notify the Lender immediately if it
knows, or has reason to know, that any material Copyright may become injected
into the public domain or of any adverse determination or development
(including, without limitation, the institution of, or any such determination
or development in, any court or
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tribunal in the United States or any other country) regarding the Credit
Party's ownership of any such Copyright or its validity; (iii) will take all
necessary steps as it shall deem appropriate under the circumstances, to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain each registration of each material Copyright owned by the
Credit Party including, without limitation, filing of applications for renewal
where necessary; and (iv) will promptly notify the Lender of any material
infringement of any material Copyright of the Credit Party of which it becomes
aware and will take such actions as it shall reasonably deem appropriate under
the circumstances to protect such Copyright, including, where appropriate, the
bringing of suit for infringement, seeking injunctive relief and seeking to
recover any and all damages for such infringement.
6.10 Covenants Relating to Patents and Trademarks. (a) Each Credit
Party (either itself or through licensees) will, except with respect to any
Trademark that the Credit Party shall reasonably determine is of negligible
economic value to it, (i) continue to use each Trademark on each and every
trademark class of goods applicable to its current line as reflected in its
current catalogs, brochures and price lists in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (ii) maintain as
in the past the quality of products and services offered under such Trademark,
(iii) employ such Trademark with the appropriate notice of registration, (iv)
not adopt or use any mark which is confusingly similar or a colorable imitation
of such Trademark unless the Lender, shall obtain a perfected security interest
in such mark pursuant to this Agreement, and (v) not (and not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any Trademark may become invalidated.
(b) Each Credit Party will not, except with respect to any Patent
that the Credit Party shall reasonably determine is of negligible economic
value to it, do any act, or omit to do any act, whereby any Patent may become
abandoned or dedicated.
(c) The Credit Party will notify the Lender immediately if it
knows, or has reason to know, that any application or registration relating to
any Patent or Trademark may become abandoned or dedicated, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office or any court or tribunal in any country)
regarding the Credit Party's ownership of any Patent or Trademark or its right
to register the same or to keep and maintain the same.
(d) Whenever the Credit Party, either by itself or through the
Lender, employee, licensee or designee, shall file an application for the
registration of any Patent or Trademark with the United States Patent and
Trademark Office or any similar office or agency in any other country or any
political subdivision thereof, the Credit Party shall report such filing to the
Lender within five Business Days after the last day of the fiscal quarter in
which such filing occurs. Upon request of the Lender, the Credit Party shall
execute and deliver any and all agreements, instruments, documents and papers
as the Lender may request to evidence the Lender's security interest in any
Patent or Trademark and the goodwill and general intangibles of the Credit
Party relating thereto or represented thereby.
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(e) Each Credit Party will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark Office, or any similar office or agency in any
other country or any political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of the Patents and Trademarks, including, without limitation,
filing of applications for renewal, affidavits of use and affidavits of
incontestability.
(f) In the event that any Patent or Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party, the
Credit Party shall promptly notify the Lender after it learns thereof and
shall, unless the Credit Party shall reasonably determine that such Patent or
Trademark is of negligible economic value to the Credit Party which
determination the Credit Party shall promptly report to the Lender, promptly
sue for infringement, misappropriation or dilution, to seek injunctive relief
where appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as the Credit Party
shall reasonably deem appropriate under the circumstances to protect such
Patent or Trademark.
6.11 Covenants Relating to Inventory and Equipment
(a) Each Credit Party will, upon ten (10) days' written notice
from the Lender, provide a physical history of Inventory and/or Equipment on a
quarterly basis or, after the occurrence of an Event of Default, more
frequently.
(b) The Credit Party shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory in such amounts, against
such risks, in such form and with such insurers, as shall be reasonably
satisfactory to the Lender from time to time. Each policy for liability
insurance shall provide for all losses to be paid on behalf of the Lender and
the Credit Party as their interests may appear, and each policy for property
damage insurance shall provide for all losses (except for losses of less than
$100,000 per occurrence) to be paid directly to the Lender. Each such policy
shall in addition (i) name the Credit Party and the Lender as insured parties
thereunder (without any representation or warranty by or obligation upon the
Lender) as their interests may appear, (ii) contain the agreement by the
insurer that any loss thereunder shall be payable to the Lender notwithstanding
any action, inaction or breach of representation or warranty by the Credit
Party, (iii) provide that there shall be no recourse against the Lender for
payment of premiums or other amounts with respect thereto and (iv) provide that
at least thirty (30) days' prior written notice of cancellation or lapse shall
be given to the Lender by the insurer. The Credit Party shall, if so requested
by the Lender, deliver to the Lender original or duplicate policies of such
insurance and, as often as the Lender may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Credit
Party shall, at the request of the Lender, duly exercise and deliver
instruments of assignment of such insurance policies to comply with the
requirements of Section 6.3 hereof and cause the insurers to acknowledge notice
of such assignment.
