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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
NOVEMBER 19, 1999 (AUGUST 6, 1999)
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CELL TECH INTERNATIONAL INCORPORATED
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-21015 22-3345046
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
1300 MAIN STREET, KLAMATH FALLS, OREGON 97601
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (541) 882-5406
509 COUNTY LINE ROAD, RADNOR, PENNSYLVANIA 19807
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 1. CHANGE IN CONTROL OF REGISTRANT
See discussion under Item 2 below and the information set forth in the
Information Statement, dated July 27, 1999 and filed with the Securities and
Exchange Commission on July 27, 1999, pursuant to Section 14(F) of the
Securities Act of 1934 and SEC Rule 14F-1, which is incorporated herein by
reference thereto.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
GENERAL
On August 6, 1999, HumaScan Inc. ("HumaScan") consummated the transactions
contemplated by the Agreement and Plan of Reorganization, dated July 16, 1999
(the "Reorganization Agreement") with Daryl J. Kollman and Marta C. Kollman
(together, the "Kollmans"). The Reorganization Agreement was filed with the
Securities and Exchange Commission as Exhibit 2.1 to the Form 8-K filed by the
Company on August 2, 1999, which is incorporated herein by reference. The
Reorganization Agreement provided for the exchange ("Exchange") of all of the
outstanding shares of The New Earth Company, Inc. ("Earth Company") and The New
Algae Company, Inc. ("Algae Company" and, together with Earth Company, the
"Companies") for shares of HumaScan common stock and HumaScan preferred stock
that together represent approximately 92.049% of the outstanding HumaScan common
stock (including the HumaScan common stock issuable upon conversion of the
HumaScan preferred stock) after the closing of the Exchange.
EXCHANGE CONSIDERATION
Under the terms of the Reorganization Agreement, the Kollmans transferred
to HumaScan (the "Effective Time") (i) an aggregate of 100 shares of voting
common stock and 900 shares of non-voting common stock of Earth Company and (ii)
an aggregate of 100 shares of voting common stock and 900 shares of non-voting
common stock of Algae Company, and HumaScan transferred to the Kollmans (i) an
aggregate of 13,000,000 shares of common stock of HumaScan and (ii) an aggregate
of 748,507 shares of Series B Preferred Stock ("Preferred Stock") of HumaScan.
Each share of Preferred Stock will convert automatically into 108.520993
shares of HumaScan common stock (an aggregate of 81,228,723 shares) upon the
effectiveness of either (i) a reverse stock split of the HumaScan common stock
that would provide a sufficient number of authorized but unissued shares of
HumaScan common stock to allow for the conversion of all of the Preferred Stock
or (ii) an amendment of HumaScan's certificate of incorporation to provide for a
sufficient number of authorized but unissued shares of HumaScan common stock to
allow for the conversion of all of the Preferred Stock. At the Effective Time,
HumaScan's certificate of incorporation authorized HumaScan to issue 25,000,000
shares of HumaScan common stock. As of August 6, 1999, HumaScan had outstanding
8,139,070 shares of HumaScan common stock and had reserved 2,589,107 shares of
HumaScan common stock for issuance upon the exercise of outstanding options and
warrants or pursuant to HumaScan's 1996 Stock Incentive Plan.
On August 10, 1999, the majority shareholders of HumaScan voted to effect a
1:10.8520933 reverse stock split and amend its certificate of incorporation to
increase its authorized shares of common stock to 50,000,000 from 25,000,000 to
provide a sufficient number of shares of HumaScan common stock to permit the
conversion of all of the Preferred Stock. The holders of the Preferred Stock
have voting, dividend and liquidation rights equal to the number of shares of
HumaScan common stock into which each share of Preferred Stock is then
convertible. Assuming the conversion of all of the shares of Preferred Stock,
the Preferred Stock and the HumaScan common stock that has been issued to the
Kollmans together would represent approximately 86% of the HumaScan common stock
outstanding after the Effective Time, calculated on a fully diluted basis
assuming the exercise of all of the Company's outstanding options and warrants.
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ITEM 5. OTHER INFORMATION
INTERNAL REVENUE SERVICE
On June 18, 1999, the Internal Revenue Service (hereinafter, the "IRS")
accepted a Payment Proposal from Daryl Kollman and Marta Kollman that provides
for sales of their shares in the Company for payment of various federal income
tax debts. The IRS' acceptance was set forth in a Notice of Determination dated
June 18, 1999 that reiterated, verbatim, the terms of the Kollmans' Payment
Proposal. A copy of the Notice of Determination is filed as Exhibit 99.2 to this
Form 8-K and is incorporated herein by reference. Pursuant to the Payment
Proposal, Daryl Kollman and Marta Kollman granted the IRS security interests in
all of their common and preferred shares in the Company, and deposited the
shares into a trust administered by West Coast Trust Co., Inc. (hereinafter,
"WCT"). The trust terms are set forth in a Pledge and Escrow Agreement between
Daryl and Marta Kollman, the IRS, and WCT dated June 24, 1999. A copy of the
Pledge and Escrow Agreement is filed as Exhibit 99.3 to this Form 8-K and is
incorporated herein by reference. Together, the Payment Proposal and Pledge and
Escrow Agreement provide for the following:
a. WCT shall retain physical possession of all of the Kollmans' shares
until the Kollmans' income tax liabilities for various specified years have
been paid. Upon full payment of the tax liabilities, the IRS will release
the federal tax liens that presently encumber the shares, and WCT will
return the shares it then holds back to the Kollmans.
b. The Kollmans will sell shares of their stock in the Company as
needed and allowed by federal and state securities laws to make quarterly
payments to the IRS. The IRS will facilitate the sales by issuing
certificates of discharge from the IRS' tax liens for the shares to be
sold. The Kollmans have unfettered discretion regarding the method, timing,
and number of shares to be sold.
c. WCT will administer sales of the shares as directed by the Kollmans
under stock powers delivered to them by the Kollmans. Portions of the sale
proceeds will be distributed by WCT to the Kollmans for the making of
estimated tax payments for the capital gains arising from sale. The balance
of the proceeds, less costs of sale, will be distributed to the IRS as
payments against their tax liabilities. Dividends accruing on the Kollmans'
shares will be received by WCT and distributed to the IRS as tax payments.
d. The Kollmans retain all voting rights incident to their shares
while WCT holds them.
e. The IRS may seize the Kollmans' shares from WCT if the Kollmans
fail to timely cure a default upon their commitments to the IRS under the
Payment Proposal. The IRS would thereafter proceed to sell or judicially
foreclose some or all of the shares for payment of the Kollmans' tax
liabilities as allowed by applicable law, and return any unsold shares or
excess proceeds to the Kollmans. The principal commitments made by the
Kollmans are payment of their tax liabilities through quarterly
installments, and the timely filing of all tax returns and timely payment
of all taxes during the installment period.
f. The terms of the Payment Proposal, including WCT's possession and
administration of the Kollmans' shares, may be renegotiated and modified at
any time.
COAST BUSINESS CREDIT
In June 1999, The New Algae Company ("New Algae") and The New Earth Company
("New Earth"), wholly owned subsidiaries of Cell Tech International
Incorporated, entered into a Loan and Security Agreement (the "Coast Loan") with
Coast Business Credit, a division of Southern Pacific Bank ("Coast"), in which
Coast agreed to lend New Algae and New Earth up to $15,000,000, subject to the
occurrence of the closing. The total loan amount consists of a loan against the
Company's receivables, an advance against New Algae's monthly net collections,
an inventory loan of up to $3,000,000, a term loan of up to $2,400,000 and an
equipment acquisition loan of up to $2,000,000. The interest rate on the
receivable loans, advances and the
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inventory loan is at a rate equal to the prime rate plus 2.5% per annum. The
interest rate on the term loans and the equipment acquisition loans will be a
rate equal to the Prime Rate plus 2.75% per annum. The Coast Loan is secured by
substantially all of the assets of New Algae and New Earth, the personal
guarantees of Daryl Kollman and Marta Kollman and the guarantee of Cell Tech
International Incorporated. On August 6, 1999, the Company guaranteed the Coast
Loan. New Algae and New Earth borrowed $9,822,908.78 from Coast on August 6,
1999. The net proceeds of the loan were used to pay a previously declared
dividend of $7,600,000 to the Kollmans and for working capital. Copies of the
Loan and Security Agreement and Continuing Guarantee are filed as Exhibits 4.1
and 4.2, respectively, to this Form 8-K and are incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The Company will file the required financial statements as soon
as they become available.
(b) Pro Forma Financial Statements
The Company will file the required pro forma financial statements
as soon as they become available.
(c) Exhibits
Exhibit Number Description
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3.1(a) Certificate of Amendment of the Company's
Certificate of Incorporation
4.1 Loan and Security Agreement by and among The
New Earth Company, The New Algae Company and
Coast Business Credit.
4.2 Continuing Guarantee.
27.1 Financial Data Schedule (to be filed by
amendment).
99.1 Press releases of the Company dated July
19, 1999, August 10, 1999 and August 19, 1999
99.2 Internal Revenue Service Notice of Determination
dated July 18, 1999.
99.3 Pledge and Escrow Agreement between Daryl
Kollman and Marta Kollman, the Internal Revenue
Service and West Coast Trust Co., Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 19, 1999 CELL TECH INTERNATIONAL INCORPORATED
(Registrant)
/s/ MARTA C. KOLLMAN
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Marta C. Kollman
Chief Executive Officer and President
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EXHIBIT INDEX
Exhibit Number Description
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3.1(a) Certificate of Amendment of the Company's
Certificate of Incorporation
4.1 Loan and Security Agreement by and among The
New Earth Company, The New Algae Company and
Coast Business Credit.
4.2 Continuing Guarantee.
27.1 Financial Data Schedule (to be filed by
amendment).
99.1 Press releases of the Company dated July
19, 1999, August 10, 1999 and August 19, 1999
99.2 Internal Revenue Service Notice of Determination
dated July 18, 1999.
99.3 Pledge and Escrow Agreement between Daryl
Kollman and Marta Kollman, the Internal Revenue
Service and West Coast Trust Co., Inc.
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Humascan Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
The Certificate of Incorporation of the corporation is hereby amended by
deleting ARTICLE FIRST of the Certificate of Incorporation in its present form
and substituting therefor a new ARTICLE FIRST to read as follows:
FIRST: The name of the corporation (hereinafter called the "corporation")
is CELL TECH INTERNATIONAL INCORPORATED.
SECOND: That the Certificate of Incorporation of the Corporation is hereby
amended by deleting Paragraph A of Article FOURTH of the Certificate of
Incorporation of the Corporation and substituting therefor a new Paragraph A of
Article FOURTH to read as follows:
(A) 50,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), the voting powers, full or limited, or no voting powers,
and the designations, preferences and relative, participating, optional or
other special rights, and qualifications, or restrictions of which Common
Stock shall be as set forth in subparagraphs (B) and (C) of this Article
FOURTH.
THIRD: That Article FOURTH of the Company's Certificate of Incorporation is
hereby amended by addition of the following provision:
On the date this amendment is filed with the Secretary of State of the
State of Delaware (the "Effective Date"), the authorized shares of the
Company's Common Stock, par value $.01 per share, and each share of such
Common Stock issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock"), shall automatically and without any action on the
part of the holder thereof be reclassified as and changed into 0.0921481204
of a share of the Company's Common Stock, par value equal to the par value
of the Old Common Stock (the "New Common Stock"). No fractional shares of
New Common Stock will be issued as a result of the foregoing change in
capitalization; in lieu thereof, any fractional shares of New Common Stock
resulting from such change shall be rounded up to the nearest whole share
of New Common Stock. Each holder of a certificate or certificates which
immediately prior to the Effective Date represented outstanding shares of
Old Common Stock (the "Old Certificates," whether one or more) shall be
entitled to receive upon surrender of such Old Certificates to the
Company's transfer agent for cancellation, a certificate or certificates
(the "New Certificates," whether one or more) representing the number of
whole shares of the New Common Stock into which and for which the shares of
the Old Common Stock formerly represented by such Old Certificates so
surrendered, are reclassified under the terms
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hereof. From and after the Effective Date, Old Certificates shall represent
only the right to receive New Certificates pursuant to the provisions
hereof. No certificate or scrip representing fractional share interests in
New Common Stock will be issued, and no such fractional share interests
will entitle the holder thereof to vote, or to any rights of a shareholder
of the Company. If any New Certificate is to be issued in a name other than
that in which the Old Certificates surrendered for exchange are issued, the
Old Certificates so surrendered shall be properly endorsed and otherwise in
proper form for transfer, and the person or persons requesting such
exchange shall affix any requisite stock transfer tax stamps to the Old
Certificates surrendered, or provide funds for their purchase, or establish
to the satisfaction of the transfer agent that such taxes are not payable.
From and after the Effective Date the amount of capital represented by the
shares of the New Common Stock into which and for which the shares of the
Old Common Stock are reclassified under the terms hereof shall be the same
as the amount of capital represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in accordance with
applicable law.
FOURTH: That in lieu of a meeting and vote of stockholders, stockholders
representing more than a majority of the outstanding voting stock of the
Corporation and more than a majority of the outstanding Common Stock of the
Corporation have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware and written notice of the adoption of the amendment has been given as
provided in Section 228 of the General Corporation Law of the State of Delaware
to every stockholder entitled to such notice.
FIFTH: That the aforesaid amendment was duly adopted in accordance with
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Marta C. Kollman, its President, and attested by Justin Strauss, its
Secretary, this 9th day of August, 1999.
HUMASCAN INC.
By:
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Marta C. Kollman, President
ATTEST:
By:
---------------------------------
Justin Strauss, Secretary
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LOAN AND SECURITY AGREEMENT
by and among
THE NEW ALGAE COMPANY
dba Cell Tech, an Oregon corporation
THE NEW EARTH COMPANY,
an Oregon corporation
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
Dated as of June 21, 1999
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Coast Business Credit Loan and Security Agreement
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Table of Contents
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Page
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1. DEFINITIONS ........................................................... 1
Account Debtor ................................................... 1
"Advances" ....................................................... 1
Affiliate ........................................................ 1
Audit ............................................................ 1
Borrower ......................................................... 1
Borrower's Address ............................................... 1
Business Day ..................................................... 1
Change of Control ................................................ 1
Closing Date ..................................................... 2
Coast ............................................................ 2
Code ............................................................. 2
Collateral ....................................................... 2
Collections ...................................................... 2
Credit Limit ..................................................... 2
Debt ............................................................. 2
Debt Service Coverage Ratio ...................................... 2
Default .......................................................... 2
Deposit Account .................................................. 2
Dollars or $ ..................................................... 2
Early Termination Fee ............................................ 2
EBITDA ........................................................... 2
Eligible Inventory ............................................... 2
Eligible Wholesale Receivables ................................... 2
Equipment ........................................................ 4
Equipment Acquisition Loans ...................................... 4
Event of Default ................................................. 4
GAAP ............................................................. 4
General Intangibles .............................................. 4
Gross Collections ................................................ 4
Guarantors ....................................................... 4
Inventory ........................................................ 4
Inventory Loans .................................................. 4
Loan Documents ................................................... 4
Loans ............................................................ 4
Material Adverse Effect .......................................... 4
Maturity Date .................................................... 5
Maximum Dollar Amount ............................................ 5
Minimum Monthly Interest ......................................... 5
Net Collections .................................................. 5
Network Marketing Customer Base .................................. 5
Network Marketing Customers ...................................... 5
Obligations ...................................................... 5
Permitted Liens .................................................. 5
Person ........................................................... 6
Prime Rate ....................................................... 6
Real Property .................................................... 6
Receivable Loans ................................................. 6
Receivables ...................................................... 6
Renewal Date ..................................................... 6
Renewal Fee ...................................................... 6
Solvent .......................................................... 6
Tangible Net Worth ............................................... 6
Term Loan ........................................................ 7
Wholesale Receivables ............................................ 7
Year 2000 Problem ................................................ 7
Other Terms ...................................................... 7
2. CREDIT FACILITIES ..................................................... 7
2.1 Loans ............................................................ 7
3. INTEREST AND FEES ..................................................... 7
3.1 Interest ......................................................... 7
3.2 Fees ............................................................. 7
4. SECURITY INTEREST ..................................................... 7
5. CONDITIONS PRECEDENT .................................................. 7
5.1 Status of Accounts at Closing ................................... 7
5.2 Minimum Availability ............................................ 7
5.3 Landlord Waiver ................................................. 7
5.4 Real Property ................................................... 8
5.5 Executed Agreement .............................................. 8
5.6 Opinion of Borrower's, Guarantors', Klamath's and
Humascan's Counsel .............................................. 8
5.7 Priority of Coast's Liens ....................................... 8
5.8 Insurance ....................................................... 8
5.9 Borrower's Existence ............................................ 8
5.10 Organizational Documents ........................................ 8
5.11 Taxes ........................................................... 8
5.12 Year 2000 Problem Assessment Certificate ........................ 8
5.13 Due Diligence ................................................... 8
5.14 Other Documents and Agreements .................................. 8
5.15 Blocked Account Agreements ...................................... 9
5.16 Minimum Tangible Net Worth ...................................... 9
5.17 Certificates of Title ........................................... 9
5.18 Equipment Review ................................................ 9
5.19 Management Background Checks .................................... 9
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Coast Business Credit Loan and Security Agreement
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5.20 Review of Nature Conservancy Liens ............................. 9
5.21 Real Estate Appraisals and Phase I's ............................ 9
5.22 Humanascan to be Publicly Traded ................................ 9
5.23 IRS Subordination ............................................... 9
5.24 Continuing Guarantees and Financial Statements .................. 9
5.25 The Nature Conservancy .................................... 9
5.26 Assignment of Canal Leases/Licenses ....................... 10
5.27 Bailee Letters ............................................ 10
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER ............. 10
6.1 Existence and Authority ......................................... 10
6.2 Name; Trade Names and Styles .................................... 10
6.3 Place of Business; Location of Collateral ....................... 10
6.4 Title to Collateral; Permitted Liens ............................ 11
6.5 Maintenance of Collateral ....................................... 11
6.6 Books and Records ............................................... 11
6.7 Financial Condition, Statements and Reports ..................... 11
6.8 Tax Returns and Payments; Pension Contributions ................. 11
6.9 Compliance with Law ............................................. 11
6.10 Litigation ...................................................... 11
6.11 Use of Proceeds ................................................. 11
6.12 Year 2000 Compliance ............................................ 11
7. RECEIVABLES AND COLLECTIONS ........................................... 12
7.1 Representation Relating to Receivables and Collections .......... 12
7.2 Representations Relating to Documents and Legal Compliance ...... 12
7.3 Schedules and Documents Relating to Receivables and Collections . 12
7.4 Collection of Receivables and Collections ....................... 12
7.5 Remittance of Proceeds .......................................... 12
7.6 Disputes ........................................................ 13
7.7 Returns ......................................................... 13
7.8 Verification .................................................... 13
7.9 No Liability .................................................... 13
8. ADDITIONAL DUTIES OF THE BORROWER ..................................... 13
8.1 Financial and Other Covenants ................................... 13
8.2 Insurance ....................................................... 13
8.3 Reports ......................................................... 14
8.4 Access to Collateral, Books and Records ......................... 14
8.5 Negative Covenants .............................................. 14
8.6 Litigation Cooperation .......................................... 15
8.7 Further Assurances .............................................. 15
9. TERM .................................................................. 15
9.1 Maturity Date ................................................... 15
9.2 Early Termination ............................................... 15
9.3 Payment of Obligations .......................................... 15
10. EVENTS OF DEFAULT AND REMEDIES ........................................ 15
10.1 Events of Default ............................................... 15
10.2 Remedies ........................................................ 17
10.3 Standards for Determining Commercial Reasonableness ............. 18
10.4 Power of Attorney ............................................... 18
10.5 Application of Proceeds ......................................... 19
10.6 Remedies Cumulative ............................................. 20
11. GENERAL PROVISIONS .................................................... 20
11.1 Interest Computation ............................................ 20
11.2 Application of Payments ......................................... 20
11.3 Charges to Accounts ............................................. 20
11.4 Monthly Accountings ............................................. 20
11.5 Notices ......................................................... 20
11.6 Severability .................................................... 21
11.7 Integration ..................................................... 21
11.8 Waivers ......................................................... 21
11.9 No Liability for Ordinary Negligence ............................ 21
11.10 Amendment ....................................................... 21
11.11 Time of Essence ................................................. 21
11.12 Attorneys Fees, Costs and Charges ............................... 21
11.13 Benefit of Agreement ............................................ 22
11.14 Publicity ....................................................... 22
11.15 Paragraph Headings; Construction ................................ 22
11.16 Governing Law; Jurisdiction; Venue .............................. 22
11.17 Mutual Waiver of Jury Trial ..................................... 22
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Coast
Loan and Security Agreement
BORROWER: THE NEW ALGAE COMPANY
DBA CELL TECH,
AN OREGON CORPORATION
ADDRESS: 1300 MAIN STREET
KLAMATH FALLS, OREGON 97601
BORROWER: THE NEW EARTH COMPANY,
AN OREGON CORPORATION
ADDRESS: 1300 MAIN STREET
KLAMATH FALLS, OREGON 97601
DATE: JUNE 21, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1400, Los Angeles,
California 90025, and the borrower(s) named above (jointly and severally, the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 1 below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable or General Intangible.
"Advances" means the Loans described in Section 2(b) of the Schedule.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Audit" means to inspect, audit and copy Borrower's books and records and
the Collateral.
"Borrower" has the meaning set forth in the introduction to this
Agreement.
"Borrower's Address" has the meaning set forth in the introduction to this
Agreement.
"Business Day" means a day on which Coast is open for business.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within
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Coast Business Credit Loan and Security Agreement
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the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) (other than the current holders of the ownership interests in any
Borrower) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, as a result of any
single transaction, of more than twenty percent (20%) of the total voting power
of all classes of stock or other ownership interests then outstanding of any
Borrower normally entitled to vote in the election of directors or analogous
governing body.
"Closing Date" date of the initial funding under this Agreement.
"Coast" has the meaning set forth in the introduction to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
"Collections" means those collections of Borrower including, but not
limited to, collections arising from the following: the Network Marketing
Customer Base of Borrower or from other Borrower sales.
"Credit Limit" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"Debt" means, as of the date of determination, the sum, but without
duplication, of any and all of Borrower's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Borrower (directly or
indirectly) for or in respect of money borrowed; (ii) obligations for the
deferred purchase price of property or services.
"Debt Service Coverage Ratio" means the ratio, in any fiscal quarter, whose
numerator is EBITDA minus cash capital expenditures minus cash tax expenses, and
whose denominator is all principal payments on Debt plus all interest payments
on Debt plus all capital lease payments.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Dollars or $" means United States dollars.
"Early Termination Fee" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"EBITDA" means, in any fiscal period, Borrower's consolidated net income or
net loss (other than extraordinary or non-recurring gains of Borrower for such
period), plus (i) the amount of all interest expense, income tax expense,
depreciation expense and amortization expense of Borrower for such period, on a
consolidated basis, and plus or minus (as the case may be) (ii) any other
non-cash charges which have been added or subtracted, as the case may be, in
calculating Borrower's consolidated net income for such period.
"Eligible Inventory" means Inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Coast's discretion,
Inventory which does not meet the following requirements will not be deemed to
be Eligible Inventory: Inventory which (i) consists of finished goods, in good,
new and salable condition which is not perishable, not obsolete or
unmerchantable, and is not comprised of raw materials, work in process,
packaging materials or supplies; (ii) meets all applicable governmental
standards; (iii) has been manufactured in compliance with the Fair Labor
Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is situated
at one of the locations set forth on the Schedule.
"Eligible Wholesale Receivables" means Wholesale Receivables arising in the
ordinary course of Borrower's business from the sale of goods or
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Coast Business Credit Loan and Security Agreement
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rendition of services, which Coast, in its sole judgment exercised in good
faith, shall deem eligible for borrowing, based on such considerations as Coast
may from time to time deem appropriate. Eligible Wholesale Receivables shall not
include the following:
(a) Wholesale Receivables that the Account Debtor has failed to pay within
90 days of invoice date or Accounts with selling terms of more than 30 days;
(b) Wholesale Receivables owed by an Account Debtor or its Affiliates where
twenty-five percent (25%) or more of all Wholesale Receivables owed by that
Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above;
(c) Wholesale Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Wholesale Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Wholesale Receivables, that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof;
(f) Wholesale Receivables with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Coast, with the Assignment of
Claims Act, 31 U.S.C. section 3727), or (ii) any State of the United States
(exclusive, however, of Wholesale Receivables owed by any State that does not
have a statutory counterpart to the Assignment of Claims Act);
(g) Wholesale Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Wholesale Receivables;
(h) Wholesale Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty percent (20%) of all Eligible
Wholesale Receivables, to the extent of the obligations owing by such Account
Debtor in excess of such percentage;
(i) Wholesale Receivables with respect to which the Account Debtor is
subject to any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation proceeding, or becomes insolvent, or goes
out of business;
(j) Wholesale Receivables the collection of which Coast, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(k) Wholesale Receivables with respect to which the goods giving rise to
such Wholesale Receivable have not been shipped and billed to the Account
Debtor, the services giving rise to such Wholesale Receivable have not been
performed and accepted by the Account Debtor, or the Wholesale Receivable
otherwise does not represent a final sale;
(l) Wholesale Receivables with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices as appropriate, for the
then-current year, or is exempt from such filing requirement; and
(m) Wholesale Receivables that represent progress payments or other advance
billings that are
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due prior to the completion of performance by Borrower of the subject contract
for goods or services.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Equipment Acquisition Loans" means the Loans described in Section 2(e) of
the Schedule.
"Event of Default" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, investment property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"Gross Collections" means the gross collections of Borrower from the
Network Marketing Customer Base.
"Guarantors" means Daryl J. Kollman and Marta C. Kollman.
"Humascan" means Humascan Inc., a Delaware corporation.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"Inventory Loans" means the Loans described in Section 2(c) of the
Schedule.
"Investment Property" has the meaning set forth in Section 9115 of the Code
as in effect as of the date hereof.
"Klamath" means Klamath Cold Storage, Inc., an Oregon corporation.
"Loan Documents" means this Agreement, the agreements and documents listed
on Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any
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guarantor of any of the Obligations, (ii) the ability of Borrower or any
guarantor of any of the Obligations to perform its obligations under this
Agreement (including, without limitation, repayment of the Obligations as they
come due) or (iii) the validity or enforceability of this Agreement or any other
agreement or document entered into by any party in connection herewith, or the
rights or remedies of Coast hereunder or thereunder.
"Maturity Date" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2 of the
Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of the
Schedule.
"Net Collections" means the gross collections of Borrower from the Network
Marketing Customer Base less commissions paid to Network Marketing Customer Base
distributors.
"Network Marketing Customer Base" means Borrower's customers who are
distributors that have signed on Independent Distributor Agreement.
"Network Marketing Customers" means distributors who have signed
Independent Distributor Agreements entitling them to purchase product at
wholesale cost for resale and for personal consumption.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"Permitted Liens" means the following:
(a) purchase money security interests in specific items of Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing by
Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under clause
(d) above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Coast's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Coast, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in
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any obligation secured by the subordinate security interest shall also
constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, general partnership,
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the prime rates published in the Wall Street
Journal on the first business day of the applicable month, as the base rate on
corporate loans at large U.S. money center commercial banks.
"Real Property" means: (1) Guarantor's real property located at: (i) 1340,
1350 and 1360 S. 6th Street, Klamath Falls, Oregon, (ii) 537 Northern Heights,
Klamath Falls, Oregon, (iii) that certain 39.65 acres of raw land at Northern
Heights, (iv) 2977 Century Court, Klamath Falls, Oregon, and (v) 1400 and 1410
S. 6th Street, Klamath Falls, Oregon; (2) Klamath's real property located at:
(i) 661 S. Spring Street, Klamath Falls, Oregon, and (ii) 254 Market Street,
Klamath Falls, Oregon; and (3) additional properties that may secure Borrower's
Obligations to Coast in the future.
"Receivable Loans" means the Loans described in Section 2(a) of the
Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is renewed
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"Renewal Fee" means the fee that Borrower must pay Coast upon renewal of
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Tangible Net Worth" means consolidated Owner's equity, plus subordinated
debt otherwise permitted hereunder, less, goodwill, patents, trademarks,
copyrights, franchises, formulas, leasehold interests, leasehold improvements,
non-compete agreements, engineering plans, deferred tax benefits, organization
costs, prepaid items, and any other assets of Borrower that would be treated as
intangible assets on Borrower's balance sheet prepared in accordance with GAAP.
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"Term Loan" means the Loans described in Section 2(d) of the Schedule.
"Wholesale Receivables" means Receivables owing from account debtors who
are other than Network Marketing Customers.
"Year 2000 Problem" means the risk that computer systems, software and
applications used by a Person may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
"Other Terms." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts and
in percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Wholesale Receivables or Eligible Inventory or create
reserves or reduce the Advance multiple then applicable to Net Collections
without declaring a Default or an Event of Default if it determines that there
has occurred a Material Adverse Effect.
3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast Minimum Monthly Interest during the
term of this Agreement with respect to the Receivable Loans, the Inventory Loans
and the Advances in the amount set forth on the Schedule.
3.2 Fees. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be due and
unpaid ninety (90) days past its due date except for such accounts payable being
contested in good faith in appropriate proceedings and for which adequate
reserves have been provided.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed
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(a) landlord waivers and access agreements in form and substance
satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed
appropriate by Coast, in form for recording in the appropriate recording office,
with respect to all leased locations where Borrower maintains any inventory or
equipment.
(b) warehouse waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
warehouse locations where Borrower maintains any inventory or equipment.
5.4 REAL PROPERTY. Coast shall have received duly executed mortgages and/or
deeds of trust in form and substance satisfactory to Coast, in Coast's sole and
absolute discretion, in form for recording in the appropriate recording office,
with respect to the Real Property. All mortgages and/or deeds of trust against
the Real Property shall be in first lien position, except as otherwise agreed to
by Coast, and Coast shall have obtained title insurance on each such mortgage
and/or deed of trust insuring Coast's position in form, substance and amount and
from a title company satisfactory to Coast.
5.5 EXECUTED AGREEMENT. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.6 OPINION OF BORROWER'S, GUARANTORS', KLAMATH'S AND HUMASCAN'S COUNSEL.
Coast shall have received opinions of Borrower's, Guarantors', Klamath's and
Humascan's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.7 PRIORITY OF COAST'S LIENS. Coast shall have received the results of "of
record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.8 INSURANCE. Coast shall have received copies of the insurance binders or
certificates evidencing Borrower's compliance with Section 8.2 hereof, including
lender's loss payee endorsements.
5.9 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles of incorporation and all amendments thereto, and a Certificate of Good
Standing, each certified by the Secretary of State of the state of Borrower's
organization, and dated a recent date prior to the Closing Date, and Coast shall
have received Certificates of Foreign Qualification for Borrower from the
Secretary of State of each state wherein the failure to be so qualified could
have a Material Adverse Effect.
5.10 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.11 TAXES. Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service regulations,
in form and substance satisfactory to Coast in its sole and absolute discretion.
5.12 YEAR 2000 PROBLEM ASSESSMENT CERTIFICATE. Coast shall have received a
certificate from the relevant officer of Borrower to the effect that, as the
result of a comprehensive assessment undertaken by Borrower of Borrower's
computer systems, software and applications and after due inquiry made to
Borrower's material suppliers, vendors and customers, Borrower knows of no facts
that would cause Borrower to reasonably believe that the Year 2000 Problem will
cause a Material Adverse Effect.
5.13 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.14 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may require in
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connection with the transactions contemplated hereby, all in form and substance
satisfactory to Coast in Coast's sole and absolute discretion, and in form for
filing in the appropriate filing office, including, but not limited to, those
documents listed in Section 5 of the Schedule.
5.15 BLOCKED ACCOUNT AGREEMENTS. Coast shall have received evidence that
all cash remittances of Borrower including, without limitation, remittances from
First USA Merchant Services, Inc., shall be collected pursuant to one or more
blocked account agreements in form and substance acceptable to Coast.
5.16 MINIMUM TANGIBLE NET WORTH. Borrower's Tangible Net Worth shall be a
no less than Twenty Seven Million Dollars ($27,000,000) on the closing Date.
5.17 CERTIFICATES OF TITLE. Coast shall have received certificates of title
for all of Borrower's motor vehicles which evidence Coast's first lien and
security interest thereon, with said certificates of title to be in form and
substance satisfactory to Coast in its sole and absolute discretion.
5.18 EQUIPMENT REVIEW. Coast shall have completed its review of Borrower's
Equipment and shall have verified that no Equipment included in the appraisal of
Borrower's Equipment is subject to a lien or security interest in favor of any
Person other than Coast. The results of said review shall be acceptable to Coast
in its sole and absolute discretion.
5.19 MANAGEMENT BACKGROUND CHECKS. Coast shall have received the results of
management background checks, including without limitation, TRWs, tax lien and
litigation searches, LEXIS/NEXIS searches and such other due diligence as Coast
may deem necessary on Marta Kollman, Daryl Kollman, John Neubauer and Robert
Longo with said background checks to be satisfactory to Coast in its sole and
absolute discretion.
5.20 REVIEW OF NATURE CONSERVANCY LIENS. Coast shall have completed its
review of the Nature Conservancy's liens against Borrower's assets to ensure:
(i) that the encumbered assets are unrelated to water rights pertaining to the
harvesting of algae; and (ii) that the lien does not encumber any machinery,
equipment, inventory or other assets integral to processing algae. The results
of said review shall be acceptable to Coast in its sole and absolute discretion.
5.21 REAL ESTATE APPRAISALS AND PHASE I's. Coast shall have received
appraisals and Phase I's of the Real Property with the results of same to be
acceptable to Coast in its sole and absolute discretion. In the event that the
Real Property does not have an aggregate fair market value of at least
$12,800,000, additional real property must be provided as Collateral until the
aggregate value of the Real Property is at least $12,800,000.
5.22 HUMASCAN TO BE PUBLICLY TRADED. Humascan, the holding company parent
of Borrower, shall be a publicly traded company prior to the first advance of
funds hereunder.
5.23 IRS SUBORDINATION. Coast shall have received an agreement from the
Internal Revenue Service ("IRS") wherein the IRS: (i) agrees to subordinate its
liens against Daryl Kollman, Marta Kollman and/or Borrower upon the receipt of
Five Million Five Hundred Thousand Dollars ($5,500,000), (ii) agrees to
subordinate all past due income taxes, related penalties and interest owed by
Daryl Kollman, Marta Kollman and/or Borrower, and (iii) agrees not to take any
action against the assets of Daryl Kollman, Marta Kollman and/or Borrower which
serve as Collateral for Borrower's Obligations to Coast. Said agreement shall be
in form and substance acceptable to Coast in its sole and absolute discretion.
5.24 CONTINUING GUARANTIES AND FINANCIAL STATEMENTS. Coast shall have
received continuing guaranties from Guarantors, Klamath and Humascan and shall
have received financial statements from Guarantors in form and substance
acceptable to Coast in its sole and absolute discretion.
5.25 THE NATURE CONSERVANCY. Coast shall have received a duly executed
Intercreditor Agreement from The Nature Conservancy, in form and substance
acceptable to Coast in its sole and absolute discretion, containing terms
whereby The Nature Conservancy agrees to subordinate its lien in Borrower's
assets which serve as Collateral for Borrower's Obligations to Coast.
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5.26 ASSIGNMENT OF CANAL LEASES/LICENSES. Coast shall have received duly
executed assignments and consents to assignments for Borrower's canal
leases/licenses with the form and content of said assignments and consents to be
acceptable to Coast in its sole and absolute discretion.