(c) In the case of any loss involving damage to Equipment or
Inventory of the Credit Party, the Credit Party shall make or cause to be made
the necessary repairs to or replacements of
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such Equipment or Inventory, and any proceeds of insurance properly received by
or released to the Credit Party shall be used by the Credit Party, except as
otherwise required or permitted hereunder or by the Credit Agreement, to pay or
as reimbursement for the costs of such repairs or replacements.
(d) So long as no Event of Default shall have occurred, all
insurance payments received by the Lender in connection with any loss, damage
or destruction of any Inventory or Equipment shall be released by the Lender to
the Credit Party for the repair, replacement or restoration thereof. To the
extent that (i) the amount of any such insurance payments exceeds the cost of
any such repair, replacement or restoration, or (ii) such insurance payments
are not otherwise required by the Credit Party to complete any such repair,
replacement or restoration required hereunder, the Lender shall not be required
to release the amount thereof to the Credit Party and may hold or continue to
hold such amount in a Collateral Account as additional security for the Secured
Obligations (except that any such amount shall be released by the Lender to the
Credit Party if no Event of Default has occurred). If an Event of Default has
occurred, the Lender may elect, in its sole and absolute discretion, to release
any such insurance payments for the purposes set forth in the first sentence of
this Section 6.11(d), or to hold such insurance payments as additional
Collateral hereunder or apply the same in reduction of the Secured Obligations
in such order or manner as the Lender may determine in its sole and absolute
discretion.
7. Remedies.
7.1 Notice to Account Debtors and Contract Parties. Upon the
request of the Lender at any time after the occurrence of an Event of Default,
the Credit Parties shall notify account debtors on the Accounts and parties to
the Contracts that the Accounts and the Contracts have been assigned to the
Lender and that payments in respect thereof shall be made directly to the
Lender.
7.2 Proceeds to be Turned Over To Lender. In addition to the
rights of the Lender specified in Section 3.3 hereof with respect to payments
of Accounts, after the occurrence of an Event of Default all Proceeds received
by the Credit Parties consisting of cash, checks and other near-cash items
shall be held by the Credit Parties in trust for the Lender, segregated from
other funds of the Credit Parties, and shall, forthwith upon receipt by the
Credit Parties, be turned over to the Lender in the exact form received by the
Credit Parties (duly indorsed by the Credit Parties to the Lender in a manner
satisfactory to the Lender, if required by the Lender) and held by the Lender
in a Collateral Account maintained under the sole dominion and control of the
Lender. All Proceeds while held by the Lender in a Collateral Account (or by
the Credit Parties in trust for the Lender) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in subsection 7.3 hereof.
7.3 Application of Proceeds. At such intervals as may be agreed
upon by the Credit Parties and the Lender or at any time after an Event of
Default shall have occurred, at the Lender's election, the Lender may apply all
or any part of Proceeds held in any Collateral Account in ratable payment of
the Secured Obligations, and any part of such funds which the
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Lender elects not so to apply and deems not required as collateral security for
the Secured Obligations shall be paid over from time to time by the Lender to
the Credit Parties or to whomsoever may be lawfully entitled to receive the
same. Any balance of such Proceeds remaining after the Secured Obligations shall
have been satisfied in full and the Commitments shall have been terminated shall
be paid over to the Credit Parties or to whomsoever may be lawfully entitled to
receive the same.
7.4 Code Remedies. At any time after an Event of Default shall
have occurred, the Lender, may exercise, in addition to all other rights and
remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the Uniform Commercial Code. Without limiting
the generality of the foregoing, the Lender, without demand of performance or
other demand, presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon the Credit Parties or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in a Credit Party, which right or equity is hereby
waived and released. The Credit Parties further agree, at the Lender's request,
to assemble the Collateral and make it available to the Lender at places which
the Lender shall reasonably select, whether at the respective Credit Party's
premises or elsewhere. The Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, in the order and manner
determined by the Lender in its sole and absolute discretion, and only after
such application and after the payment by the Lender of any other amount
required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Uniform Commercial Code, need the Lender account for the
surplus, if any, to each of the Credit Parties. To the extent permitted by
applicable law, each Credit Party waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise of any rights hereunder.
If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if received
by the Credit Parties at least 20 days before such sale or other disposition.
7.5 Deficiency. The Credit Parties shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Secured
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Obligations and the fees and disbursements of any attorneys employed by the
Lender to collect such deficiency.
8. Lender's Appointment as Attorney-in-Fact; Lender's
Performance of Credit Parties' Obligations.
8.1 Powers. Each Credit Party hereby irrevocably constitutes and
appoints the Lender and any officer of the Lender, with full power of
substitution, as its true and lawful attorney-in-fact with fully irrevocable
power and authority in the place and stead of such Credit Party and in the name
of such Credit Party or in the name of the Lender, from time to time in the
Lender's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to secure the
Secured Obligations and grant security interests in the Collateral as
contemplated by this Agreement, and, without limiting the generality of the
foregoing, each Credit Party hereby gives the Lender the power and right, on
behalf of such Credit Party, without notice to or assent by such Credit Party,
to do the following:
(a) in the case of any Account, at any time when the
authority of such Credit Party to collect the Accounts has been
curtailed or terminated pursuant to Section 3.3(a) hereof, or in the
case of any other Collateral, at any time after an Event of Default has
occurred, in the name of such Credit Party or in the name of the
Lender, or otherwise, to take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment
of moneys due under any Account, Instrument or General Intangible or
with respect to any other Collateral and to file any claim or to take
any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any Account, Instrument or
General Intangible or with respect to any other Collateral whenever
payable;
(b) in the case of any Copyrights, Patents or
Trademarks, at any time after an Event of Default has occurred, to
execute and deliver any and all agreements, instruments, documents,
and papers as the Lender may request to evidence the Lender's security
interest in any Copyright, Patent or Trademark and the goodwill and
general intangibles of such Credit Party relating thereto or
represented thereby;
(c) at any time after an Event of Default has occurred,
to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral, to effect, any repairs or any insurance called
for by the terms all or any part of the premiums therefor and the
costs thereof;
(d) to execute, in connection with the sale provided for
in Section 7.4 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral;
and
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(e) at any time after an Event of Default has occurred,
(i) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender shall direct; (ii) to ask or demand
for, collect, receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect
of or arising out of any Collateral; (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of
the Collateral; (iv) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any thereof and to enforce any other
right in respect of any Collateral; (v) to defend any suit, action or
proceeding brought against the Credit Party with respect to any
Collateral; (vi) to settle, compromise or adjust any such suit, action
or proceeding and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate; (vii) to assign or grant
licenses, any Copyright, Patent or Trademark (along with the goodwill
of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Lender shall in its sole
discretion determine; and (viii) generally, to sell, transfer, pledge
and make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though the Lender were the
absolute owner thereof for all purposes, and to do, at the Lender's
option and such Credit Party's expense, at any time, or from time to
time, all reasonable acts and things which the Lender deems necessary
to protect, preserve or realize upon the Collateral and the Lender's
security interests therein and to effect the intent of this Agreement,
all as fully and effectively as such Credit Party might do.
The Lender agrees that, except after the occurrence of an Event of Default, it
will forbear from exercising the power of attorney or any rights granted to the
Lender pursuant to this Section 8.1.
8.2 Performance by Lender of Credit Parties' Obligations. If the
Credit Parties fail to perform or comply with any of their agreements contained
herein, the Lender, at its option, but without any obligation to do so, may
perform or comply, or otherwise cause performance or compliance, with such
agreement.
8.3 Credit Parties' Reimbursement Obligation. The expenses of the
Lender incurred in connection with actions undertaken as provided in this
Section 8, together with interest thereon at the post-default rate per annum
set forth in the Revolving Credit Agreement from the date of payment by the
Lender to the date reimbursed by the Credit Parties, shall be payable by the
Credit Parties to the Lender on demand.
8.4 Ratification; Power Coupled With An Interest. The Credit
Parties hereby ratify all that said attorneys shall lawfully do or cause to be
done by virtue hereof. All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until the Secured
Obligations have been satisfied in full and the Commitments have been
terminated.