5.27 BAILEE LETTERS. Coast shall have received duly executed bailee letters
from third party processors who are from time to time in possession of
Borrower's assets with the form and content of said assignments to be acceptable
to Coast in its sole discretion.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate
Borrower's articles of incorporation, or Borrower's by-laws, or any law or any
material agreement or instrument which is binding upon Borrower or its property,
and (d) do not constitute grounds for acceleration of any material indebtedness
or obligation under any material agreement or instrument which is binding upon
Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times
in the future be, the sole owner of all the Collateral, except for items of
Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of,
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Coast Business Credit Loan and Security Agreement
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any lease of real property where any of the Collateral now or in the future may
be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. As the result of a comprehensive review and
assessment undertaken by Borrower of Borrower's computer systems, software and
applications and after due inquiry made of Borrower's material suppliers,
vendors and customers Borrower represents and warrants that the Year 2000
problem will not result in a Material Adverse Effect.
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Coast Business Credit Loan and Security Agreement
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7. RECEIVABLES AND COLLECTIONS.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES AND COLLECTIONS. Borrower
represents and warrants to Coast as follows: Each Receivable and all Advances
with respect to which Loans are requested by Borrower shall, on the date each
Loan is requested and made, represent an undisputed bona fide existing
unconditional obligation and collection of the Account Debtor created by the
sale, delivery and acceptance of goods or the rendition of services in the
ordinary course of Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables and Collections are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Receivable
and Collection shall fully comply with all applicable laws and governmental
rules and regulations. All signatures and endorsements on all documents,
instruments, and agreements relating to all Receivables and Collections are and
shall be genuine, and all such documents, instruments and agreements are and
shall be legally enforceable in accordance with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES AND COLLECTIONS.
Borrower shall deliver to Coast via facsimile, unless otherwise directed by
Coast, at such locations and at such intervals as Coast may request, transaction
reports and loan requests, schedules of Receivables, and schedules of
Collections, all on Coast's standard forms; provided, however, that Borrower's
failure to execute and deliver the same shall not affect or limit Coast's
security interest and other rights in all of Borrower's Receivables and
Collections, nor shall Coast's failure to advance or lend against a specific
Receivable or Collection affect or limit Coast's security interest and
other rights therein. Loan requests received after lO:30 A.M. Los Angeles,
California time, will not be considered by Coast until the next Business Day.
Together with each such schedule, or later if requested by Coast, Borrower shall
furnish Coast with copies (or, at Coast's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables or Collections, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Coast an aged accounts receivable
trial balance in such form and at such intervals as Coast shall request. In
addition, Borrower shall deliver to Coast the originals of all instruments,
chattel paper, security agreements, guarantees and other documents and property
evidencing or securing any Receivables or Collections, upon receipt thereof and
in the same form as received, with all necessary endorsements, all of which
shall be with recourse. Borrower shall also provide Coast with copies of all
credit memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES AND COLLECTIONS. Borrower shall have the
right to collect all Receivables and Collections, unless and until an Event of
Default has occurred. Borrower shall hold all payments on, and proceeds of,
Receivables and Collections in trust for Coast, and Borrower shall deliver all
such payments and proceeds to Coast within one (1) Business Day after receipt
by Borrower, in their original form, duly endorsed to Coast, to be applied to
the Obligations in such order as Coast shall determine. Coast may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Coast may specify,
pursuant to a blocked account agreement in such form as Coast may specify. Coast
or its designee may, at any time, notify Account Debtors that Coast has been
granted a security interest in the Receivables and Collections.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on
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disposition of Collateral set forth elsewhere in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables or Collections. Borrower shall not forgive
(completely or partially), compromise or settle any Receivable or Collection for
less than payment in full, or agree to do any of the foregoing, except that
Borrower may do so, provided that: (a) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, and in arm's
length transactions, which are reported to Coast on the regular reports provided
to Coast; (b) no Default or Event of Default has occurred and is continuing; and
(c) taking into account all such discounts settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit. Coast may, at any time
after the occurrence of an Event of Default, settle or adjust disputes or claims
directly with Account Debtors for amounts and upon terms which Coast considers
advisable in its reasonable credit judgment and, in all cases, Coast shall
credit Borrower's Loan account with only the net amounts received by Coast in
payment of any Receivables or Collection.
7.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (a) hold the returned Inventory in trust for
Coast, (b) segregate all returned Inventory from all of Borrower's other
property, (c) conspicuously label the returned Inventory as subject to Coast's
security interest, and (d) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
7.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables and Collections, by means of mail, telephone or otherwise,
either in the name of Borrower or Coast or such other name as Coast may choose.
7.9 NO LIABILITY. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable or
Collection, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable or Collection, or for settling any Receivable or Collection in good
faith for less than the full amount thereof, nor shall Coast be deemed to be
responsible for any of Borrower's obligations under any contract or agreement
giving rise to a Receivable or Collection. Nothing herein shall, however,
relieve Coast from liability for its own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND 0THER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to
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Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule; and such other written
reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Coast shall from time to
time reasonably specify.
8.4 ACCESS TO COLLATERAL BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits. Coast shall take reasonable
steps to keep confidential all confidential information obtained in any Audit,
but Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The Audits shall be at Borrower's expense and the charge for the Audits
shall be Seven Hundred Fifty Dollars ($750) per person per day (or such higher
amount as shall represent Coast's then current standard charge for the same),
plus reasonable out-of-pocket expenses. Borrower will not enter into any
agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address,
without first notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement. Borrower shall also take all necessary
steps to assure that its material accounting and software, systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will, on a timely basis, adequately and
completely address the Year 2000 Problem in all material respects.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another entity, except in a transaction
in which (i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) the Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of business,
or (ii) in a transaction or a series of transactions not involving the payment
of an aggregate amount in excess of the amount set forth in Section 8 of the
Schedule;
(c) enter into any other transaction outside the ordinary course of
business;
(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or
other third party;
(f) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i) advances
to customers or suppliers in the ordinary course of business, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(j) pay or declare any dividends or distributions on the ownership
interests in Borrower (except for dividends or distributions payable solely in
stock form of ownership interests in Borrower);
(k) make any change in Borrower's capital structure which would have a
Material Adverse Effect;
(1) dissolve or elect to dissolve;
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Coast Business Credit Loan and Security Agreement
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(m) transfer any funds to any Affiliate or Subsidiary except for rent
payments in an amount not to exceed $60,000 per month; or
(n) transfer or upstream any funds to Borrowers' parent Humascan Inc.
except to the extent needed to pay for Humascan's: (i) SEC filings and, (ii)
necessary administrative costs approved by Coast in its sole discretion;
(o) modify, amend, waive or release any of the terms of its documents
with Paymentech Merchant Services, Inc. (fka First USA Merchant Services, Inc.)
without the prior written consent of Coast.
Transactions permitted by the foregoing provisions of this Section are
only permitted if no Default or Event of Default is continuing or would occur as
a result of such transaction.
8.6 LITIGATION COOPERATION. Should any third party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than one hundred twenty (120) days prior to the Maturity Date or
the next Renewal Date, that such party elects to terminate this Agreement
effective on the Maturity Date or such next Renewal Date. If this Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and
payable on the Renewal Date and thereafter shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement maybe terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT The occurrence of any of the following events shall
constitute an "Event of
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Coast Business Credit Loan and Security Agreement
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Default" under this Agreement, and Borrower shall give Coast immediate written
notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to Coast
as provided in Section 7.5 above, or shall fail to give Coast access to its
books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within five (5) Business Days after the date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within thirty
(30) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing,
or commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the 0bligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer
or experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of
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Coast Business Credit Loan and Security Agreement
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Coast in the exercise of its reasonable business judgment; or
(o) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(p) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending credit to Borrower under
this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may be
found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should Coast seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto required
by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and
(iii) any requirement that coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make
it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Coast is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
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disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables, Collections and
General Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
Collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in connection
with bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans and Advances. Without limiting any of Coast's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional three
percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven (7) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m. Los
Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in its
sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
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Coast Business Credit Loan and Security Agreement
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(c) Execute on behalf of Borrower, any invoices relating to any
Receivable or Collection, any draft against any Account Debtor and any notice to
any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim
of mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables, Collections and General Intangibles for less than face value and
execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure
the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Coast the same rights of
access and other rights with respect thereto as Coast has under this Agreement;
and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans and Advances. In no event shall Coast's rights under the foregoing power
of attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties of
Borrower. Borrower shall pay, indemnify, defend, and hold Coast and each of its
officers, directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (ail the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
10.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons
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Coast Business Credit Loan and Security Agreement
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legally entitled thereto; Borrower shall remain liable to Coast for any
deficiency. If, Coast, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Coast shall have the option, exercisable at any time, in its
sole discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Coast of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and Collections and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations three (3)
Business Days after receipt by Coast of immediately available funds, and, for
purposes of the foregoing, any such funds received after 10:30 AM Los Angeles,
California time, on any day shall be deemed received on the next Business Day.
Coast shall be entitled to charge Borrower's account for such three (3) Business
Days of "clearance" or "float" at the rate(s) set forth in Section 3 of the
Schedule on all checks, wire transfers and other items received by Coast,
regardless of whether such three (3) Business Days of "clearance" or "float"
actually occur, and shall be deemed to be the equivalent of charging three (3)
Business Days of interest on such collections. This across-the-board three (3)
Business Day clearance or float charge on all collections is acknowledged by the
parties to constitute an integral aspect of the pricing of Coast's financing of
Borrower. Coast shall not, however, be required to credit Borrower's account for
the amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business
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Coast Business Credit Loan and Security Agreement
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Day following delivery to the private delivery service, or two (2) Business Days
following the deposit thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
11.8 WAIVERS. The failure of Coast at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for
all attorneys' fees (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and all filing, recording, search, title insurance, appraisal,
audit, and other costs incurred by Coast, pursuant to, or in connection with, or
relating to this Agreement (whether or not a lawsuit is filed), including, but
not limited to, any attorneys fees and costs (including attorneys' fees and
expenses incurred pursuant to bankruptcy) Coast incurs in order to do the
following: prepare and negotiate this Agreement and the documents relating to
this Agreement; obtain legal advice in connection with this Agreement or
Borrower; enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security interest
in, the Collateral; and otherwise represent Coast in any litigation relating to
Borrower. If either Coast or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its costs and attorneys' fees (including attorneys'
fees and expenses incurred pursuant to bankruptcy), including (but not limited
to)
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Coast Business Credit Loan and Security Agreement
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attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay Coast's
standard charges for returned checks and for wire transfers, in effect from time
to time. All attorneys' fees, costs and charges (including attorneys' fees and
expenses incurred pursuant to bankruptcy) and other fees, costs and charges to
which Coast may be entitled pursuant to this Agreement may be charged by Coast
to Borrower's loan account and shall thereafter bear interest at the same rate
as the Receivable Loans and Advances.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder without the consent of Borrower. Coast reserves
the right to syndicate all or a portion of the transaction created herein or
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Coast's rights and benefits hereunder. In connection with
any such syndication, assignment or participation, Coast may disclose all
documents and information which Coast now or hereafter may have relating to
Borrower or Borrower's business. To the extent that Coast assigns its rights and
obligations hereunder to a third Person, Coast thereafter shall be released from
such assigned obligations to Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any Such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER
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Coast Business Credit Loan and Security Agreement
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SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
BORROWER:
THE NEW ALGAE COMPANY
dba Cell Tech,
an Oregon corporation
By /s/ MARTA C. KOLLMAN
---------------------------------
President or Vice President
By
----------------------------------
Secretary or Ass't Secretary
THE NEW EARTH COMPANY,
an Oregon corporation
By /s/ MARTA C. KOLLMAN
---------------------------------
President or Vice President
By
---------------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By /s/ [SIGNATURE]
---------------------------------
Title: Vice President
23
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Coast
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: THE NEW ALGAE COMPANY DBA CELL TECH,
AN OREGON CORPORATION
ADDRESS: 1300 MAIN ST.
KLAMATH FALLS, OREGON 97601
BORROWER: THE NEW EARTH COMPANY, AN OREGON CORPORATION
ADDRESS: 1300 MAIN ST.
KLAMATH FALLS, OREGON 97601
DATE: JUNE 21, 1999
This Schedule forms an integral part of the Loan and Security Agreement
between Coast Business Credit, a division of Southern Pacific Bank, a California
corporation, and the above-borrower of even date.
================================================================================
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT:
Loans in a total amount at any time
outstanding not to exceed the
lesser of a total of Fifteen
Million Dollars ($15,000,000) at
any one time outstanding (the
"Maximum Dollar Amount"), or the
sum of (a) - (e) below:
(a) Receivable Loans in an amount not
to exceed 80% of the amount of
Borrower's Eligible Wholesale
Receivables (as defined in Section
1 of the Agreement), plus
(b) Advances in an amount not to exceed
at any time three (3) times*
recurring monthly Net Collections,
based on a
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Coast Business Credit Schedule to Loan and Security Agreement
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trailing three (3) month moving
average however, these Advances
shall not exceed the lesser of:
(1) Six Million Four Hundred
Thousand Dollars ($6,400,000)
with said amount to be
indefinitely reduced by
Fifty-Three Thousand Dollars
($53,000) per month commencing
one month from the Closing
Date; or
(2) Fifty percent (50%) of the
appraised fair market value of
the Real Property securing
Borrower's Obligations to
Coast, with said appraised
fair market value to be
determined by an appraiser
acceptable to Coast in its
sole and absolute discretion;
or
(3) Three (3) times annualized
EBITDA, based on a trailing 3
month moving average;
provided, however, Coast shall
have the right, at its sole
discretion to reduce the multiple
in section (b) in the event that
one month's Gross Collections,
decline by more than 25% from the
previous month's Gross
Collections, plus
[* Commencing six months after the
Closing Date, the multiple of 3
shall reduce by .1 per month until
the multiple reaches 1]
(c) Inventory Loans in an amount not
to exceed the lesser of:
(1) Three Million Dollars
($3,000,000), or
(2) 25% of the value of Borrower's
"Freeze Dried Algae" Eligible
Inventory that has been
processed within the previous
30 months, [calculated at the
lower of cost or market value
and determined on a first-in,
first-out basis], plus
(3) 40% of the value of Borrower's
"Pet Quality Algae" Eligible
Inventory, [calculated at the
lower of cost or market value
and determined on a first-in,
first-out basis], plus
(4) 35% of the value of Borrower's
"Bulk Capsules and Tablet"
Eligible Inventory,
[calculated at the lower of
cost or market value and
determined on a first-in,
first-out basis], plus
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Coast Business Credit Schedule to Loan and Security Agreement
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(5) 55% of the value of Borrower's
finished goods Eligible
Inventory located in the
United States, [calculated at
the lower of cost or market
value and determined on a
first-in, first-out basis],
plus
Provided, however, Coast shall
have the right to blend or
adjust any of the above
advance rates against Eligible
Inventory from time to time in
its sole and absolute
discretion at any time.
(d) Term Loan in the original
principal amount not to exceed
the lesser of:
(1) Two Million Four Hundred
Thousand Dollars ($2,400,000);
or
(2) Eighty percent (80%) of the
appraised auction value of
Borrower's existing Equipment,
with said auction value to be
determined by an appraiser
acceptable to Coast in its
sole and absolute discretion.
The Term Loan will be
repayable in sixty (60) equal
monthly installments of
principal, commencing one (1)
month after the Closing Date,
plus
(e) Equipment Acquisition Loans, to be
drawn within eighteen (18) months
from the Closing Date, in minimum
advances of One Hundred Thousand
Dollars ($100,000) in a total
amount not to exceed the lesser
of:
(1) Two Million Dollars
($2,000,000); or
(2) Seventy percent (70%) of the
cost of new Equipment acquired
by Borrower (after subtracting
taxes and installation
charges).
The Equipment Acquisition Loans
will be repayable in sixty (60)
monthly installments of principal
and interest. Borrower's ability
to obtain these Equipment
Acquisition Loans is subject to
Borrower's maintenance of a Debt
Service Coverage Ratio of at least
1.25 to 1.00 for a trailing three
(3) month period, to be determined
by Coast in its sole discretion.
================================================================================
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: The Interest Rate on the Receivable
Loans, Advances and the Inventory Loan
will be a rate equal to the Prime Rate
plus 2.5%
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Coast Business Credit Schedule to Loan and Security Agreement
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per annum, calculated on the basis of a
360-day year for the actual number of
days elapsed. The Interest Rate on the
Term Loans and the Equipment Acquisition
Loans will be a rate equal to the Prime
Rate plus 2.75% per annum, calculated on
the basis of a 360-day year for the
actual number of days elapsed. The
interest rate applicable to all Loans
shall be adjusted monthly as of the
first day of each month, and the
interest to be charged for each month
shall be based on the highest Prime Rate
in effect during the prior month, but in
no event shall the rate of interest
charged on any Loans in any month be
less than 9% per annum.
SECTION 3.1 - MINIMUM MONTHLY
INTEREST: An amount equal to the interest that
would have accrued had the daily
aggregate outstanding balance of all
Loans been equal to forty percent (40%)
of the Maximum Dollar Amount.
SECTION 3.2 - LOAN FEE: 3% of the Maximum Dollar Amount payable
on the Closing Date with an additional
.50% of the Maximum Dollar Amount to be
paid on each yearly anniversary of the
Closing Date, thereafter with all said
fees to be fully earned on the Closing
Date. The fees payable pursuant to this
provision will survive notwithstanding
an Early Termination of this Agreement
pursuant to Section 9.2 of this
Agreement.
SECTION 9.1 - RENEWAL FEE: One-half percent (.50%) of the Maximum
Dollar Amount per year.
SECTION 9.2 - EARLY TERMINATION
FEE: An amount equal to five percent (5%) of
the Maximum Dollar Amount (as defined in
the Schedule), if termination occurs on
or before the first anniversary of the
effective date of this Agreement; four
percent (4%) of the Maximum Dollar
Amount, if termination occurs after the
first anniversary and on or before the
second anniversary of the effective date
of this Agreement; and three percent
(3%) of the Maximum Dollar Amount, if
termination occurs after the second
anniversary and before the Maturity
Date.
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM
AVAILABILITY: $500,000
SECTION 5.14 - OTHER DOCUMENTS
AND AGREEMENTS: 1. Joint and Several Borrower Rider;
2. Continuing Guaranty of Daryl J.
Kollman;
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Coast Business Credit Schedule to Loan and Security Agreement
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3. Continuing Guaranty of Marta C.