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9. Duty of Lender. The Lender's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the Uniform Commercial Code or otherwise,
shall be to deal with it in the same manner as the Lender deals with similar
property for its own account, except that the Lender shall have no obligation
to invest funds held in any Collateral Account and may hold the same as demand
deposits. Neither the Lender, nor any of its directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of any Credit
Party or any other Person or to take any other action whatsoever with regard to
the Collateral or any part thereof. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon the Lender to exercise any such powers. The
Lender shall be accountable only for amounts that they actually receive as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Credit Parties for
any act or failure to act hereunder, except for their own gross negligence or
willful misconduct.
10. Execution of Financing Statements. Pursuant to Section 9-402
of the Uniform Commercial Code, each Credit Party authorizes the Lender to file
financing statements with respect to the Collateral without the signature of
such Credit Party in such form and in such filing offices as the Lender
reasonably determines appropriate to perfect the security interests of the
Lender under this Agreement. A carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
11. Notices. All notices shall be given or made in accordance
with the terms of the Revolving Credit Agreement.
12. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Amendments in Writing; No Waiver; Cumulative Remedies.
13.1 Amendments in Writing. None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified
except by a written instrument executed by the Lender and the Credit Parties
directly affected thereby; provided that any provision of this Agreement may be
waived by the Lender in a letter or agreement executed by the Lender or by
facsimile transmission from the Lender.
13.2 No Waiver by Course of Conduct. The Lender shall not by any
act (except by a written instrument pursuant to Section 13.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Lender, any right, power or
privilege
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hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion.
13.3 Remedies Cumulative. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive
of any other rights or remedies provided by law.
14. Section Headings. The section and subsection headings used in
this Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
15. Successors and Assigns. This Agreement shall be binding upon
the successors and assigns of the Credit Parties and shall inure to the benefit
of the Lender and its successors and assigns, provided that the Credit Parties
may not assign any of their rights or obligations under this Agreement without
the prior written consent of the Lender and any such purported assignment
without such prior written consent shall be null and void.
16. Term of Agreement. This Agreement and the security interests
granted hereunder shall remain in full force and effect until the Secured
Obligations have been satisfied in full and the Commitments have been
terminated, at which time the Lender shall release and terminate the security
interests granted to it hereunder. Upon such release and termination, (i) the
Credit Parties shall be entitled to the return, at the Credit Parties' expense,
of any and all funds in the Collateral Account and such of the Collateral held
by the Lender as shall not have been sold or otherwise applied pursuant to the
terms hereof and (ii) the Lender will, at the Credit Parties' expense, execute
and deliver to the Credit Parties such UCC termination statements and other
documents as the Credit Parties shall reasonably request to evidence such
release and termination.
17. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA.
[Remainder of Page Intentionally Left Blank]
20
<PAGE> 21
IN WITNESS WHEREOF, the undersigned have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
CREDIT PARTIES: APPLIED ANALYTICAL INDUSTRIES, INC.
AAI LEARNING CENTER INC.
AAI TECHNOLOGIES, INC.
AAI PROPERTIES, INC.
KANSAS CITY ANALYTICAL SERVICES, INC.
MEDICAL AND TECHNICAL RESEARCH
ASSOCIATES, INC.
/s/ Eugene T. Haley
---------------------------------
Eugene T. Haley
Executive Vice President,
Applied Analytical Industries, Inc.
Attest:
By: /s/ Albert N. Cavagnaro By: /s/ Frederick D. Sancilio
--------------------------------- ---------------------------------
Name: Albert N. Cavagnaro Name: Frederick D. Sancilio
Title: Assistant Secretary Title: Chairman of the Board
LENDER: BANK OF AMERICA, N.A.
By: /s/ David C. Houston
---------------------------------
Name: David C. Houston
Title: Vice President
<PAGE> 22
Schedule 1
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Credit Party Chief Executive Office Locations of Collateral Record Owner (if
other than Credit Party)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Applied Analytical 1206 N. 23rd St. 1206 N. 23rd St.
Industries, Inc. Wilmington, NC 28405 Wilmington, NC 28405
- -------------------------------------------------------------------------------------------------------------------------
AAI Learning Center Inc. 1206 N. 23rd St. 1206 N. 23rd St.