Kollman;
4. Continuing Guaranty of Klamath;
5. Continuing Guaranty of Humascan;
6. UCC-1 financing statements, fixture
filings and termination statements;
7. Security Agreements (including those
covering copyrights, patents and
trademarks);
8. Secured Term Promissory Note (Term
Loan);
9. Secured Promissory Note (Equipment
Acquisition Loans);
10. Deeds of Trust on the Real Property
(and related documentation);
11. Landlord Waivers;
12. Opinion of Borrower's, Guarantors',
Klamath's and Humascan's Counsel;
13. Debt Subordination Agreement from
the Internal Revenue Service with
respect to Daryl J. Kollman, Marta C.
Kollman and Borrower;
14. Blocked Account Agreements;
15. Certificates of Title reflecting
Coast's lien on vehicles; and
16. Intercreditor Agreement from The
Nature Conservancy.
17. Subordination Agreement from Daryl
J. Kollman and Marta C. Kollman
respecting real property located at
1340, 1350 and 1360 S. 6th Street,
Klamath Falls, Oregon;
18. Collateral Assignment of Lease with
respect to canal lease;
19. Collateral Assignment of License
with respect to canal license;
20. Consent to Assignment of License
with respect to canal license; and
21. Bailee letters from processors.
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Coast Business Credit Schedule to Loan and Security Agreement
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SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: None.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: None.
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: Cell Tech.
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: To be provided by Borrower.
SECTION 6.10 - MATERIAL ADVERSE
LITIGATION: To be provided by Borrower.
SECTION 6.10 - FUTURE CLAIMS AND
LITIGATION: Borrower will promptly inform
Coast in writing of any claim,
proceeding, litigation or
investigation in the future
threatened or instituted by or
against Borrower involving any
single claim of One Hundred
Thousand Dollars ($100,000) or
more.
================================================================================
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS: Borrower's ongoing Tangible Net
Worth shall be no less than
Twenty Seven Million Dollars
($27,000,000) at any time
provided, however, that this
amount will be increased
quarterly in an amount equal to
80% of Borrower's net profit
after tax.
Coast agrees to temporarily waive
for a period of 120 days
commencing on the Closing Date,
the operation of the EBITDA
lender imposed against Advances
on recurring monthly Net
Collections, as described in
Section 2.1 of this Schedule,
provided, however, that if at the
end of said period Borrower is
not in compliance with said
EBITDA lender, Coast will be
entitled to (i) declare an Event
of Default, and (ii)
retroactively to the Closing
Date, increase the interest rate
applicable to the Obligations by
an additional three percent (3%).
SECTION 8.2 - INSURANCE: Subject to the limitations set
forth in Section 8.2 of the
Agreement, Coast shall release to
Borrower insurance proceeds with
respect to Equipment totaling
less than Fifty Thousand Dollars
($50,000).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with
the following:
1. Monthly Receivable agings of
wholesale customers, aged by
invoice date, within ten (10)
days after the end of each
month.
2. Monthly accounts payable
agings, aged by invoice date,
and outstanding or held check
registers within ten (10) days
after the end of each month.
29
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Coast Business Credit Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
3. Monthly perpetual inventory
reports for the Inventory
valued on a first-in,
first-out basis at the lower
of cost or market (in
accordance with GAAP), monthly
reports for the Inventory
which includes information by
category and location, and
such other inventory reports
as are reasonably requested by
Coast, all within ten (10)
days after the end of each
month.
4. Monthly internally prepared
financial statements, as soon
as available, and in any event
within thirty (30) days after
the end of each month.
5. Quarterly internally prepared
financial statements, as soon
as available, and in any event
within forty-five (45) days
after the end of each fiscal
quarter of Borrower.
6. Quarterly customer lists,
including customer name,
address, and phone number.
7. Annual financial statements,
as soon as available, and in
any event within ninety (90)
days following the end of
Borrower's fiscal year,
containing the unqualified
opinion of, and certified by,
an independent certified
public accountant acceptable
to Coast.
8. Ongoing proof that income
taxes payable by Borrower,
Guarantors and Borrower's
shareholders are being paid
quarterly, in form and
substance acceptable to Coast
in its sole and absolute
discretion.
9. Annual updated financial
statements of Guarantors, in
form and substance acceptable
to Coast in its sole and
absolute discretion.
SECTION 8.5 - NEGATIVE COVENANTS
(ACQUIRED ASSETS): Fifty Thousand Dollars
($50,000).
================================================================================
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: The last Business Day of the
month three (3) years from the
Closing Date, subject to
automatic renewal as provided
in Section 9.1 of the
Agreement, and early
termination as provided in
Section 9.2 of the Agreement.
30
<PAGE>
SCHEDULE 6.10
The New Algae Company v. Thorson (defamation and trade liable)
The New Algae Company v. Class Development, Inc. (declaratory relief)
Oregon Freeze Dry, Inc. v. The New Algae Company (breach of contract with
counterclaims by The New Algae Company against Oregon Freeze Dry)
Oberski, et al. v. Cell Tech
<PAGE>
SCHEDULE 6.3
1400 South Sixth Street
1410 South Sixt Street
2977 Century Court
106 Southtown
1300 Main Street
537 Northern Heights & Vacant Lots
803 Main Street
662 Spring Street/254 Market Street
1335 Klamath Avenue
661 Spring Street/254 Market Street
1340 South Sixth Street
1350 South Sixth Street
1360 South Sixth Street
Vancant Lot by OIT
Pape Lot
1010 Pine Street
7869 Short Road
- --------------------------------------------------------------------------------
COAST
CONTINUING GUARANTY
Borrower: THE NEW ALGAE COMPANY
dba Cell Tech,
an Oregon corporation
THE NEW EARTH COMPANY,
an Oregon corporation
Guarantor: HUMASCAN INC.,
a Delaware corporation
Date: August 6, 1999
This Continuing Guaranty (this "Guaranty") is executed by the above-named
guarantor ("Guarantor"), as of the above date, in favor of COAST BUSINESS
CREDIT, a division of Southern Pacific Bank, a California corporation ("Coast"),
with offices at 12121 Wilshire Boulevard, Suite 1111, Lost Angeles, California
90025, with respect to the Indebtedness (as hereinafter defined) of the
above-named borrowers (collectively, "Borrower").
1. CONTINUING GUARANTY. Guarantor hereby unconditionally guarantees and
promises to pay on demand to Coast, at the address indicated above, or at such
other address as Coast may direct, in lawful money of the United States, and to
perform for the benefit of Coast, as and for Guarantor's own debt, all
Indebtedness of Borrower now or hereafter owing to or held by Coast, until the
Indebtedness has been indefeasibly paid in full in accordance with Section 12
hereof. As used herein, the term "Indebtedness" is used in its most
comprehensive sense and shall mean and include without limitation: (a) any and
all debts, duties, obligations, liabilities, representations, warranties and
guaranties of Borrower heretofore, now, or hereafter made, incurred, or created,
whether directly to Coast or acquired by Coast by assignment or otherwise, or
held by Coast on behalf of others, however arising, whether voluntary or
involuntary, due or not due, absolute or contingent, liquidated or unliquidated,
certain or uncertain, determined or undetermined, monetary or nonmonetary,
written or oral, and whether Borrower may be liable individually or jointly with
others, and regardless of whether recover thereon may be or hereafter become
barred by any statute of limitations, discharged or uncollectible in any
bankruptcy, insolvency or other proceeding, or otherwise unenforceable, and (b)
any and all amendments, modifications, renewals and extensions of any or all of
the foregoing, including without limitation, amendments, modifications, renewals
and extensions which are evidenced by any new or additional instruments
documents or agreements; and (c) any and all attorneys fees, court costs, and
collection charges incurred in endeavoring to collect or enforce any of the
foregoing against Borrower, Guarantor, or any other person liable thereon
(whether or not suit be brought) and any other expenses of, for or incidental to
collection thereof. As used herein, the term "Borrower" shall include any
successor to the business and assets of Borrower, and shall also include
Borrower in its capacity as a debtor or debtor in possession under the federal
Bankruptcy Code, and any trustee custodian or receiver for Borrower or any of
its assets, should Borrower hereafter become the subject of any bankruptcy or
insolvency proceeding, voluntary or involuntary; and all indebtedness,
liabilities and obligations incurred by any such person shall be included in the
Indebtedness guaranteed hereby. This Guaranty is given in
1
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Coast Business Credit Continuing Guaranty
- --------------------------------------------------------------------------------
consideration for credit and other financial accommodations which may, from time
to time, be given by Coast to Borrower in Coast's sole discretion, but Guarantor
acknowledges and agrees that acceptance by Coast of this Guaranty shall not
constitute a commitment of any kind by Coast to extend such credit or other
financial accommodation to Borrower or to permit Borrower to incur indebtedness
to Coast.
2. PERFORMANCE UNDER THIS GUARANTY. In the event that Borrower fails to
make any payment of any Indebtedness on or before the due date thereof, or
perform, keep, observe or fulfill any obligation, agreement or covenant included
in the Indebtedness on or before the due date thereof, Guarantor immediately
shall cause such Indebtedness to by paid, performed, kept, observed, or
fulfilled, as the case may be.
3. WAIVERS. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument and all other
notices and demands to which Guarantor might be entitled, including without
limitation notice of all of the following: the acceptance hereof; the creation,
existence, or acquisition of any Indebtedness; the amount of the Indebtedness
from time to time outstanding; any foreclosure sale or other disposition of any
property which secures any or all of the Indebtedness or which secures the
obligations of any other guarantor of any or all of the Indebtedness: any
adverse change in Borrower's financial position; any other fact which might
increase Guarantor's risk; any default, partial payment or non-payment of all or
any part of the Indebtedness; the occurrence of any other Event of Default (as
hereinafter defined); any and all agreements and arrangements between Coast and
Borrower and any changes, modifications, or extensions thereof, and any
revocation, modification or release of any guaranty of any or all of the
Indebtedness by any person (including without limitation any other person
signing this Guaranty); (b) any right to require Coast to institute suit
against, or to exhaust its rights and remedies against, Borrower or any other
person, or to proceed against any property of any kind which secures all or any
part of the Indebtedness, or to exercise any right of offset or other right with
respect to any reserves, credits or deposit accounts held by or maintained with
Coast or any indebtedness of Coast to Borrower, or to exercise any other right
or power, or pursue any other remedy Coast may have; (c) any defense arising by
reason of any disability or other defense of Borrower or any other guarantor or
any endorser, co-maker or other person, or by reason of the cessation from any
cause whatsoever of any liability of Borrower or any other guarantor or any
endorser, co-maker or other person, with respect to all or any part of the
Indebtedness, or by reason of any act or omission of Coast or others which
directly or indirectly results in the discharge or release of Borrower or any
other guarantor or any other person or any Indebtedness or any security
therefor, whether by operation of law or otherwise; (d) any defense arising by
reason of any failure of Coast to obtain, perfect, maintain or keep in force any
security interest in, or lien or encumbrance upon, any property of Borrower or
any other person: (e) any defense based upon any failure of Coast to give
Guarantor notice of any sale or other disposition of any property securing any
or all of the Indebtedness, or any defects in any such notice that may be given,
or any failure to Coast to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by Coast to
dispose of any property securing any or all of the Indebtedness in a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Borrower or any
other guarantor or any endorser, co-maker or other person, including without
limitation any discharge of, or bar against collecting, any of the Indebtedness
(including without limitation any interest thereon), in or as a result of any
such proceeding and (g) the benefit of any and all statutes of limitation with
respect to any action based upon, arising out of or related to this Guaranty.
Until all of the Indebtedness has been paid, performed, and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor hereunder except
the full performance and payment of all of the Indebtedness. If any claim is
ever made upon Coast for repayment or recovery of any amount or amounts received
by Coast in payment of or on account of any of the Indebtedness, because of any
claim that any such payment constituted a preferential transfer or fraudulent
conveyance, or for any other reason whatsoever, and Coast repays all or part of
said amount by reason of any judgment, decree or order of any court or
administrative body having jurisdiction over Coast or any of its property, or by
reason of any settlement or compromise of any such claim effected by Coast with
any such claimant (including without limitation the Borrower), then and in any
such event, Guarantor agrees that any such judgment, decree, order, settlement
and compromise shall be binding upon Guarantor, notwithstanding any revocation
or release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and Guarantor shall be and remain liable to Coast under this Guaranty for the
amount so repaid or recovered, to the same extent as if such amount had never
originally been received by Coast, and the provisions of this sentence shall
survive, and continue in effect, notwithstanding any revocation or release of
this Guaranty. Guarantor hereby expressly and unconditionally waives all rights
of subrogation, reimbursement and indemnity of every kind against Borrower, and
all rights of recourse to any assets or property of Borrower, and all rights to
any
2
<PAGE>
Coast Business Credit Continuing Guaranty
- --------------------------------------------------------------------------------
collateral or security held for the payment and performance of any Indebtedness,
including (but not limited to) any of the foregoing rights which Guarantor may
have under any present or future document or agreement with any Borrower or
other person, and including (but not limited to) any of the foregoing rights
which Guarantor may have under any equitable doctrine of subrogation, implied
contract, or unjust enrichment, or any other equitable or legal doctrine.
Neither Coast, nor any of its directors, officers, employees, agents, attorneys
or any other person affiliated with or representing Coast shall be liable for
any claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by Guarantor or any other party through the ordinary
negligence of Coast, or any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Coast.
4. CONSENTS. Guarantor hereby consents and agrees that, without notice to
or by Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor hereunder, Coast may, from time to time before or after
revocation of this Guaranty, do any one or more of the following in Coast's sole
and absolute discretion; (a) accelerate, accept partial payments of, compromise
or settle, renew, extend the time for the payment, discharge, or performance of,
refuse to enforce, and release all or any parties to, any or all of the
indebtedness; (b) grant any other indulgence to Borrower or any other person in
respect of any or all of the Indebtedness or any other matter; (c) accept,
release, waive, surrender, enforce, exchange, modify, impair, or extend the time
for the performance, discharge, or payment of, any and all property of any kind
securing any or all of the Indebtedness or any guaranty of any or all of the
Indebtedness, or on which Coast at any time may have a lien, or refuse to
enforce its rights or make any compromise or settlement or agreement therefor
in respect of any or all of such property; (d) substitute or add, or take any
action or omit to take any action which results in the release of, any one or
more endorsers or guarantors of all or any part of the Indebtedness, including,
without limitation one or more parties to this Guaranty, regardless of any
destruction or impairment of any right of contribution or other right of
Guarantor; (e) amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Indebtedness, including the rate of
interest thereon; (f) apply any sums received from Borrower, any other
guarantor, endorser, or co-signer, or from the disposition of any collateral or
security, to any indebtedness whatsoever owing from such person or secured by
such collateral or security, in such manner and order as Coast determines in its
sole discretion, and regardless of whether such indebtedness is part of the
Indebtedness, is secured, or is due and payable; (g) apply any sums received
from Guarantor or from the dispositions of any collateral or security securing
the obligations of Guarantor, to any of the Indebtedness in such manner and
order as Coast determines in its sole discretion, regardless of whether or not
such Indebtedness is secured or is due and payable. Guarantor consents and
agrees that Coast shall be under no obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness. Guarantor
further consents and agrees that Coast shall have no duties or responsibilities
whatsoever with respect to any property securing any or all of the Indebtedness.
Without limiting the generality of the foregoing, Coast shall have no obligation
to monitor, verify, audit, examine, or obtain or maintain any insurance with
respect to, any property securing any or all of the Indebtedness.
5. ACCOUNT STATED. Coast's books and records showing the account between it
and the Borrower shall be admissible in evidence in any action or proceeding as
prima facie proof of the items therein set forth. Coast's monthly statements
rendered to Borrower shall be binding upon Guarantor (whether or not Guarantor
receives copies thereof), and shall constitute an account stated between Coast
and Borrower, unless Coast receives a written statement of Borrower's exceptions
within 30 days after the statement was mailed to Borrower. Guarantor assumes
full responsibility for obtaining copies of such monthly statements from
Borrower if Guarantor desires such copies.
6. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS. Guarantor
consents and agrees that without notice to or by Guarantor and without affecting
or impairing in any way the obligations or liability of Guarantor hereunder,
Coast may, from time to time, exercise any right or remedy it may have with
respect to any or all of the Indebtedness or any guaranty thereof, including
without limitation, judicial foreclosure, nonjuidical foreclosure, exercise of a
power of sale, and taking a deed, assignment or transfer in lieu of foreclosure
as to any such property, and Guarantor expressly waives any defense based upon
the exercise of any such right or remedy, notwithstanding the effect thereof
upon any of Guarantor's rights, including without limitation, any destruction of
Guarantor's right of subrogation against Borrower and any destruction of
Guarantor's right of contribution or other right against any other guarantor of
any or all of the Indebtedness or against any other person, whether by operation
of Sections 580a, 580d or 726 of the California Code of Civil Procedure, or any
comparable provisions of the laws of any other jurisdiction, or any other
statutes or rules of law now or hereafter in effect, or otherwise Pursuant to
Section 2856 to the California Civil Code. Guarantor waives all rights and
defenses that Guarantor may have because the Indebtedness is secured by real
property. This means, among other things: (a) Coast may collect
3
<PAGE>
Coast Business Credit Continuing Guaranty
- --------------------------------------------------------------------------------
from Guarantor without first foreclosing on any real or personal property
collateral pledged by Borrower or any other guarantor; and (b) if Coast
forecloses on any real property collateral pledged by Borrower or any other
guarantor: (i) the amount of the Indebtedness may be reduced only by the price
for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price; and (ii) Coast may collect from
Guarantor even if Coast, by foreclosing on such real property collateral, has
destroyed any right Guarantor may have to collect from Borrower or such other
guarantor. This is an unconditional and irrevocable waiver of any rights and
defenses Guarantor may have because the Indebtedness is secured by real
property. These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code
of Civil Procedure.
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding the
existence of any property securing any or all of the Indebtedness, Coast shall
have all of the rights of an unsecured creditor of Guarantor, including without
limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that Coast, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Coast therefrom may be less than the indebtedness
of the Guarantor under this Guaranty. Coast shall have all the rights of an
unsecured creditor against Guarantor, including without limitation the right of
Coast, prior to the disposition of said property, to obtain a temporary
protective order and writ of attachment against Guarantor. Guarantor waives the
benefit of Section 483.010(b) of the California Code of Civil Procedure and of
any and all other statutes and rules of law now or hereafter in effect requiring
Coast to first resort to or exhaust all such collateral before seeking or
obtaining any attachment remedy against Guarantor. Coast shall have no liability
to Guarantor as a result thereof, whether or not the actual deficiency realized
by Coast is less than the anticipated deficiency on the basis of which Coast
obtains a temporary protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which Coast may sustain or incur based upon or arising out of any of the
Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating in any way to
Borrower or the Indebtedness (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Coast or any of its
directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Coast). Notwithstanding any provision in this
Guaranty to the contrary, the indemnity agreement set forth in this Section
shall survive any termination or revocation of this Guaranty and shall for all
purposes continue in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all debts,
liabilities and obligations owing from Borrower to Guarantor, including any
security for the guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver, or any other person having custody or control over any or all of
Borrower's property are hereby authorized and directed to pay to Coast the
entire unpaid balance of the Indebtedness before making any payments whatsoever
to Guarantor, whether as a creditor, shareholder, or otherwise and insofar as
may be necessary for that purpose. Guarantor hereby assigns and transfers to
Coast all rights to any and all debts, liabilities and obligations owing from
Borrower to Guarantor, including any security for and guaranties of any such
obligations, whether now existing or hereafter arising, including without
limitation any payments, dividends or distributions out of the business or
assets of Borrower. Any amounts received by Guarantor in violation of the
foregoing provisions shall be received and held as trustee for the benefit of
Coast and shall forthwith be paid over to Coast to be applied to the
Indebtedness in such order and sequence as Coast shall in its sole discretion
determine, without limiting or affecting any other right or remedy which Coast
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. CONTINUING GUARANTY. This Guaranty includes Indebtedness arising under
successive transactions continuing, compromising, extending, increasing,
modifying, releasing, or renewing the Indebtedness, changing the interest rate,
payment terms, or other terms
4
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Coast Business Credit Continuing Guaranty
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and conditions thereof, or creating new or additional Indebtedness after prior
Indebtedness has been satisfied in whole or in part. Guarantor hereby waives and
agrees not to assert any right Guarantor has under Section 2815 of the
California Civil Code, or otherwise, to revoke this guaranty as to future
Indebtedness.
11. INDEPENDENT AND PRIMARY LIABILITY. This Guaranty is a primary and
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions, including any change of law or any
invalidity or irregularity with respect to any of the agreements between
Borrower and Coast. Guarantor agrees that Guarantor is severally and not jointly
and severally liable, with any other guarantor of the Indebtedness, to Coast, to
the extent set forth in Section 2 hereof, that the obligations of Guarantor
hereunder are independent of the obligations of Borrower or any other guarantor,
and that a separate action may be brought against Guarantor whether such action
is brought against Borrower or any other guarantor or whether Borrower or any
such other guarantor is joined in such action. Guarantor agrees that Guarantor's
liability hereunder shall be immediate and shall not be contingent upon the
exercise or enforcement by Coast of whatever remedies it may have against
Borrower or any other guarantor, or the enforcement of any lien or realization
upon any security Coast may at any time possess. Guarantor agrees that any
release which may be given by Coast to Borrower or any other guarantor shall not
release Guarantor. The liability of Guarantor hereunder shall not be affected,
revoked, impaired, or reduced by any one or more of the following: (a) any
direction as to the application of payment by Borrower or by any other party; or
(b) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (c) any payment on or reduction of any such
other guaranty or undertaking; or (d) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (e) any dissolution or
termination of, or increase, decrease, or change in membership of Guarantor, in
the event that Guarantor is a partnership. Guarantor hereby expressly represents
that he was not induced to give this Guaranty by the fact that there are or may
be other guarantors either under this Guaranty or otherwise, and Guarantor
agrees that any release of any one or more of such other guarantors shall not
release Guarantor from his obligations hereunder either in full or to any lesser
extent.
12. INDEFEASIBLE PAYMENT. The Indebtedness shall not be considered
indefeasibly paid for purposes of this Guaranty unless and until all payments to
Coast are no longer subject to any right on the part of any person, including
Borrower. Borrower as a debtor in possession, or any trustee (whether appointed
under the Bankruptcy Code or otherwise) of any of Borrower's assets, to
invalidate or set aside such payments or to seek to recoup the amount of such
payments or any portion thereof, or to declare same to be fraudulent or
preferential. In the event that, for any reason, any portion of such payments to
Coast is set aside or restored, whether voluntarily or involuntarily, after the
making thereof, then the obligation intended to be satisfied thereby shall be
revived and continued in full force and effect as if said payment or payments
had not been made, and Guarantor shall be liable for the full amount Coast is
required to repay plus any and all costs and expenses (including attorneys' fees
and expenses and attorneys' fees and expenses incurred pursuant to proceedings
arising under the Bankruptcy Code) paid by Coast in connection therewith.
13. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying on any manner upon
any representation or statement of Coast with respect thereto. Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting Coast to
furnish to him any information now or hereafter in Coast's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require Coast to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of Coast, Borrower, or any other person, or any other
matter, fact, or occurrence.
14. REPORTS AND FINANCIAL STATEMENT OF GUARANTOR. Guarantor shall, at its
sole cost and expense at any time and from time to time, prepare or cause to be
prepared, and provide to Coast upon Coast's request (i) such financial
statements and reports concerning Guarantor for
5
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Coast Business Credit Continuing Guaranty
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such periods of time as Coast may designate, (ii) any other information
concerning Guarantor's business, financial condition or affairs as Coast may
request, and (iii) copies of any and all foreign, federal, state and local tax
returns and reports of or relating to Guarantor as Coast may from time to time
request. Guarantor hereby intentionally and knowingly waives any and all rights
and privileges it may have not to divulge or deliver said tax returns, reports
and other information which are requested by Coast hereunder or in any
litigation in which Coast may be involved relating directly or indirectly to
Borrower or to Guarantor. Guarantor further agrees immediately to give written
notice to Coast of any adverse change in Guarantor's financial condition. All
reports and information furnished to Coast hereunder shall be complete, accurate
and correct in all respects. Whenever requested, Guarantor shall further deliver
to Coast a certificate signed by Guarantor (and, if Guarantor is a partnership,
by all general partners of Guarantor, in their individual capacities, and, if
Guarantor is a corporation, by the president and secretary of Guarantor, in
their individual capacities) warranting and representing that all reports,
financial statements and other documents and information delivered or caused to
be delivered to Coast under this Guaranty, are complete, correct and thoroughly
and accurately present the financial condition of Guarantor, and that there
exists on the date of delivery of said certificate to Coast no condition or
event which constitutes an Event of Default under this Guaranty.
15. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and
warrants to Coast that (i) Guarantor is a corporation duly organized and
existing under the laws of Delaware and has the power and authority to own its
own properties and assets, and to transact the business in which it is engaged,
and is properly licensed, qualified to do business and in good standing in every
jurisdiction where the conduct of its business requires it to be so qualified;
(ii) the execution, delivery and performance of this Guaranty are within
Guarantor's powers, are not in conflict with the terms of any charter, bylaw,
certificate of incorporation or other organization papers of Guarantor, and do
not result in a breach of or constitute a default under any contract,
obligation, indenture or other instrument to which Guarantor is a party or by
which Guarantor is bound or affected; (iii) there is no law, rule or regulation,
nor is there any judgment, decree or order of any court or governmental
authority binding on Guarantor which would be contravened by the execution,
delivery, performance or enforcement of this Guaranty and the other agreements,
instruments and documents executed by Guarantor in connection herewith
(collectively, with this Guaranty, the "Guarantor Loan Documents"); (iv)
Guarantor has taken all corporate action necessary to authorize the execution
and delivery of the Guarantor Loan Documents, and the consummation of the
transactions contemplated hereby and thereby. Upon their execution and delivery
in accordance with their respective terms, the Guarantor Loan Documents will
constitute legal, valid and binding agreements and obligations of Guarantor
enforceable against Guarantor in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance and similar laws and equitable principles affecting the enforcement
of creditors' rights generally; (v) no approval, consent, exemption or other
action by, or notice to or filing with, any governmental authority is necessary
in connection with the execution, delivery, performance or enforcement of the
Guarantor Loan Documents; and (vi) it is in Guarantor's direct interest to
assist Borrower in procuring credit because Borrower is an affiliate of
Guarantor, furnishes goods or services to Guarantor, purchases or acquires goods
or services from Guarantor, and/or otherwise has a direct or indirect corporate
or business relationship with Guarantor.
16. COSTS. Whether or not suit be instituted, Guarantor agrees to reimburse
Coast on demand for all reasonable attorneys' fees and all other reasonable
costs and expenses incurred by Coast in enforcing this Guaranty, or arising out
of or relating in any way to this Guaranty, or in enforcing any of the
Indebtedness against Borrower, Guarantor, or any other person, or in connection
with any property of any kind securing all or any part of the Indebtedness.
Without limiting the generality of the foregoing, and in addition thereto,
Guarantor shall reimburse Coast on demand for all reasonable attorneys' fees and
costs Coast incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to obtain legal advice; enforce or seek to enforce any of
its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent Coast in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either Coast or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party.
17. NOTICES. Any notice which a party shall be required or shall desire to
give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Coast at its address set forth in the heading of
this Guaranty and to
6
<PAGE>
Coast Business Credit Continuing Guaranty
- --------------------------------------------------------------------------------
Guarantor at his address set forth under his signature hereon, and such notices
shall be deemed duly given on the date of personal delivery or one day after the
date telecopied or 3 business days after the date of mailing as aforesaid. Coast
and Guarantor may change their address for purposes of receiving notices
hereunder by giving written notice thereof to the other party in accordance
herewith. Guarantor shall give Coast immediate written notice of any change in
his address.
18. CLAIMS. Guarantor agrees that any claim or cause of action by Guarantor
against Coast, or any of Coast's directors, officers, employees, agents,
accountants or attorneys, based upon, arising from, or relating to this
Guaranty, or any other present or future agreement between Coast and Guarantor
or between Coast and Borrower, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Coast, or by Coast's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Guarantor by the commencement of
an action or proceeding in a court of competent jurisdiction within Los Angeles
County, California, by the filing of a complaint within one year after the first
act, occurrence or omission upon which such claim or cause of action, or any
part thereof, is based and service of a summons and complaint on an officer of
Coast or any other person authorized to accept service of process on behalf of
Coast, within 30 days thereafter. Guarantor agrees that such one year period is
a reasonable and sufficient time for Guarantor to investigate and act upon any
such claim or cause of action. The one year period provided herein shall not be
waived, tolled, or extended except by a specific written agreement of Coast.
This provision shall survive any termination of this Guaranty or any other
agreement.
19. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such persons and their obligations hereunder shall be joint
and several. Without limiting the generality of the foregoing, if more than one
person has executed this Guaranty, this Guaranty shall in all respects be
interpreted as though each person signing this Guaranty had signed a separate
Guaranty, and references herein to "other guarantors" or words of similar effect
shall include without limitation other persons signing this Guaranty. As used in
this Guaranty, the term "property" is used in its most comprehensive sense and
shall mean all property of every kind and nature whatsoever, including without
limitation real property, personal property, mixed property, tangible property
and intangible property. Words used herein in the masculine gender shall include
the neuter and feminine gender, words used herein in the neuter gender shall
include the masculine and feminine, words used herein in the singular shall
include the plural and words used in the plural shall include the singular,
wherever the context so reasonably requires. If any provision of this Guaranty
or the application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
20. GENERAL PROVISIONS. Coast shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to Coast, and against Borrower to
the full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of Coast's right to proceed in any other form of action or proceeding or
against any other party. The failure of Coast to enforce any of the provisions
of this Guaranty at any time or for any period of time shall not be construed to
be a waiver of any such provision or the right thereafter to enforce the same.
All remedies hereunder shall be cumulative and shall be in addition to all
rights, powers and remedies given to Coast by law or under any other instrument
or agreement. Time is of the essence in the performance by Guarantor of each and
every obligation under this Guaranty. If Borrower is a corporation partnership
or other entity, Guarantor hereby agrees that Coast shall have no obligation to
inquire into the power or authority of Borrower or any of its officers,
directors, partners, or agents acting or purporting to act on its behalf, and
any Indebtedness made or created in reliance upon the professed exercise of any
such power or authority shall be included in the Indebtedness guaranteed hereby.
This Guaranty is the entire and only agreement between Guarantor and Coast with
respect to the guaranty of the Indebtedness of Borrower by Guarantor, and all
representations, warranties, agreements, or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superseded hereby.
No course of dealings between the parties, no usage of the trade, and no parol
extrinsic evidence of any nature shall be used or be relevant to supplement or
explain or modify any term or provision of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty. The terms and provisions
hereof may not be waived, altered, modified, or amended except in a writing
executed by Guarantor and a duly authorized officer of Coast. All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by Coast and its successors and assigns and shall be binding upon
Guarantor and his heirs, executors,
7
<PAGE>
Coast Business Credit Continuing Guaranty
- --------------------------------------------------------------------------------
administrators, personal representatives, successors and assigns. Section
headings are used herein for convenience only. Guarantor acknowledges that the
same may not describe completely the subject matter of the applicable Section,
and the same shall not be used in any manner to construe, limit, define or
interpret any term or provisions hereof.
21. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California without regard for principles of
conflicts of laws. In order to induce Coast to accept this Guaranty, and as a
material part of the consideration therefor, Guarantor (i) agrees that all
actions or proceedings relating directly or indirectly hereto shall, at the
option of Coast, be litigated in courts located within Los Angeles County,
California; (ii) consents to the jurisdiction of any such court and consents to
the service of process in any such action or proceeding by personal delivery or
any other method permitted by law; and (iii) waives any and all rights Guarantor
may have to transfer or change the venue of any such action or proceeding.
22. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. COAST AND GUARANTOR HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED
UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY
SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN COAST AND GUARANTOR; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF COAST OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
COAST OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
23. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
HUMANSCAN INC.,
a Delaware corporation
By: /s/ MARTA C. KOLLMAN
---------------------------------
Name: /s/ MARTA C. KOLLMAN
---------------------------------
Title: /s/ PRESIDENT
---------------------------------
ACCEPTED AND AGREED:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank, a California corporation
By: /s/ JOHN C. STEINER
---------------------------------
Title: Vice President Underwriting
------------------------------------
8
THURSDAY AUGUST 19, 9:13 AM EASTERN TIME
Company Press Release
SOURCE: HumaScan Inc.
HUMASCAN INC. CHANGES NAME TO CELL TECH INTERNATIONAL INCORPORATED AND
EXECUTES REVERSE STOCK SPLIT
KLAMATH FALLS, Ore., Aug. 19 /PRNewswire/ -- HumaScan Inc.
(OTC Bulletin Board: HMSC - news) announced today that, having filed its Amended
Certificate to the Certificate of Incorporation, the Company has changed its
name to Cell Tech International Incorporated (OTC Bulletin Board: EFLI - news).
Effective August 18, the Company began trading under its new name and symbol on
the Over-the-Counter market. The Company's new symbol, EFLI, reflects Cell
Tech's trademark "Energy for Life(R)".
The Company also executed a 1 for 10.8520933 reverse stock split, effective
August 18. Shares issued and outstanding currently stand at 9,433,000 and
authorized shares of common stock have been increased to 50,000,000.
Cell Tech also intends to apply to have its stock listed for trading on the
Nasdaq National Market after it completes its audit for fiscal 1998, its 1998
Form 10-K, Form 10-Q for the period ended March 31, 1999 and Form 10-Q for the
period ended June 30, 1999.
Marta C. Kollman, President and Chief Executive Officer of Cell Tech, stated,
"The Cell Tech name reflects the new business direction of the Company since the
closing of the transaction between HumaScan and The New Algae Company, Inc. and
The New Earth Company, Inc. As the leading manufacturer and distributor of Super
Blue Green(R) algae, with a unique niche in the marketplace, we have developed a
targeted growth strategy designed to place Cell Tech at the forefront of the
Nutraceutical industry. Our strategy includes expanding our market outside North
America, building Internet sales, acquiring other complimentary nutritional
supplement companies and continuing our focused research efforts on the effects
of Super Blue Green(R) algae on human nutrition."
Ms. Kollman continued, "The timing of our name change and new symbol, ELFI,
"Energy for Life(R)", coincided perfectly with the 11th Annual August
Celebration for our top 700 distributors and their families. Our distributors
are excited to finally have the opportunity to invest in a company that has
become such a large part of their lives. During the Celebration we introduced
two new Cell Tech products, a chewable algae tablet as well as a colon cleanser.
Christian Drapeau, Director of Research and Development, also presented the
Company's latest research results. Benefits of blue green algae were further
tied to improved immune and nervous system functioning. In a paper presented
June 15, 1999 at the 3rd World Congress of Brain Injury, blue-green algae
nutritional supplements, when added to Dynamic NeuroTherapy, a treatment
approach for mild traumatic brain injury, led to improved recovery outcomes for
brain injuries and disorders."
1
<PAGE>
Cell Tech is the leading vertically integrated manufacturer and retailer of a
broad line of high quality, value-priced nutritional supplements in the United
States. For 17 years, the Company has been harvesting and distributing
Aphanizomenon flos-aquae algae as a nutritional supplement under the trade name
Super Blue Green(R) Algae. Cell Tech currently has over 90,000 distributors who
sell its products throughout all 50 states, Puerto Rico, Guam and Canada. Cell
Tech has also invested in research and development projects with several major
universities including Massachusetts General Hospital, which is affiliated with
Harvard University, Neuroscience Laboratory in New Mexico, Royal Victoria
Hospital, and University of Illinois. In 1998, Cell Tech had sales of $70
million and net income of $3.2 million and had assets of $42 million and
stockholders' equity of $32.6 million as of December 31, 1998.