Wilmington, NC 28405 Wilmington, NC 28405
- -------------------------------------------------------------------------------------------------------------------------
AAI Technologies, Inc. 300 Delaware Avenue, 300 Delaware Avenue,
Suite 1704 Suite 1704
Wilmington, Delaware Wilmington, Delaware
19801-1612 19801-1612
- -------------------------------------------------------------------------------------------------------------------------
AAI Properties, Inc. 300 Delaware Avenue, 300 Delaware Avenue,
Suite 1704 Suite 1704
Wilmington, Delaware Wilmington, Delaware
19801-1612 19801-1612
- -------------------------------------------------------------------------------------------------------------------------
Applied Analytical Viale Sarca, 223 Viale Sarca, 223
Industries Italy, S.r.l. 20126 Milano, Italy 20126 Milano, Italy
- -------------------------------------------------------------------------------------------------------------------------
AAI UK Ltd.
- -------------------------------------------------------------------------------------------------------------------------
AAI Japan, Inc. 11th Floor Suzuwa 11th Floor Suzuwa
Building Building
4-7-10, Nihonbashi 4-7-10, Nihonbashi
Honcho, Chuo-ku Honcho, Chuo-ku
Tokyo 103-0023 Japan Tokyo 103-0023 Japan
- -------------------------------------------------------------------------------------------------------------------------
Kansas City Analytical 12700 Johnson Drive 12700 Johnson Drive
Services, Inc. Shawnee, Kansas 66216 Shawnee, Kansas 66216
- -------------------------------------------------------------------------------------------------------------------------
Medical and Technical Two Vision Drive Two Vision Drive
Research Associates, Inc. Natick, Massachusetts Natick, Massachusetts
01760 01760
- -------------------------------------------------------------------------------------------------------------------------
AAI Vermogensver- Wegenerstr, 13 Wegenerstr, 13
waltungsgesellschaft mgH D-89231 Neu-Ulm, D-89231 Neu-Ulm,
Germany Germany
- -------------------------------------------------------------------------------------------------------------------------
L.A.B. Verwaltungs- Wegenerstr, 13 Wegenerstr, 13
gesellschaft mbH D-89231 Neu-Ulm, D-89231 Neu-Ulm,
Germany Germany
- -------------------------------------------------------------------------------------------------------------------------
Applied Analytical Wegenerstr, 13 Wegenerstr, 13
Industries Deutschland D-89231 Neu-Ulm, D-89231 Neu-Ulm,
GmbH Germany Germany
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Credit Party Chief Executive Office Locations of Collateral Record Owner (if
other than Credit Party)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AAI Applied Analytical Wegenerstr, 13 Wegenerstr, 13
Industries Deutschland D-89231 Neu-Ulm, D-89231 Neu-Ulm,
GmbH & Co, KG Germany Germany
- -------------------------------------------------------------------------------------------------------------------------
L.A.B. Benelux B.V. Eusebiusplein 42 Eusebiusplein 42
NL-6811 HG Arnheim, NL-6811 HG Arnheim,
Netherlands Netherlands
- -------------------------------------------------------------------------------------------------------------------------
Applied Analytical 40 Rue Charles Duflos 40 Rue Charles Duflos
Industries France S.A.R.L. F-92270 Bois Colombes, F-92270 Bois Colombes,
France France
- -------------------------------------------------------------------------------------------------------------------------
Neosan Arzneimittel- Wegenerstr, 13 Wegenerstr, 13
Vertriebsgesellschaft mbH D-89231 Neu-Ulm, D-89231 Neu-Ulm,
Germany Germany
- -------------------------------------------------------------------------------------------------------------------------
I.P.A.-Internationale Wegenerstr, 13 Wegenerstr, 13
Pharma Agentur GmbH D-89231 Neu-Ulm, D-89231 Neu-Ulm,
Germany Germany
- -------------------------------------------------------------------------------------------------------------------------
Inpharmco, Gesellschaft Munich, Germany Munich, Germany
zur Vermarktung von
Arzneimitteln mbH
- -------------------------------------------------------------------------------------------------------------------------
LAB (Great Brittan)
Limited
- -------------------------------------------------------------------------------------------------------------------------
Proscientia Holding AG Zurich, Switzerland Zurich, Switzerland
- -------------------------------------------------------------------------------------------------------------------------
Technopharm S.A. Zurich, Switzerland Zurich, Switzerland
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
Schedule 2
Filings and Actions required to Perfect Security Interests
The filing of UCC Financing Statements in the locations listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Debtor Filing Jurisdiction
- --------------------------------------------------------------------------------------------------
<S> <C>
Applied Analytical Industries, Inc. North Carolina Secretary of State
New Hanover County, North Carolina
Durham County, North Carolina
Delaware Secretary of State
Kansas Secretary of State
New Jersey Secretary of State
California Secretary of State
Massachusetts Secretary of the Commonwealth
Natick, Massachusetts Town Clerk
- --------------------------------------------------------------------------------------------------
AAI Learning Center Inc. North Carolina Secretary of State
New Hanover County, North Carolina
Durham County, North Carolina
Delaware Secretary of State
Kansas Secretary of State
New Jersey Secretary of State
California Secretary of State
- --------------------------------------------------------------------------------------------------
AAI Technologies, Inc. North Carolina Secretary of State
New Hanover County, North Carolina
Durham County, North Carolina
Delaware Secretary of State
Kansas Secretary of State
New Jersey Secretary of State
California Secretary of State
- --------------------------------------------------------------------------------------------------
AAI Properties, Inc. North Carolina Secretary of State
New Hanover County, North Carolina
Durham County, North Carolina
Delaware Secretary of State
Kansas Secretary of State
New Jersey Secretary of State
California Secretary of State
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Debtor Filing Jurisdiction
- --------------------------------------------------------------------------------------------------
<S> <C>
Kansas City Analytical Services, Inc. North Carolina Secretary of State
New Hanover County, North Carolina
Durham County, North Carolina
Delaware Secretary of State
Kansas Secretary of State
New Jersey Secretary of State
California Secretary of State
- --------------------------------------------------------------------------------------------------
Medical and Technical Research Associates, North Carolina Secretary of State
Inc. New Hanover County, North Carolina
Durham County, North Carolina
Delaware Secretary of State
Kansas Secretary of State
New Jersey Secretary of State
California Secretary of State
Massachusetts Secretary of the Commonwealth
Natick, Massachusetts Town Clerk
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
Schedule 3
Copyrights and Copyright Licenses
None.
<PAGE> 27
Schedule 4
Patents and Patent Licenses
TITLE: LIQUID ORAL PHARMACEUTICAL COMPOSITIONS OF NON-
STEROIDAL ANTI-INFLAMMATORY DRUGS (AAI 2)
PRIORITY FILING: United States
PRIORITY DATE: July 25, 1988
PATENT DATE: April 17, 1990
PATENT NUMBER: 4,918,103
BREADTH OF FILING: U.S. Only
ABSTRACT: A pharmaceutically elegant, one phase, liquid
composition for oral administration comprises a
NSAID such as ibuprofen plus a di- or triglyceride
of a medium chain fatty acid edible oil which has
the characteristics of a pharmaceutical solvent
carrier as known to those skilled in the art. Other
pharmaceutical additives may be optionally added. An
additional stipulation is that ethanol or other
monohydric alcohol solvents should not be present.
PRODUCTS: NSAIDs which have a reactive carboxylic acid moiety
in their chemical structures, providing esters of
NSAIDs.
Forms oral solutions, primarily of ibuprofen.
<PAGE> 28
TITLE: ORAL LIQUID PHARMACEUTICAL COMPOSITIONS OF
SULINDAC (AAI 4)
PRIORITY FILING: United States
PRIORITY DATE: November 3, 1988
PATENT DATE: November 15, 1989
PATENT NUMBER: 4,880,835
BREADTH OF FILING: United States Only
ABSTRACT: Pharmaceutically elegant oral liquid compositions
of sulindac are prepared using calcium sulindac in a
vehicle comprising a glycol, a polyol, optional
ethanol and pharmaceutical additives.
PRODUCT: Calcium sulindac
<PAGE> 29
TITLE: LIQUID ORAL PHARMACEUTICAL COMPOSITIONS OF NON-
STEROIDAL ANTI-INFLAMMATORY DRUGS (AAI 2-9)
PRIORITY FILING: United States
PRIORITY DATE: March 6, 1990
PATENT DATE: April 30, 1991
PATENT NUMBER: 5,011,852
BREADTH OF FILING: U.S. Only
ABSTRACT: A one phase, liquid composition for oral
administration comprises a NSAID such as an
indoleacetic acid derivative or a pyrroleacetic acid
derivative plus a di- or triglyceride of a medium
chain fatty acid edible oil which has the
characteristics of a pharmaceutical solvent carrier
as known to those skilled in the art. Other
pharmaceutical additives may be optionally added. An
additional stipulation is that ethanol or other
monohydric alcohol solvents should not be present.
PRODUCTS: NSAIDs which have a reactive carboxylic acid moiety
in their chemical structures.
Forms oral solutions, primarily of ibuprofen.
<PAGE> 30
TITLE: LIQUID ORAL PHARMACEUTICAL COMPOSITIONS OF NON-
STEROIDAL ANTI-INFLAMMATORY DRUGS (AAI 2-9-10)
PRIORITY FILING: United States
PRIORITY DATE: January 30, 1991
PATENT DATE: October 22, 1992
PATENT NUMBER: 5,059,626
BREADTH OF FILING: U.S. Only
ABSTRACT: A one phase, liquid composition for oral
administration comprises a NSAID such as an
anthranilic acid derivative plus a di- or
triglyceride of a medium chain fatty acid edible oil
which has the characteristics of a pharmaceutical
solvent carrier as known to those skilled in the
art. Other pharmaceutical additives may be
optionally added. An additional stipulation is that
ethanol or other monohydric alcohol solvents should
not be present.
PRODUCTS: NSAIDs which have a reactive carboxylic acid moiety
in their chemical structures, providing esters of
NSAIDs.
Forms non-aqueous oral solution, primarily of
ibuprofen.
<PAGE> 31
TITLE: LIQUID ORAL PHARMACEUTICAL COMPOSITIONS OF NON-
STEROIDAL ANTI-INFLAMMATORY DRUGS (AAI 11)
PRIORITY FILING: United States
PRIORITY DATE: September 27, 1991
PATENT DATE: February 2, 1993
PATENT NUMBER: 5,183,829
BREADTH OF FILING: U.S. Only
ABSTRACT: Pharmaceutically elegant oral compositions of
non-steroidal anti-inflammatory drugs or their salts
are prepared by adding selected dispersing agents
such as a polyvinylpyrrolidone, hydroxypropyl-
methylcellulose or hydroxypropylcellulose to the
NSAIDs in a medium of polyol-glycol-alcohol. The
compositions offer the formation of finely dispersed
active ingredients upon dispersion in gastric juice.
Note: This patent is the basis Of AAI's PROSORB
TECHNOLOGY.
PRODUCTS: NSAIDs which have a reactive carboxylic acid moiety
in their chemical structure.
Forms oral solutions, primarily of diclofenac,
fenoprofen, flurbiprofen, ibuprofen indomethacin,
ketoprofen, naproxen, etodolac and sulindac.
<PAGE> 32
TITLE: ORAL COMPOSITIONS OF PROTEINACEOUS MEDICAMENTS
(AAI-12)
PRIORITY FILING: United States
PRIORITY DATE: November 25, 1991
PATENT DATE: April 27, 1993
PATENT NUMBER: 5,206,219
BREADTH OF FILING: U.S. Only
ABSTRACT: Proteinaceous medicaments such as erythropoetin,
insulin and calcitonin are formulated in a medium
comprising a polyol pharmaceutical solvent combined
as a co-solvent with a lipid pharmaceutical solvent.
The formulation is adapted for oral administration
as a liquid as well as a filled hard or soft gelatin
capsule. The preferred polyol solvent is
polyethylene glycol/propylene glycol; the preferred
lipid solvent is oleic acid.
PRODUCTS: Enteric coated oral composition having a protease
inhibitor and a proteinaceous medicament selected
from erythropoietin, insulin, a growth hormone,
calcitonin, growth colony stimulating factor,
cyclosporin, vasopressin, a vasopressin agonist,
+-PA, vampire bat plasminogen amplifier, urokinase,
streptokinase, interferon, and interleukin.
<PAGE> 33
TITLE: ORAL COMPOSITIONS OF H2-ANTAGONISTS (AAI 18)
PRIORITY FILING: United States
PRIORITY DATE: November 30, 1994
PATENT DATE: July 23, 1996
PATENT NUMBER: 5,538,737
BREADTH OF FILING: PCT/US95/15256 Date: November 25, 1995
All Countries
ABSTRACT: The present invention provides pharmaceutical
capsule compositions of the oral administration of
an H2-antagonist. The composition includes a capsule
containing an emulsion having a water portion and an
oil portion. A pharmaceutically acceptable sale of
an H2-antagonist is dissolved in the water portion.
The composition delivers a therapeutically effective
amount of the H2-antagonist to a patient in need
thereof. The present invention also provides methods
of making the capsule composition.
Products: H2-antagonists such as ranitidine, cimetidine,
nizatidine, famotidine, sufotidine, roxatidine,
bisfentidine, tiotidine, lamtidine, niperotidine,
mifentidine, zaltidine, and loxtidine.
<PAGE> 34
TITLE: ORAL COMPOSITIONS OF H2-ANTAGONISTS (AAI 14-16-19)
PRIORITY FILING: United States
PRIORITY DATE: February 2, 1995
PATENT DATE: April 22, 1997
PATENT NUMBER: 5,622,980
BREADTH OF FILING: PCT/US96/00712 Date: January 18, 1996
All Countries
ABSTRACT: The present invention provides a pharmaceutical
composition for the oral administration of an
H2-antagonist. The composition includes an H2-
antagonist and a silicate TASTE-MAKING AGENT capable
of forming an absorbable complex with the
H2-antagonist wherein the complex exhibits a
non-bitter taste. The complex inhibits the release
of the H2-antagonist in the oral cavity.
PRODUCTS: H2-antagonists such as ranitidine, cimetidine,
nizatidine, famotidine, sufotidine, roxatidine,
bisfentidine, tiotidine, lamtidine, niperotidine,
mifentidine, zaltidine, and loxtidine.
<PAGE> 35
TITLE: PHARMACEUTICAL GRINDING APPARATUS AND METHOD FOR
USING SAME
PRIORITY FILING: United States
PRIORITY DATE: February 29, 1996
PATENT DATE: March 31, 1998
PATENT NUMBER: 5,733,173
BREADTH OF FILING: United States
ABSTRACT: An apparatus for grinding a solid material into a
granulated powder formed of particles of generally
uniform size includes: a mounting frame; a grinding
vessel mounted on the mounting frame which has a
grinding cavity defined by a substantially planar
floor, a substantially planar ceiling parallel and
opposed to the vessel floor, and a substantially
circular internal wall; a circular grinding disk
positioned within the grinding cavity; and a drive
motor or other revolving means for revolving the
grinding vessel along an essentially circular path.
The revolving motion of the grinding cavity should
cause the grinding disk to contact and roll a solid
material against the cavity internal wall and
thereby grind a solid material contained therein
into granules of substantially uniform size.
<PAGE> 36
TITLE: CONTROLLED RELEASE DELIVERY COATING FORMULATION FOR
BIOACTIVE SUBSTANCES (PROCORE)
PRIORITY FILING: United States
PRIORITY DATE: September 3, 1987
PATENT DATE: January 2, 1990
PATENT NUMBER: 4,891,223
BREADTH OF FILING: Belgium, Canada, Denmark, France, Germany, Great
Britain, Italy, Netherlands, Norway, Republic of
Korea, Spain, South Africa, Switzerland, Taiwan
ABSTRACT: The present invention relates to a bioactive
composition having a controlled, sustained release
delivery pattern when contacted with a suitable
surrounding media. The composition comprises a
pharmaceutically, insecticidally, herbicidally or
fertilizing bioactive material core, soluble in a
given surrounding media, the core present in an
amount at least sufficient for a total dosage during
a specified treatment period; a first coating
enveloping the bioactive material core comprising a
polymer or a blend of polymers, said polymer or
blend of polymers being swellable upon penetration
by the surrounding media; and a second coating
enveloping the first coating, the second coating
comprising a polymer or a blend of polymers being
water-insoluble and forming a semipermeable barrier
to the inward diffusion of the surrounding media and
the outward diffusion of the bioactive material
dissolved in the surrounding media.
PRODUCTS: Any medicament requiring a sustained release
delivery pattern including zero-order and bi-phasic
release patterns.
This patent was assigned to AAI by Air Products and Chemicals, Inc. on November
1, 1996.
<PAGE> 37
Schedule 5
Trademarks and Trademark Licenses
None.
<PAGE> 38
Schedule 6
Contracts with Governmental Authorities
None.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 625
<SECURITIES> 0
<RECEIVABLES> 28,779
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 58,667
<PP&E> 74,989
<DEPRECIATION> 31,317
<TOTAL-ASSETS> 119,219
<CURRENT-LIABILITIES> 42,578
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 69,633
<TOTAL-LIABILITY-AND-EQUITY> 119,219
<SALES> 70,521
<TOTAL-REVENUES> 70,521
<CGS> 39,519
<TOTAL-COSTS> 39,519
<OTHER-EXPENSES> 41,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (708)
<INCOME-PRETAX> (10,875)
<INCOME-TAX> (2,681)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,194)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