Additional information is available on Cell Tech's worldwide website at
www.celltech.com .
This release contains statements relating to future results of the Company and
the Company's market share in the industry (including certain projections and
business trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to, market acceptance of the Company's marketing and
merchandising concepts, changes in political and economic conditions, demand for
and market acceptance of new and existing products, availability and development
of new products, increased competition as well as other risks and uncertainties
detailed from time to time in the filings of the Company with the Securities and
Exchange Commission.
SOURCE: HumaScan Inc.
TUESDAY AUGUST 10, 8:32 AM EASTERN TIME
Company Press Release
SOURCE: HumaScan Inc.
HUMASCAN INC. COMPLETES AGREEMENT AND ACQUIRES THE NEW ALGAE COMPANY, INC. AND
THE NEW EARTH COMPANY, INC. NEW YORK, Aug. 10 /PRNewswire/ -- HumaScan Inc. (OTC
Bulletin Board: HMSC - news) announced today that on Friday, August 6, 1999, it
completed its agreement and plan of reorganization with the stockholders of The
New Earth Company, Inc. ("New Earth") and The New Algae Company, Inc. ("New
Algae") dba "Cell Tech" ( http://www.celltech.com ). New Earth and New Algae
also obtained a $15 million credit facility with Coast Business Credit, a
division of Southern Pacific Bank. The proceeds from the credit facility were
used to complete a dividend distribution to the shareholders of New Earth and
New Algae and to pay off their existing secured creditor.
2
<PAGE>
Under the terms of agreement, the stockholders of New Earth and New Algae
receive from the Company 13,000,000 shares of Common Stock and 748,507 shares of
a new class of Series B Convertible Preferred Stock, which, upon the effect of
the recapitalization, are convertible into 81,228,726 shares of Common Stock.
The shares of Common Stock being issued in the agreement and upon conversion of
the Preferred Stock will represent approximately 86 percent of the outstanding
shares of Common Stock following the transaction, calculated on a fully diluted
basis assuming the exercise of the Company's outstanding options and warrants
that have an exercise price of $1.75 or less.
Marta Kollman, President and Chief Executive Officer of HumaScan, stated, "The
combination of New Earth and New Algae with HumaScan is a new beginning for Cell
Tech and will result in a number of exciting changes and developments for
current and future shareholders of HMSC. As the leading manufacturer and
distributor of Super Blue Green algae, with a unique niche in the marketplace,
we plan to use the combined strengths of New Earth and New Algae to aggressively
accelerate the Company to the forefront of the Nutraceutical industry." Cell
Tech is the leading vertically integrated manufacturer and retailer of a broad
line of high quality, value-priced nutritional supplements in the United States.
It markets more than 48 products under the brand Super Blue Green(R). In 1998,
Cell Tech had sales of $70 million and net income of $3.2 million and had assets
of $42 million and stockholders' equity of $32.6 million as of December 31,
1998.
The majority shareholders of HumaScan have voted to change its name to Cell Tech
International Incorporated and effect a 1:10.8520933 reverse stock split. The
Company's board of directors are Donald P. Hateley, Chairman of the Board, a Los
Angeles-based attorney & CPA with Hateley & Hampton, Marta C. Kollman, President
and Chief Executive Officer, Justin Strauss, Secretary & Vice President of
Marketing, Donald Anderson, Senior Scientist at Woods Hole Oceanographic
Institution, Gerald Olsen, of the advertising agency Colle & McVoy and Chris
Blaxland, HumaScan's former President and Chief Executive Officer.
The Company will apply to have its stock listed for trading on the Nasdaq
National Market after it completes a number of steps including its audit for
fiscal 1998, its 1998 Form 10-K, Form 10-Q for the period ended March 31, 1999
and Form 10-Q for the period ended June 30, 1999, files its Amended Certificate
to the Certificate of Incorporation changing its name from HumaScan Inc. to Cell
Tech International Incorporated and increases its authorized shares of common
stock to 50,000,000. The conversion of the Series B Preferred Stock into shares
of Common Stock will take place upon the approval of the Amended Certificate of
Certificate of Incorporation by the Secretary of State for the State of
Delaware.
For 17 years, since its founding in 1982 by Daryl and Marta Kollman, Cell Tech
has been harvesting and distributing Aphanizomenon flos-aquae algae as a
nutritional supplement under the trade name Super Blue Green(R) Algae. Cell Tech
currently has over 90,000 distributors who sell its products throughout all 50
states, Puerto Rico, Guam and Canada. Cell Tech has also invested in research
and development projects with several major universities including Massachusetts
General Hospital, which is affiliated with Harvard University, Neuroscience
Laboratory in New Mexico, Royal Victoria Hospital, and University of Illinois.
Cell Tech plans
3
<PAGE>
to expand its market outside of North America, build its Internet sales, acquire
other complimentary nutritional supplements companies and continue its research
efforts on the effects of Super Blue Green(R) Algae on human nutrition.
The results of a recent study with Massachusetts General Hospital were announced
in late March at the national meeting of the American Chemical Society, the
world's largest scientific society. The study confirmed that Super Blue Green(R)
Algae, when taken as a nutritional supplement, significantly reduces the amount
of blood cholesterol in animals.
Donald P. Hateley, Chairman of the Board of HumaScan, said, "The completion of
this transaction, which includes the credit facility obtained by New Earth and
New Algae, will allow Cell Tech to implement its operational and expansion plans
in a more efficient and effective manner and provide it with better access to
the capital markets."
This release contains statements relating to future results of the Company and
the Company's market share in the industry (including certain projections and
business trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to, market acceptance of the Company's marketing and
merchandising concepts, changes in political and economic conditions, demand for
and market acceptance of new and existing products, availability and development
of new products, increased competition as well as other risks and uncertainties
detailed from time to time in the filings of the Company with the Securities and
Exchange Commission.
This release and the prior release are available on the Cell Tech's Worldwide
website at www.celltech.com .
SOURCE: HumaScan Inc.
CONTACT PERSON
Chris Blaxland
(610) 971-2346
Donald P. Hateley
(310) 576-4758
FOR IMMEDIATE RELEASE
JULY 19, 1999
HUMASCAN, INC. ENTERS INTO AGREEMENT TO ACQUIRE THE NEW ALGAE COMPANY, INC.
AND THE NEW EARTH COMPANY, INC.
July 19, 1999 -- HumaScan, Inc. (OTC Bulletin Board: HMSC) today announced that
it has entered into an agreement to acquire The New Algae Company, Inc. and The
New Earth
4
<PAGE>
Company, Inc. which do business under the name "Cell Tech." Under the
agreement, HumaScan, in exchange for the stock of the Cell Tech companies, will
issue to their stockholders, Marta C. Kollman and Daryl J. Kollman, shares of
HumaScan's Common Stock and Series B Preferred Stock which will represent more
than 92% of the outstanding equity and voting power of HumaScan. The existing
HumaScan stockholders will own approximately 7.5% of the equity and voting power
of HumaScan upon completion of the transaction. The Cell Tech companies will be
operated as wholly owned subsidiaries of HumaScan.
Cell Tech is the leading vertically integrated manufacturer and retailer of a
broad line of high quality, value-priced nutritional supplements in the United
States. It markets more than 48 products under the brand Super Blue Green(R). In
1998, Cell Tech had sales of $70 million, net income of $3.2 million, assets of
$42 million and stockholders' equity of $32.6 million.
After the closing, which is expected to occur by mid-August, HumaScan will
change its name to Cell Tech International, Inc. and will be operated by the
current management of Cell Tech. Its board of directors will consist of six
members: Marta C. Kollman, Cell Tech's President and Chief Executive Officer;
Justin Straus, its Vice President of Marketing; Donald P. Hateley, an attorney
and CPA with the Los Angeles-based law firm of Hateley & Hampton; Donald
Anderson, Senior Scientist at Woods Hole Oceanographic Institution; Gerald
Olsen, of the advertising agency Colle & McVoy; and Chris Blaxland, HumaScan's
current President and Chief Executive Officer. It is expected that, after the
closing, Cell Tech International will apply to have its stock listed for trading
on the Nasdaq National Market. It is also expected that the capital structure of
the company will be changed through a reverse stock split and the conversion of
the Series B Preferred Stock into shares of Common Stock.
For 17 years, since its founding in 1982 by Daryl and Marta Kollman, Cell Tech
has been harvesting and distributing Aphanizomenon flos-aquae algae as a
nutritional supplement under the trade name Super Blue Green(R) Algae. Cell Tech
currently has over 90,000 distributors who sell its products throughout all 50
states, Puerto Rico, Guam and Canada. Cell Tech has also invested in research
and development projects with several major universities including Massachusetts
General Hospital, which is affiliated with Harvard University, Neuroscience
Laboratory in New Mexico, Royal Victoria Hospital, and University of Illinois.
Cell Tech plans to expand its market outside of North America, build its
Internet sales, acquire other complimentary nutritional supplements companies
and continue its research efforts on the effects of Super Blue Green(R) Algae on
the body.
The results of a recent study with Massachusetts General Hospital were announced
in late March at the national meeting of the American Chemical Society, the
world's largest scientific society. The study confirmed that Super Blue Green(R)
Algae, when taken as a nutritional supplement, significantly reduces the amount
of blood cholesterol in animals.
Marta Kollman, Chief Executive Officer of Cell Tech, said, "hundreds of
thousands of people take Super Blue Green(R) Algae everyday because of the many
positive effects it has. We want to significantly increase the number of
consumers of our products."
5
<PAGE>
As previously announced, HumaScan has discontinued its former breast disease
detection business and is presently inactive.
The contemplated transactions are subject to the satisfaction of certain
conditions customary in transactions of such nature. Wharton Capital Partners, a
New York-based financial advisory firm and Hateley & Hampton are facilitating
the transasction.
This release contains statements relating to future results of the Company and
the Company's market share in the industry (including certain projections and
business trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties, including
but not limited to, market acceptance of the Company's marketing and
merchandising concepts, changes in political and economic conditions, demand for
and market acceptance of new and existing products, availability and development
of new products, increased competition as well as other risks and uncertainties
detailed from time to time in the filings of the Company with the Securities and
Exchange Commission.
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Pacific NorthWest Appeals Office Western Region
Room 1117 M/S 0680
1220 SW Third Ave PERSON TO CONTACT:
Portland, OR 97204 Gil Moss
CONTACT PERSON ID#:
Date: JUNE 18, 1999 93-00666
TELEPHONE NUMBERS:
(503) 326-5726
FAX (503) 326-4951
Daryl J. and Marta C. Kollman REFER REPLY TO:
6707 Amber Avenue AP:PNW:PORGSM
Klamath Falls OR 97603 TAXPAYER IDENTIFICATION No.:
###-##-####
TAX:
RECEIVED Federal Income Tax
TAX PERIOD(S) ENDED:
JUNE 18, 1999 1996, 1997
GREENE & MARKLEY, P.C. IN RE:
Due Process Appeal (Tax Court)
CERTIFIED MAIL
NOTICE OF DETERMINATION
CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320 AND/OR 6330
Dear Mr. & Mrs. Kollman:
We have reviewed the proposed collection action for the period(s) shown
above. This letter is your legal Notice of Determination, as required by law. A
summary of our determination is stated below and the enclosed statement shows,
in detail, the matters we considered at your Appeals hearing and our
conclusions.
If you want to dispute this determination in court, you must file a
petition with the United States Tax Court for a redetermination within 30 days
from the date of this letter.
To get a petition form and the rules for filing a petition, write to:
Clerk, United States Tax Court, 400 Second Street, NW, Washington, D.C. 20217.
The time limit for filing your petition is fixed by law. The courts cannot
consider your case if you file late. If the court determines that you made your
petition to the wrong court, you will have 30 days after such determination to
file with the correct court.
If you do not petition the court within the time frame provided by law,
your case will be returned to the originating IRS office for action consistent
with the determination summarized below and described on the attached pages.
<PAGE>
-2-
Daryl J. and Marta C. Kollman
If you have any questions, please call the person whose name and telephone
number are shown above.
Sincerely,
/s/ LES LUCAS
---------------------------------
Les Lucas
Associate Chief
SUMMARY OF DETERMINATION:
Daryl and Marta Kollman ("the Kollmans") hereby propose to pay their income
tax underpayments for the 1996 through 1998 years and any income tax
deficiencies for 1993 through 1995 as set forth below. These tax liabilities
shall hereinafter be collectively referred to as the "Tax Liabilities." This
proposal shall hereinafter be referred to as the "Payment Proposal."
I. BACKGROUND
The Kollmans currently owe approximately $14,000,000(i) in federal income
taxes for the 1996 and 1997 years. They estimate owing approximately $2,450,000
in additional income tax for the 1998 year. The IRS Exam Division has proposed
adjustments for the 1993 through 1995 years that would result, if the IRS
prevailed on all issues, in approximately $1,500,000 in additional federal tax.
The Kollmans owe assessed Oregon income taxes for the 1997 year of approximately
$1,450,000, and estimate a 1998 state income tax liability of $711,000.
The foregoing tax liabilities total approximately $20,100,000. The Kollmans
do not believe they owe this entire amount. The 1993 through 1995 federal income
tax deficiencies are currently under Appeals consideration. The Kollmans believe
that these deficiencies should be resolved for substantially less than the
asserted amount.
This year, the Kollmans succeeded in negotiating a securities transaction
and related corporate loan that together, with related transactions, can satisfy
their federal and state income tax liabilities. There will be an initial
stock-for-stock exchange between the Kollmans and Humascan, Inc. ("Humascan"), a
publicly traded corporation. In this exchange, the Kollmans will transfer the
stock in their wholly owned corporations, the New Algae Company, Inc. and
- ----------
(1) Unless otherwise specified, all tax amounts reflected herein will
incorporate tax, interest, and asserted penalties.
<PAGE>
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Daryl J. and Marta C. Kollman
the New Earth Company ("NAC/NEC") for stock of Humascan. The Kollmans will
receive publicly tradable stock of Humascan in exchange for their closely held
shares.
Once the NAC/NEC businesses are held as subsidiaries of Humascan, Coast
Business Credit, Inc. ("CBC") will loan NAC/NEC up to $15,000,000 (hereinafter,
the "CBC Loan"). CBC has already issued a commitment letter and definitive
documentation for this loan. The amount available will be based upon CBC's
evaluation of NAC/NEC's assets and prospects. The Kollmans anticipate that
approximately $2,000,000 of the loan proceeds will be used to pay off an
encumbrance on NAC assets and stock held by Tad's Algae, Inc. The sum of
$7,600,000 of the loan proceeds will be distributed to the Kollmans and paid
towards the Tax Liabilities and the Kollmans' state income tax liabilities. Just
prior to the exchange of the stock in NAC/NEC for Humascan stock, NAC/NEC will
issue a note for $7,600,000 to the Kollmans as a dividend. NAC/NEC will also
transfer title to the Rivers of Light Ranch to the Kollmans as a dividend. The
Kollmans will receive the $7,600,000 loan proceeds from NAC/NEC as payment of
this note, and immediately pay the proceeds towards their tax liabilities. The
Kollmans will use approximately $2,100,000 of these funds to satisfy their 1997
and 1998 state income tax liabilities.
CBC`s loan commitment letter conditions availability on several events,
including: (a) conversion of NAC/NEC to a publicly traded corporation (the
Humascan transaction will satisfy this provision); and (b) the IRS'
subordination of its lien upon, and its unconditional forbearance of collection
(except in the event of default as described herein) against, certain items of
real and personal property the Kollmans own (hereinafter referred to as the
"subordination properties"). The subordination properties are described on the
attached Exhibit A.
The Kollmans intend to pay the balance of the Tax Liabilities through sales
of their Humascan stock. The Kollmans, however, must abide by the stock sale
restrictions of the Securities Exchange Commission in doing so. Rule 144 of the
Securities Exchange Commission limits the Kollmans, as majority shareholders and
officers of the corporation, from freely selling their shares on public
exchanges, and will generally limit them to sales of up to 1 % of the total
outstanding shares of Humascan during each calendar quarter on a public
exchange. The Kollmans can sell shares to securities dealers or retire stock
with the corporation in transactions funded by third parties, but must meet
various requirements and accept substantial discounts in the sales price when
doing so. The Kollmans must be allowed wide discretion to determine how and when
their shares are sold to obtain optimal prices and avoid depressing the market.
The Kollmans ultimately propose to pay the balance of the Tax Liabilities (after
payment of the initial $5,500,000 in 1999) in quarterly installments of $600,000
to 900,000 each.
The IRS' cooperation in discharging the NAC/NEC stock from its tax liens
and/or subordinating its liens is critical to the close of the securities and
loan transactions. The Kollmans cannot close the stock exchange transaction
without the discharge of the NAC/NEC stock. The Kollmans cannot bring the CBC
loan into existence without a discharge of the
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Daryl J. and Marta C. Kollman
Subordination Property (or subordination of the tax liens thereon and a promise
of unconditional forbearance). Should the IRS refuse or unduly delay the
issuance of the necessary certificates, the transactions may collapse and injure
the interests of the IRS, the Kollmans, and all other involved parties. The
Kollmans have spent a year exploring and negotiating the securities and loan
transactions. It is much less than clear that an equivalent opportunity will be
found if the current transactions do not close.
II. PAYMENT PROPOSAL
1. 1999 PAYMENT FROM LOAN PROCEEDS. The Kollmans will pay $5,500,000 to the
IRS within 10 days of the date the CBC loan is funded. The $5,500,000 payment
shall first be applied against the Kollmans' income tax for 1998. The balance of
this payment shall then be applied towards the 1997 tax.
2. SUBSEQUENT INSTALLMENT PAYMENTS. The Kollmans will make an initial
installment payment to the United States Treasury on or before January 31, 2000,
equal to the amount realized from a sale under Rule 144 of 1 % of the Humascan
shares outstanding during the last calendar quarter of 1999, less: (a) costs of
sale (including, without limitation, fees and commissions incurred in connection
with the sale); and (b) a reserve for state and federal capital gains tax. The
Kollmans will provide the IRS an accounting of the shares sold, amount realized,
sales expense, and gains tax computation within 30 days after each sale. The
Kollmans will fund the reserve for capital gains tax within 30 days after each
sale. The funds held in the capital gains reserve account may be withdrawn only
to pay capital gains tax.
Thereafter, and by the last day of the month following the end of each
succeeding calendar quarter, the Kollmans will pay the IRS:
(a) not less than $600,000 for the first quarter of 2000, through the
second quarter of 2001; then
(b) Not less than $900,000 for each quarter thereafter until the Tax
Liabilities are paid.
The payments made by the Kollmans towards the Tax Liabilities will be
applied first to the balance in tax due for 1997, then to the balance in tax due
for 1996, and then to any deficiencies for 1993 through 1995.
The Kollmans will generate most of the funds through sales of stock, and
shall bear unfettered discretion to determine the method and timing of the
sales. Should the Kollmans choose to pay the IRS more than the required amount
as described above for a particular quarter, the excess payment amount over the
required amount shall be deemed a credit against the payment due for the
following quarter and as many succeeding quarterly payments as may be accounted
for by the amount paid. A $2,000,000 payment for a quarter for which $900,000 is
due, for example, will relieve the Kollmans of the obligation to make the next
quarter's
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Daryl J. and Marta C. Kollman
$900,000 installment payment, and will reduce the amount due for the quarter
thereafter to $700,000.
3. ESCROW OF STOCK. The Humascan stock issued to the Kollmans shall be
physically held by West Coast Trust Co., Inc. ("WCT"), or such successor to WCT
as elected by the Kollmans and approved by the IRS, until the Tax Liabilities
are paid. As set forth in the separate Pledge and Escrow Agreement executed
between WCT, the Kollmans, and the IRS, WCT shall hold all shares of the
Kollmans' Humascan stock for the period the Kollmans are making payments to the
IRS under this payment proposal, and shall not release any shares unless:
a. The Kollmans present to WCT a copy of a lien discharge certificate
issued by the IRS that discharges a specific number of shares to the
Kollmans for the purpose of sale or other disposition, as discussed below
in section 4a and 4b of this proposal. In such event, WCT shall serve as
the escrow agent for the sales or other dispositions of the shares, and
shall distribute the proceeds of sale or other disposition and administer
the certificates of stock in the manner prescribed by the Pledge and Escrow
Agreement;
b. The Kollmans or the IRS present to WCT a letter from the IRS
verifying that the Tax Liabilities have been paid in full. In such event,
WCT will release all shares of Humascan stock it then holds to the
Kollmans, and WCT's obligations under the Pledge and Escrow agreement shall
be terminated;
c. The IRS advises WCT in writing that a default as defined in section
III.E. of this Payment Proposal has occurred, and the IRS levies upon or
seizes the Kollmans' Humascan stock. In such event, WCT will release the
stock it then holds to the IRS within 21 days after receipt of the levy or
seizure notice;
d. The IRS authorizes in writing a release of stock to the Kollmans
for any other reason; or
e. WTC is required to deliver the stock to the Kollmans or some other
person by order of a court or other compulsion of law.
4. TAX COMPLIANCE. During the periods while the Kollmans are required to
make payments under this payment proposal, the Kollmans shall timely file all
income tax returns (with consideration of valid extensions), and pay all taxes
due. An uncured breach of any tax reporting or payment requirement for current
taxes during the period of this Proposal will be deemed a default of this
Proposal.
5. THE KOLLMANS' RIGHT TO MAKE OTHER OR ALTERNATE PAYMENTS. Throughout the
term of this Payment Proposal, the Kollmans may, but shall not be required to,
liquidate such property, or engage in such transactions, as will result in
timely payment of sums that are, at minimum, equal to the payments the IRS would
receive from the sales of stock discussed
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Daryl 3. and Marta C. Kollman
above. The IRS shall issue any certificates of discharge necessary for closure
of such sales or transactions within 30 days after receipt of a written request
therefore, if the IRS is assured receipt of the net proceeds of the sale or
transaction. For purposes of this paragraph; "net proceeds" means the amount
realized from the sale or other transaction, less the costs of sale and
commissions or fees associated therewith, and less an appropriate reserve for
capital gains or other state and federal taxes that arise out of the sale or
transaction. The IRS shall grant reasonable consideration of any requests for
relief from liens if the Kollmans propose a sale or other transaction with
distribution of any proceeds to persons or entities other than the IRS.
III. AGREEMENTS OF THE INTERNAL REVENUE SERVICE
To facilitate the closing of the Humascan stock exchange and the CBC loan,
the IRS agrees to the following.
A. CERTIFICATES OF DISCHARGE. The Internal Revenue Service shall issue
certificates of discharge under ss. IRC 6323(b) for the following items of
property respecting all perfected and unperfected liens the IRS holds:
i. The Kollmans' NAC and NEC stock; and
ii. The Kollmans' Humascan stock, in the manners and under the conditions
described below.
The certificate of discharge respecting the NAC/NEC stock will be issued
under IRC 6325(b)(3). To facilitate close of the stock exchange, the IRS will
tender the certificate of discharge for the NAC/NEC stock to Jeffrey, M. Wong,
Esquire, of Greene & Markley ("G&M') promptly after acceptance of this proposal
and upon G&M's written certification that, except as otherwise agreed to in
writing between the IRS and the Kollman or as required by court order or other
compulsion of law: (i) the certificate of discharge shall only be released from
his possession to facilitate the stock exchange; and (ii) he will arrange his
personal receipt of the Humascan shares, upon receipt, will deliver the shares
directly to WCT as soon as possible for WCT to hold under the Pledge and Escrow
Agreement.
To facilitate sales of the Kollmans' Humascan stock for payment of the Tax
Liabilities:
a. The IRS agrees to issue certificates of discharge under IRC ss.
6325(b) to the Kollmans at least once during or for each calendar quarter
until the Tax Liabilities are paid, that discharge specified numbers of
Humascan shares from the federal tax liens, upon receipt from the Kollmans
(or their authorized representatives) of written certification that: (i)
states the Kollmans may lawfully sell and propose to sell Humascan stock on
a public exchange under Rule 144; and (ii) specifies the number of Humascan
shares to be sold. The IRS shall issue its first such certificate of
discharge on or before October 1, 1999, and shall issue all subsequent
discharge certificates sale within fifteen days after written certification
is delivered to the IRS. The IRS shall
<PAGE>
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Daryl 3. and Marta C. Kollman
freely issue these certificates of discharge unless a default of this
Payment Proposal has occurred and has not been cured. The IRS shall further
take such additional, reasonable actions as may be necessary or appropriate
to facilitate the Kollmans liquidation of stock on the public exchanges for
payment of the Tax Liabilities; and
b. The IRS additionally agrees to issue certificates of discharge
under IRC ss. 6325(b) to the Kollmans or to WCT, as requested by the
Kollmans, that discharge further shares of Humascan stock for non-public
sales to dealers or other transactions that will result in the conversion
of the Kollmans' Humascan holdings to cash for payment of the Tax
Liabilities. The Kollmans shall make such request for additional discharges
of stock in writing, specifying:
(i) the number of shares to be discharged;
(ii) the nature of the transaction contemplated and the names,
addresses, and phone numbers of the parties thereto;
(iii) the sums in cash the Kollmans anticipate the IRS will receive
from the discharge; and
(iv) an estimate of the date the IRS will receive payment.
The IRS agrees to issue such additional certificates of discharge within 15
days after such requests have been made, so long as:
(1) sufficient information has been given to the IRS to verify the
existence of the proposed transaction; and
(2) the net proceeds of the transaction will be paid to the IRS in
satisfaction of the Tax Liabilities or other federal income tax liabilities of
the Kollmans. For purposes of this paragraph, "net proceeds" means the total
amount realized by the Kollmans from the discharged shares of Humascan stock,
less all costs of sale, commissions and other fees, an appropriate reserve for
federal and state capital gains tax, and any amounts the IRS agrees to allow the
Kollmans to receive.
B. CERTIFICATE OF SUBORDINATION AND AGREEMENT TO FOREBEAR. The Internal
Revenue Service agrees to issue a Certificate of Subordination under IRC ss.
6325(d) respecting the Subordination Properties, that assures CBC of priority
over all liens for the Tax Liabilities for the CBC Loan, and all subsequent and
future advances made by CBC under the CBC Loan. The IRS further agrees to
forbear any administrative or judicial acts to enforce or foreclose any liens
for the Tax Liabilities against the Subordination Properties during the period
that any portion of the CBC Loan remains unpaid, unless CBC has already
commenced foreclosure proceedings or the Subordination Properties have become
assets of a Title 11 estate or receivership. An event of default by the Kollmans
shall not abrogate or reduce this
<PAGE>
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Daryl J. and Marta C. Kollman
commitment by the IRS to forbear with regard to the Subordination Properties.
The IRS further agrees to issue such future certificates of subordination as may
become appropriate or necessary under a refinancing or other replacement of CBC
as NAC/NEC's lender, so long as the IRS' security position with regard to assets
owned by the Kollmans is not impaired.
C. TEMPORARY FORBEARANCE FROM LIEN FILINGS. The IRS shall not file any
notices of tax lien for the 1997 income tax due from the Kollmans until the
Humascan stock and CBC loan transactions have closed. The IRS may thereafter
file notices of tax lien for any liabilities due from the Kollmans as provided
by applicable law.
D. FORBEARANCE UPON LEVY. The IRS shall not levy, foreclose, or sue for
collection of any of the Tax Liabilities during any period the Kollmans are not
in default of this Payment Proposal or any modification of this Proposal.
E. DEFINITION OF DEFAULT AND NOTICE OF BREACH. For purposes of this Payment
Proposal, a default shall constitute the failure by the Kollmans to cure a
breach of any obligation due from them under this Payment Proposal within 30
days written notice by the IRS of such breach, or the failure by the Kollmans to
establish that no breach occurred within the same 30 days. Notice of an alleged
breach shall be delivered or mailed certified to the Kollmans at 1300 Main
Street, Klamath Falls, OR 97601 (or such replacement address as the Kollmans may
designate in writing to the IRS Appeals Office bearing responsibility for this
case), and to all representatives of record for the Kollmans at the time notice
is issued. Sections 7502 and 7503 of Title 26 shall apply regarding computation
of the 30 day period. The assessment of an income tax deficiency against the
Kollmans for any year shall not constitute a breach. The Kollmans' cure of a
default after 30 days written notice of breach shall reinstate the rights and
obligations of the Kollmans and the IRS under this Payment Proposal.
F. REDUCTION OF FAILURE TO PAY PENALTIES. The accrual rate of the penalties
for failing to pay tax under IRC ss. ss. 6651(a)(2) or (3) shall be reduced to
.25% per month as provided by law. Nothing, however, in this paragraph or
payment proposal, or the IRS acceptance of this payment proposal, shall be
construed to limit or impair the Kollmans' right to contest any failure to pay
penalties or other penalties charged, assessed, or asserted by the IRS as
provided by law.
G. REASONABLE RECONSIDERATION. The Appeals Office will retain jurisdiction
over this payment proposal and shall grant reasonable consideration to any
requests for modification. The Kollmans shall bear such rights to appeal any
refusal by Appeals to reconsider or agree to requested modifications to the
United States Tax Court as provided by applicable law.
H. RELEASES OF LIENS. The IRS will issue certificates of release of lien
under IRC ss. 6325(a) as each of the Tax Liabilities are satisfied, within 30
days of the Kollmans' completion of payment for each tax period and the
Kollmans' written request therefore.
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Daryl J. and Marta C. Kollman
I. TERMINATION OF THIS PAYMENT PROPOSAL. Upon the Kollmans' satisfaction of
the Tax Liabilities, the IRS will issue the Kollmans a letter stating that the
Tax Liabilities have been paid, and their duties under this Payment Proposal
have terminated.
1. CONTINUING AGREEMENT. The terms of this agreement shall be binding upon
all executors, administrators, conservators, and other parties who receive
property from one or both of the Kollmans due to death or incapacity. This
agreement shall be binding upon each of the Kollmans in the event of divorce
except that: 1) the amounts due each quarter to the IRS shall not be altered;
and (2) a default of one spouse on current tax obligations after commencement of
divorce proceedings shall not constitute a default by the other.
K. EXAMINATION OF RETURNS. Nothing in this agreement shall be deemed to
preclude the IRS's examination of any return or taxable period of the Kollmans
as permitted by law.
L. EXTENSION OF THE STATUTE OF LIMITATIONS. If any portions of the Tax
Liabilities have not been paid by the ninth anniversary of the respective tax
assessments, the IRS may request, in writing, the Kollmans agreement to an
extension of the collection limitations period for the particular liability or
liabilities for the shorter of (a) five years, or (b) the limitations period
extension then allowed by law. The Kollmans shall agree to any extensions
requested under this paragraph.
/s/ LES LUCAS
---------------------------------
Les Lucas
Associate Chief
<PAGE>
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Daryl J. and Marta C. Kollman
EXHIBIT A
PROPERTIES LIENED BY COAST BUSINESS CREDIT FOR COLLATERAL
Address Description
- ------- -----------
537 Northern Heights Shipping Facility - Lots 9, 10, 11, 12, 13
2977 Century Ct. Order Operations Building - Lots 5, 6
Lot 14 Vacant Land - College Industrial Park
Section 17 Land Vacant Land - College Industrial Park
1400 S. 6th Warehouse Facility
661 Spring/254 Market Harvest
1340 S. 6th Freezing Facility
1350 S. 6th Freezing Facility
1360 S. 6th Production Offices/Bottling Line
1410 S. 6th Maintenance Department
<PAGE>
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Daryl J. and Marta C. Kollman
ATTACHMENT:
Pursuant to section 6330 of the Internal Revenue Code and Temp. Treas. Reg.
301.6330-1T, the following findings have been made:
(i) Based on information in the administrative file, the requirements
of applicable law, regulations, and administrative procedures have
been met;
(ii) All issues raised by the taxpayers are resolved through the
installment payment agreement; and,
(iii) The installment payment agreement balances the interest of the
Internal Revenue Service in the efficient collection of the tax
with the taxpayers' concern that the efficient collection of their
taxes be no more intrusive than necessary.
/s/ LES LUCAS
---------------------------------
Les Lucas
Associate Chief
cc: G. Goldstein, Esquire
J.Wong, Esquire
PLEDGE AND ESCROW AGREEMENT
THIS PLEDGE AND ESCROW AGREEMENT, dated as of May __, 1999 (this
"Agreement"), is entered into by and among DARYL KOLLMAN AND MARTA KOLLMAN,
residents of the State of Oregon (the "Kollmans"), the INTERNAL REVENUE SERVICE
(the "IRS") and WEST COAST TRUST CO., INC., D/B/A WEST COAST TRUST (the "Escrow
Agent"). The Escrow Agent, the Kollmans, and the IRS are referred to
collectively in this Agreement as the "Parties" and individually as a "Party".
RECITALS
A. The Kollmans hold 13,778,061 shares of the Common Stock, $.01 par value,
of Humascan, Inc., a Delaware corporation ("Humascan"), and 768,970 shares of
Humascan's Series B Preferred Stock (collectively, the "Escrow Shares").
B. The Kollmans and the IRS have negotiated a settlement of all amounts due
and owing by the Kollmans to the IRS regarding income tax underpayments for the
1996 through 1998 years and any income tax deficiencies for the 1993 through
1995 years (the "Tax Liabilities") pursuant to the terms and conditions of the
First Revised Proposal for Payment of Tax Liabilities of Daryl and Marta
Kollman, dated as of June ___, 1999 (the "Payment Proposal").
C. It is a condition precedent to the execution and delivery of the Payment
Proposal that the Parties execute and deliver this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties,
intending to be legally bound hereby, agree as follows:
SECTION 1. ESTABLISHMENT OF ESCROW ACCOUNT.
(a) Concurrently with the execution of this Agreement and pursuant to the
Payment Proposal, the Kollmans will deliver to the Escrow Agent all of the
certificates representing the Escrow Shares and the stock powers contemplated by
Section 2(b) of this Agreement. The Escrow Shares shall be referred to in this
Agreement as the "Escrowed Property." The Escrow Agent shall hold the Escrowed
Property in an account designated by the
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<PAGE>
Escrow Agent as the "Kollman/IRS Escrow Account" (the "Escrow Account"). The
Escrowed Property and any Proceeds (as defined below) shall be held,
administered and disposed of by the Escrow Agent in accordance with the terms
and conditions set forth in this Agreement.
(b) The Kollmans pledge and grant the IRS a security interest in all of
their right, title and interest in and to the Escrow Shares. The Kollmans
acknowledge the IRS's dominion and control over the Escrow Shares through their
possession by the Escrow Agent in accordance with the terms and conditions set
forth in this Agreement.
SECTION 2. THE ESCROW SHARES. So long as any Escrow Shares are held by the
Escrow Agent under this Agreement:
(a) The Kollmans shall be entitled to exercise any and all voting and
consensual rights and powers accruing to the Kollmans.
(b) The Kollmans shall sign and deliver to the Escrow Agent stock powers
endorsed in blank to transfer the Escrow Shares.
(c) The Kollmans may sell Escrow Shares as permitted by applicable federal
and state securities law. If the Kollmans elect to sell any Escrow Shares, the
Kollmans shall (i) provide the Escrow Agent with a lien discharge certificate
issued by the IRS specifying the number of Escrow Shares to be sold, and (ii)
instruct the purchaser of the Escrow Shares to pay the Escrow Agent in cash the
purchase price for the Escrow Shares. The Kollmans shall instruct the Escrow
Agent to deliver the certificate or certificates representing the Escrow Shares
to be sold to the purchaser of the Escrow Shares. If fewer than all Escrow
Shares are sold in accordance with Section 2(c) of this Agreement, the Escrow
Agent shall deliver to Humascan's transfer agent the original certificate or
certificates for cancellation and instruct Humascan's transfer agent to deliver
to the Escrow Agent (i) a certificate representing the Escrow Shares to be sold
and (ii) a certificate or certificates representing the balance of the Escrow
Shares. On receipt of the replacement certificates, the Escrow Agent shall
deliver the certificate representing the Escrow Shares to be sold to the
purchaser of the Escrow Shares, together with a stock power executed by the
Kollmans with respect to such certificate, and retain the certificate or
certificates for the Escrow Shares that will remain subject to the terms of this
Agreement.
(d) The Escrow Agent shall retain any stock Proceeds, which shall become
Escrow Shares, and the Escrow Agent shall distribute to the Kollmans, within
three (3) business days following receipt, that portion of cash Proceeds
received by the Escrow Agent in an amount equal to the product of the Effective
Tax Rate (as defined below) times the amount of the cash Proceeds received (the
"Tax Proceeds"). For this purpose, the "Effective Tax Rate" shall mean the
highest marginal effective combined federal, state and local income tax rates
applicable to an individual taxpayer as reasonably computed and provided to the
Escrow Agent by the Kollmans. The
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<PAGE>
Kollmans shall deposit in a separate deposit account any Tax Proceeds they
receive from the Escrow Agent. The Kollmans shall not commingle any other funds
at any time with any Proceeds deposited in such deposit account. The balance of
any cash Proceeds received by the Escrow Agent, less any costs, fees, expenses,
commissions or charges, shall be paid to the IRS to reduce the Tax Liabilities.
Any non-stock or non-cash Proceeds received shall be sold in a commercially
reasonable manner, and such Proceeds shall be applied in accordance with this
Section 2(d).
(e) "Proceeds" shall mean, as to any given Escrow Shares, any dividends
paid in stock, cash or other property, return of capital or other distributions
made on or in respect of such Escrow Share, whether resulting from a
subdivision, combination or reclassification of the outstanding capital stock of
Humascan or received in exchange for such Escrow Share or as a result of any
merger, consolidation, acquisition or other exchange of assets to which Humascan
may be a party or otherwise, the proceeds of a sale in accordance with Sections
2(c) of this Agreement, or the proceeds of a sale of any non-cash Proceeds.
SECTION 3. RELEASE OF THE ESCROWED PROPERTY.
(a) The Escrow Agent shall release Escrowed Property in accordance with
Section 2(c) of this Agreement.
(b) On written notice from the Kollmans and the IRS that the Tax
Liabilities have been paid in full, the Escrow Agent shall within three business
days release to the Kollmans any Escrowed Property the Escrow Agent holds.
(c) On written notice from the IRS to the Escrow Agent that a default has
occurred under the Payment Proposal, together with a notice of levy or seizure,
the Escrow Agent shall within twenty-one business days release to the IRS any
Escrowed Property the Escrow Agent holds.
(d) The Escrow Agent shall release to the Kollmans any Escrowed Property
the Escrow Agent holds on written notice from the IRS to the Escrow Agent.
SECTION 4. NO DISTRIBUTION OF EXPENSES. Neither Kollmans nor the IRS shall
be entitled to reimbursement out of the Escrowed Property for any costs and
expenses incurred by them in connection with exercising their rights or
performing their duties under this Agreement.
SECTION 5. THE ESCROW AGENT. To induce the Escrow Agent to act under this
Agreement, it is further agreed by the IRS and Kollmans that:
(a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any Escrowed Property held
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<PAGE>
hereunder except as directed in this Agreement. Uninvested Escrowed Property
held hereunder shall not earn or accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow Agent
with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other Parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the IRS and Kollmans shall jointly and severally
indemnify and hold harmless the Escrow Agent (and any successor escrow agent)
from and against any and all losses, liabilities, claims, actions, damages and
expenses, including reasonable attorneys' fees and disbursements, arising out of
and in connection with this Agreement. Without limiting the foregoing, the
Escrow Agent shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in accordance with
the terms hereof, including without limitation, any liability for any delays
(not resulting from its gross negligence or willful misconduct) in the
investment or reinvestment of the Escrowed Property or any loss of interest
incident to any such delays. This Section 5(c) shall survive notwithstanding any
termination of this Agreement or the resignation of the Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the authenticity
or the correctness of any fact stated therein or the propriety or validity or
the service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume that any
person purporting to give receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized to do
so.
(e) The Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Agreement and shall not be liable for any action
taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed Property
deposited under this Agreement but is serving as escrow holder only and having
only possession thereof. The Kollmans shall pay or reimburse the Escrow Agent
upon request for any transfer taxes or other taxes relating to the Escrowed
Property incurred in connection with this Agreement and shall indemnify and hold
harmless the Escrow Agent from any amounts that it is obligated to pay in the
way of such taxes. Any payments of income from the Escrow Account shall be
subject to withholding regulations then in force with respect to United States
taxes. It is
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understood that the Escrow Agent shall be responsible for income
reporting only with respect to income earned on investment of the Escrowed
Property and is not responsible for any other reporting. This Section 5(f) shall
survive notwithstanding any termination of this Agreement or the resignation of
the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any Party as to the
wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any time
resign as such by delivering the Escrowed Property to any successor escrow agent
jointly designated by the other Parties hereto in writing or to any court of
competent jurisdiction, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Agreement.
The resignation of the Escrow Agent will take effect on the earlier of such date
(the "Resignation Date"): (i) the appointment of a successor (including a court
of competent jurisdiction) or (ii) the date which is 30 days after the date of
delivery of its written notice of resignation to the other Parties hereto. Upon
the appointment of a successor escrow agent, such successor escrow agent shall
deliver written notice to the IRS and Kollmans on the appointment of such
successor escrow agent. If at the Resignation Date the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeep the Escrowed
Property until receipt of a designation of successor escrow agent or a joint
written disposition instruction by the other Parties hereto or a Final
Determination.
(j) The Escrow Agent shall have no responsibility for the contents of any
writing of any third party contemplated herein as a means to resolve disputes
and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between the IRS and Kollmans resulting
in adverse claims or demands being made in connection with the Escrowed
Property, or in the event that the Escrow Agent in good faith is in doubt as to
what action it should take hereunder, the Escrow Agent shall be entitled to
retain the Escrowed Property until the Escrow Agent shall have received a
written agreement executed by the IRS and Kollmans directing delivery of the
Escrowed Property, in which event the Escrow Agent shall disburse the Escrowed
Property in accordance with such agreement. The Escrow Agent shall not be or
become liable in any way or to any person for its failure or refusal to act
during any pending disagreement. The Escrow Agent shall act on such agreement
without further question.
(l) The compensation of the Escrow Agent (as payment in full) for the
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services to be rendered by the Escrow Agent hereunder shall be the amount of
$2,500 paid by the Kollmans at the time of execution of this Agreement and
$2,500 annually thereafter, together with reimbursement for all reasonable
expenses, disbursements and advances incurred or made by the Escrow Agent in
performance of its duties hereunder (including reasonable fees, expenses and
disbursements of its counsel) not to exceed $1,000, absent any litigation or
other dispute arising under this Agreement. Any fees or expenses of the Escrow
Agent or its counsel which are not paid as provided for in this Agreement may be
taken from any Escrow Property.
(m) No prospectuses, press releases, reports and promotional material, or
other similar materials which mention in any language the Escrow Agent's name or
the rights, powers, or duties of the Escrow Agent shall be issued by the other
Parties hereto or on such Parties' behalf unless the Escrow Agent shall first
have given its specific written consent thereto; provided, however, that the
Escrow Agent acknowledges that the IRS may file a copy of this Agreement as an
exhibit with the IRS's filings required under the Securities Exchange Act of
1934, as amended, and the Escrow Agent consents to the appearance of its name in
such filings.
(n) The other Parties hereto authorize the Escrow Agent, for any securities
held hereunder, to use the services of any United States central securities
depository it deems appropriate, including, but not limited to, the Depositary
Trust Company and the Federal Reserve Book Entry System.
SECTION 6. NOTICES. All notices, requests, consents, waivers, and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (a) if transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise; (b)
if personally delivered, upon delivery or refusal of delivery; (c) if mailed by
registered or certified United States mail, return receipt requested, postage
prepaid, upon delivery or refusal of delivery; or (d) if sent by a nationally
recognized overnight delivery service, upon delivery or refusal of delivery. All
notices, consents, waivers, or other communications required or permitted to be
given hereunder shall be addressed to the respective Party to whom such notice,
consent, waiver, or other communication relates at the following addresses:
IF TO THE IRS: COPY TO:
Internal Revenue Service
1220 SW Third Avenue, Room 1117
M/S 0680
Portland, Oregon 97208
Attn: Mr. Gil Moss, Appeals Officer
Tel: (503) 326-5726
Fax: (503) 326-4951
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IF TO THE KOLLMANS: COPY TO:
Daryl and Marta Kollman Stoel Rives LLP
6707 Amber Avenue 900 SW Fifth Avenue, Suite 2600
Klamath Falls, Oregon 97603 Portland, Oregon 97204-2480
Tel: (541) 882-5406 Attn: Gersham Goldstein
Fax: (541) 882-2157 Tel: (503) 294-9520
Fax: (503) 220-2480
IF TO THE ESCROW AGENT:
West Coast Trust
1000 SW Broadway, Suite 1100
Portland, Oregon 97205
Attn: Ms. Claudine Bachelor
Tel: (503) 224-2472
Fax: (503) 224-9987
Any Party by written notice to the other Parties pursuant to this Section 6 may
change the address or the persons to whom notices or copies thereof for such
Party shall be directed.
SECTION 7. DISTRIBUTIONS.
(a) Any distributions made to the IRS under this Agreement shall be made
payable to the United States Treasury and sent to the following address:
Ms. Pat Stockman
Revenue Officer, #91-06040
Internal Revenue Service, Collections Division
960 Ellendale, Suite A
Medford, OR 97504
Tel: (541) 776-4336, extension 229
Fax: (541) 776-3566
with instructions on the transmittal letter that such payment is made on behalf
of Daryl and Marta Kollman, Social Security Nos. ###-##-#### and ###-##-####,
respectively, as designated towards the Tax Liabilities pursuant to the Payment
Proposal.
(b) Any distributions to the Kollmans under this Agreement shall be made
payable to Daryl and Marta Kollman and sent to the Kollmans at the address
listed in Section 6 of this Agreement.
(c) Any Party by written notice to the other Parties pursuant to Section 6
of this Agreement may change the address or the persons to whom distributions
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under this Agreement for such Party shall be made payable and/or directed.
SECTION 8. WAIVERS; AMENDMENTS. Any waiver by any Party hereto of any
breach of or failure to comply with any provision of this Agreement by any other
Party hereto shall be in writing and shall not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other breach of, or
failure to comply with, any other provision of this Agreement. This Agreement
may only be modified by a writing signed by all of the Parties hereto.
SECTION 9. CONSTRUCTION. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement. Unless otherwise stated, references to
Sections are references to Sections of this Agreement.
SECTION 10. ASSIGNMENT; THIRD PARTIES. Neither the Kollmans nor the IRS may
assign this Agreement without the consent of the other Parties. Subject to the
preceding sentence, this Agreement shall be binding upon and inure solely to the
benefit of the Parties hereto and their respective successors and assigns,
heirs, administrators and representatives and shall not be enforceable by or
inure to the benefit of any third party, except as provided in Section 5(i) with
respect to a resignation by the Escrow Agent and except that this Agreement is
also for the benefit of the IRS Indemnified Parties, who shall have the rights
specified herein.
SECTION 11. TERMINATION. This Agreement shall terminate at the time of the
final distribution by the Escrow Agent of all Escrowed Property in accordance
with the provisions of this Agreement.
SECTION 12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
SECTION 13. GOVERNING LAW; SEVERABILITY. This Agreement shall be construed
in accordance with and governed by the internal law of the State of Oregon
(without reference to its rules, provisions and principles as to choice of law
and conflicts of law). The invalidity, legality or enforceability of any
provisions of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision; and if any provision is held to be
unenforceable as a matter of law, the other provisions shall not be affected
thereby and shall remain in full force and effect.
SECTION 14. CONSENT TO SERVICE. The IRS and Kollmans hereby irrevocably
submit to the jurisdiction of any federal court located in Multnomah County,
Oregon in any action or proceeding arising out of or relating to this Agreement,
and the Parties hereby irrevocably agree that all claims in respect of such
action or proceeding shall be heard and determined in such federal court located
in Multnomah County, Oregon. The Parties hereby consent to and grant to any such
court jurisdiction over the persons of such Parties and over the subject matter
of any such dispute and agree that delivery
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or mailing of any process or other papers in the manner provided herein above,
or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
SECTION 15. WAIVER OF OFFSET RIGHTS. The Escrow Agent hereby waives any and
all rights to offset that it may have against the Escrowed Property including,
without limitation, claims arising as a result of any claims, amounts,
liabilities, costs, expenses, indemnified costs, or other losses (collectively
"Escrow Agent Claims") that the Escrow Agent may be otherwise entitled to
collect from any Party to this Agreement or any Indemnitee, other than Escrow
Agent Claims arising under this Agreement.
SECTION 16. CONFLICTING PROVISIONS. If any conflict or inconsistency exists
between the terms and conditions of this Agreement and the Payment Proposal, the
terms and conditions of the Payment Proposal shall control.
IN WITNESS WHEREOF, the Parties to this Agreement have caused this
Agreement to be executed by their duly authorized officers as of the date set
forth in the preface to this Agreement.
INTERNAL REVENUE SERVICE:
By:
----------------------------------
Name:
Title:
THE KOLLMANS:
----------------------------------
Daryl Kollman
----------------------------------
Marta Kollman
ESCROW AGENT:
WEST COAST TRUST CO., INC.
d/b/a West Coast Trust
By:
----------------------------------
Name:
Title:
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AMENDMENT TO PLEDGE AND ESCROW AGREEMENT
This Amendment to Pledge and Escrow Agreement (the "Amendment"), dated
September ____, 1999, is entered into by and among Daryl and Marta Kollman (the
"Kollmans"), the Internal Revenue Service of the United States of America (the
"IRS"), and West Coast Trust Co., Inc. ("WCT").
RECITALS
WHEREAS:
a. The Kollmans, the IRS, and WCT entered into a Pledge and Escrow
Agreement dated June 24, 1999 (the "Agreement").
b. WCT presently holds all common and preferred shares of HumaScan, Inc.
stock owned by the Kollmans in its capacity as Escrow Agent under the Agreement.
c. Since the date the HumaScan shares were delivered to WCT: (i) the
Kollmans have elected conversion of their preferred shares to common shares;
(ii) HumaScan, Inc. has changed its name to Cell Tech International Incorporated
("Cell Tech"); and (iii) Cell Tech has declared a reverse stock split of its
outstanding common shares. Daryl and Marta Kollman are now entitled to 4,341,500
shares each of Cell Tech common stock.
d. Section 2(d) of the Agreement requires the Escrow Agent to retain and
turn over to the Kollmans portions of all proceeds received from sales of stock
for estimated tax payments at the highest marginal federal and state income tax
rates.
e. The Kollmans and the IRS have determined that estimated tax rate
specified in Section 2(d) is excessive, procedures other than those set forth in
Section 2(d) would be more convenient, and the Kollmans should be allowed to
modify the withholding rate on stock proceeds to conform to changes in the tax
laws and their financial circumstances.
AGREEMENTS
NOW THEREFORE, based upon the foregoing and other facts and understandings,
the Kollmans, the IRS, and WCT, in its capacity as Escrow Agent, hereby agree as
follows:
1. The Escrow Agent shall promptly exchange the certificates for HumaScan,
Inc. common and preferred shares it holds for 4,341,500 shares of Cell Tech
common stock for Daryl J. Kollman, and 4,341,500 shares of Cell Tech common
stock for Marta C. Kollman. The transfer agent for exchange is:
<PAGE>
Continental Stock and Transfer, Inc.
2 Broadway Ave.
New York, NY 10004
(212)509-4000
2. Except as otherwise provided herein or in such subsequent amendments and
instructions to the Agreement as are agreed to by the Kollmans and the IRS, all
references in the original Agreement to HumaScan, Inc. stock shall be deemed
references to Cell Tech stock.
3. Section 2(d) of the Agreement is hereby amended to provide as follows:
(d) Except as otherwise instructed by the Kollmans, the Escrow Agent
shall retain any stock Proceeds, which shall become Escrow Shares, and the
Escrow Agent shall distribute to the Kollmans, within three (3) business
days following receipt, four checks as follows: (1) a check payable to the
Oregon Department of Revenue in the amount equal to the product of 9% times
the cash Proceeds received from sales of Escrow Shares belonging to Daryl
Kollman; (2) a check payable to the Internal Revenue Service in the amount
equal to the product of 28% times the amount of the cash Proceeds received
from Escrow Shares belonging to Daryl Kollman (3) a check payable to the
Oregon Department of Revenue in the amount equal to the product of 9% times
the cash Proceeds received from sales of Escrow Shares belonging to Marta
Kollman; and (4) a check payable to the Internal Revenue Service in the
amount equal to the product of 28% times the amount of the cash Proceeds
received from Escrow Shares belonging to Marta Kollman (the funds
represented by these checks shall hereinafter be referred to as "Tax
Proceeds"). The Kollmans may alter the estimated tax rates applied to
Proceeds at their discretion through written instructions delivered to the
Escrow Agent. The Kollmans shall transmit the Tax Proceeds checks to the
Oregon Department of Revenue and the Internal Revenue Service, as
appropriate, and designate them as estimated income tax payments for the
year in which the Escrow Shares were sold. The balance of the cash Proceeds
received by the Escrow Agent, less any costs, fees, expenses, commissions,
and charges, shall be paid to the IRS to reduce the Tax Liabilities. Any
non-stock or non-cash Proceeds received shall be sold in a commercially
reasonable manner, and such proceeds shall be applied in accordance with
this section 2(d).
<PAGE>
IN WITNESS WHEREOF, the Parties to this Amendment have caused this
Amendment to be executed by their duly authorized officers as of the date set
forth in the preface to this Amendment.
INTERNAL REVENUE SERVICE
By:
----------------------------------
Name:
Title:
THE KOLLMANS
-----------------------------------
Daryl J. Kollman
-----------------------------------
Marta C. Kollman
ESCROW AGENT:
WEST COAST TRUST CO., INC.
dba West Coast Trust
By:
----------------------------------
Name:
Title:
