<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to _____________
Commission File Number O-4136
Lifecore Biomedical, Inc.
-----------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0948334
------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3515 Lyman Boulevard
Chaska, Minnesota 55318
-------------------------- -------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 612-368-4300
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's Common Stock, $.01 per
value, as of January 15, 1998 was 12,256,928 shares.
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
December 31, 1997 and June 30, 1997 3
Consolidated Condensed Statements of Operations for Three
Months and Six Months Ended December 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for
Six Months Ended December 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11-13
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14-15
SIGNATURES 16
2
<PAGE>
PART 1. FINANCIAL INFORMATION
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1997
------------ -----------
ASSETS
Current assets
Cash and cash equivalents $ 2,040,000 $ 1,371,000
Short-term investments 11,915,000 16,630,000
Accounts receivable 3,830,000 4,792,000
Inventories 10,738,000 8,440,000
Prepaid expenses 899,000 1,432,000
------------- ------------
29,422,000 32,665,000
Property, plant and equipment
Land, building and equipment 20,150,000 19,228,000
Less accumulated depreciation (6,226,000) (5,483,000)
------------ ------------
13,924,000 13,745,000
Construction-in-progress and
advance deposits 10,298,000 5,265,000
------------- -------------
24,222,000 19,010,000
Other assets
Intangibles 6,049,000 6,306,000
Long-term investments -- 3,960,000
Security deposits 809,000 786,000
Inventory 2,058,000 1,839,000
Other 727,000 943,000
------------ ------------
9,643,000 13,834,000
----------- ------------
$ 63,287,000 $ 65,509,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 923,000 $ 918,000
Accounts payable 2,046,000 3,613,000
Accrued compensation 873,000 638,000
Accrued expenses 606,000 648,000
------------- -------------
4,448,000 5,817,000
Long-term obligations 7,529,000 7,596,000
Shareholders' equity 51,310,000 52,096,000
------------- -------------
$ 63,287,000 $ 65,509,000
------------- -------------
------------- -------------
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31, Six months ended December 31,
------------------------------ -----------------------------
1997 1996 1997 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,258,000 $ 4,684,000 $ 11,472,000 $ 8,252,000
Cost of goods sold 2,838,000 2,511,000 5,365,000 4,609,000
---------- ---------- ------------ ------------
Gross profit 3,420,000 2,173,000 6,107,000 3,643,000
Operating expenses
Research and development 1,140,000 850,000 2,484,000 1,536,000
Marketing and sales 1,852,000 1,465,000 3,582,000 2,577,000
General and administrative 849,000 759,000 1,606,000 1,484,000
---------- ---------- ------------ ------------
3,841,000 3,074,000 7,672,000 5,597,000
---------- ---------- ------------ ------------
Loss from operations (421,000) (901,000) (1,565,000) (1,954,000)
Other income (expense)
Interest income 253,000 537,000 548,000 1,092,000
Interest expense (7,000) (179,000) (61,000) (335,000)
---------- ---------- ------------ ------------
246,000 358,000 487,000 757,000
---------- ---------- ------------ ------------
Net loss $ (175,000) $ (543,000) $ (1,078,000) $ (1,197,000)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Net loss per share
Basic $ (.01) $ (.04) $ (.09) $ (.10)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Diluted $ (.01) $ (.04) $ (.09) $ (.10)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Weighted average
shares outstanding
Basic 12,239,438 12,180,372 12,232,232 12,153,791
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Diluted 12,239,438 12,180,372 12,232,232 12,153,791
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
December 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (2,457,000) $ (3,286,000)
Cash flows from investing activities:
Purchases of property, plant and equipment (5,956,000) (836,000)
Purchases of investments (2,984,000) (7,756,000)
Maturities of investments 11,652,000 9,934,000
Purchases of intangibles (24,000) (5,000)
Other 207,000 76,000
----------- -----------
Net cash provided from investing activities 2,895,000 1,413,000
Cash flows from financing activities:
Payment of deposit to bond trustee (40,000) (38,000)
Payments of long-term obligations (21,000) (86,000)
Proceeds from stock issuance 292,000 173,000
----------- -----------
Net cash provided from financing activities 231,000 49,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 669,000 (1,824,000)
Cash and cash equivalents at beginning of period 1,371,000 3,264,000
----------- -----------
Cash and cash equivalents at end of period $ 2,040,000 $ 1,440,000
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 353,000 $ 356,000
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1997
NOTE A - FINANCIAL INFORMATION
Lifecore Biomedical, Inc. ("the Company"), develops, manufactures, and markets
surgically implantable materials and devices through two divisions, the
Hyaluronate Division and the Oral Restorative Division. The Hyaluronate
Division's manufacturing facility is located in Chaska, Minnesota and markets
products through OEM and contract manufacturing alliances in the fields of
ophthalmology, veterinary and wound care management. The Oral Restorative
Division markets products through direct sales in the United States and Italy
and through distributors in other foreign countries.
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with Regulation S-X pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
In the opinion of management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of December
31, 1997, and the results of operations and cash flows for the three-and
six-month periods ended December 31, 1997 and 1996. The results of operations
for the six months ended December 31, 1997, are not necessarily indicative of
the results for the full year or of the results for any future periods.
In preparation of the Company's consolidated financial statements, management is
required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
6
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTE B - INVESTMENTS
The Company has invested excess cash in commercial paper, government agencies
and medium term corporate notes. These investments are classified as
held-to-maturity given the Company's intent and ability to hold the securities
to maturity and are carried at amortized cost. Investments that have maturities
of less than one year have been classified as short-term investments. At
December 31, 1997, and June 30, 1997, amortized cost approximates fair value of
held-to-maturity investments which consist of the following:
December 31, June 30,
1997 1997
-------------- -------------
(Unaudited)
Short-term investments:
Medium term corporate notes $ 11,915,000 $ 12,800,000
Commercial paper --- 2,627,000
U.S. Government Agencies --- 1,203,000
------------- -------------
$ 11,915,000 $ 16,630,000
Long-term investments:
Medium term corporate notes --- 3,960,000
------------- -------------
--- 3,960,000
------------- -------------
$ 11,915,000 $ 20,590,000
------------- -------------
------------- -------------
NOTE C - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory not expected to be consumed within one year is classified as
a long-term asset. Inventories consist of the following:
December 31, June 30,
1997 1997
------------- -------------
(Unaudited)
Raw materials $ 3,455,000 $ 2,819,000
Work in progress 149,000 205,000
Finished goods 9,192,000 7,255,000
------------- -------------
$ 12,796,000 $ 10,279,000
------------- ------------
------------- ------------
7
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTE D - AGREEMENTS
In 1994, Lifecore and Ethicon, Inc. ("Ethicon"), a subsidiary of Johnson &
Johnson, Inc., entered into a Conveyance, License, Development and Supply
Agreement (the "Ethicon Agreement"). Under the terms of the Ethicon Agreement,
Ethicon transferred to Lifecore its ownership in certain technology related to
research and development previously conducted on the Company's sodium
hyaluronate material. The technology transferred to Lifecore includes written
technical documents related to Ethicon's research and development of a product
to inhibit the formation of surgical adhesions. These documents include product
specifications, methods and techniques, technology, know-how and certain patent
applications which have subsequently become issued patents. Lifecore has
assumed responsibility for continuing the anti-adhesion development project,
including conducting human clinical trials on INTERGEL-TM- Adhesion Prevention
Solution (formerly known as LUBRICOAT Gel), a second generation
hyaluronate-based product. Lifecore has granted Ethicon exclusive worldwide
marketing rights through 2008 to the products developed by Lifecore within
defined fields of use.
The Company has made and continues to make a significant investment in the
development and testing of INTERGEL-TM- Adhesion Prevention Solution, a product
designed to reduce the incidence of postsurgical adhesions. The product is
currently undergoing human clinical trials to develop the data necessary to
apply to the United States Food and Drug Administration ("FDA") for clearance to
market the product for commercial application. However, even if the product is
successfully developed and the Company receives clearance from the FDA, there
can be no assurance that it will receive market acceptance. Failure to achieve
significant sales of the product could have a material adverse effect on future
prospects for the Company's operations.
NOTE E - COMMITMENTS
The Company is in the process of expanding its manufacturing and distribution
capabilities at its Chaska, Minnesota location. This expansion includes
building and equipment expenditures for warehouse and distribution capabilities
and to expand aseptic-packaging facilities for finished products.
Construction-in-progress and advance deposits relating to the expansion of
approximately $10,298,000 were incurred through December 31, 1997. The Company
has signed contracts with an architect, a process engineering firm and a
construction company for the expansion project. The contracts provide for the
expansion to be completed in phases. The contracts may be terminated at any
time at minimal cost to the Company. At December 31, 1997 and June 30, 1997,
firm purchase commitments of approximately $969,000 and $2,161,000,
respectively, have been recorded in accounts payable.
8
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTE F - CAPITALIZED INTEREST
During the six months ended December 31, 1997, $345,000 of interest has been
capitalized in conjunction with the facility expansion project.
NOTE G - LINE OF CREDIT
On January 15, 1998, the Company entered into a $5,000,000 Credit Agreement and
Revolving Credit Note with a bank. The agreement allows for advances against
eligible securities and eligible accounts receivable, subject to a borrowing
base certificate. Interest is accrued at either the prime rate or the
Eurodollar Rate plus a basis point adjustment as defined in the Credit
Agreement. The Revolving Credit Note matures on October 31, 1998.
NOTE H - NET LOSS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 - "Earnings per Share". As required by Statement No. 128,
all current and prior year loss per share data have been restated to conform to
the provisions of Statement No. 128.
The Company's basic net loss per share amounts have been computed by dividing
net loss by the weighted average number of outstanding common shares. For the
three and six months ended December 31, 1997 and 1996, the Company reported net
losses and as such, no common share equivalents were included in the
computation of diluted net loss per share. However, if the Company would have
reported net earnings in the three and six months ended December 31, 1997 and
1996, the common share equivalents that would have been included in the
computation of diluted net earnings per share are set forth below.
9
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTE H - NET LOSS PER SHARE (continued)
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
-------- ------- -------- -------
Common Stock Equivalents 473,425 288,128 321,410 299,150
Options to purchase 233,500 and 46,500 shares of common stock with a weighted
average exercise price of $20.24 and $18.72 were outstanding at December 31,
1997 and 1996, respectively, but were excluded from the computation of common
share equivalents because their exercise prices were greater than the average
market price of the common shares.
NOTE I - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130 "Reporting Comprehensive Income" and Statement No. 131 "Disclosures
about Segments of an Enterprise and Related Information" which are effective for
fiscal year 1999. Statement No. 130 will require the Company to display an
amount representing comprehensive income, as defined by the statement, as part
of the Company's basic financial statements. Comprehensive income will include
items such as unrealized gains or losses on certain investment securities and
foreign currency items. Statement No. 131 will require the Company to disclose
financial and other information about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information.
The adoption of these statements is not expected to have a material effect on
the consolidated financial statements of the Company.
10
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE AND SIX MONTHS
ENDED DECEMBER 31, 1996
Net sales for the three-and six-month periods ended December 31, 1997 increased
$1,574,000 and $3,220,000, respectively, an increase of 34% and 39%,
respectively, compared with the same periods of last fiscal year. Hyaluronate
product sales increased 27% and 40% for the three-month and six-month periods
ended December 31, 1997 as compared to the periods of last fiscal year primarily
from increased sales to ophthalmic and veterinary customers. The increased
sales to ophthalmic and veterinary customers were partially offset by a decrease
in revenues from development projects compared to the same quarter of last
fiscal year. Oral restorative product sales for the three-month and six-month
periods ended December 31, 1997 increased 38% for both periods compared to the
same periods of last fiscal year. This increase is a result of the introduction
of new tissue regeneration products, increased market awareness in the domestic
market and expanded distribution networks in international markets.
Cost of goods sold as a percentage of net sales decreased to 45% and 47%,
respectively, for the three-month and six-month periods ended December 31, 1997
from 54% and 56% for the same periods last fiscal year. The decrease resulted
from spreading fixed expenses over increased product sales and from production
efficiencies gained in hyaluronate and aseptic production.
Research and development expenses increased $290,000, or 34%, for the current
quarter as compared to the same quarter of last fiscal year and $948,000, or
62%, for the six months ended December 31, 1997 as compared with the same period
of last fiscal year. The increase is principally attributed to costs associated
with human clinical trials for INTERGEL-TM- Adhesion Prevention Solution and to
a lesser extent, higher personnel costs due to increased headcount.
Marketing and sales expenses increased $387,000, or 26%, for the current quarter
as compared to the same quarter of last fiscal year and $1,005,000, or 39%, for
the six months ended December 31, 1997. The increase is principally attributed
to the expansion of the oral restorative domestic sales force and to a lesser
extent, increased marketing efforts in conjunction with the new tissue
regeneration products.
11
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT.)
General and administrative expenses increased $90,000, or 12%, for the current
quarter as compared to the same quarter of last fiscal year and $122,000, or 8%,
for the six months ended December 31, 1997. The increase was primarily caused
by amortization of goodwill associated with the TefGen product line which was
purchased in May 1997.
Other income (expense) for the three and six months ended December 31, 1997
decreased $112,000 and $270,000, respectively, compared with the same periods of
last fiscal year. The decrease in interest income is primarily a result of the
utilization of cash and investments to fund current operations and the facility
expansion. The decrease in interest expense is a result of the capitalization
of interest expense associated with the facility expansion.
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 - "Earnings per Share". As required by Statement No. 128, all
current and prior year loss per share data have been restated to conform to the
provisions of Statement No. 128. For the three-and six-month periods ended
December 31, 1997 and 1996, the application of Statement No. 128 had no dilutive
effect due to the reporting of net losses.
LIQUIDITY AND CAPITAL RESOURCES
The Lifecore Annual Report on Form 10-K for the year ended June 30, 1997
contains a detailed discussion of the Company's liquidity and capital resources.
In conjunction with this Quarterly Report on Form 10-Q, investors should read
the 1997 Form 10-K.
The Company has had significant operating cash flow deficits for the last
three fiscal years. As the Hyaluronate Division's production increases, its
related production efficiencies increase. However, research and development
costs for INTERGEL-TM- Adhesion Prevention Solution, marketing and sales
expenses for the oral restorative products, and personnel costs have
increased. The Company is in the process of expanding its manufacturing and
distribution capabilities at its Chaska, Minnesota location. This facility
expansion includes building and equipment expenditures for warehouse and
distribution capabilities and to scale-up aseptic-packaging facilities for
finished products. Construction-in-progress and advance deposits related to
the facility expansion of approximately $10,298,000 were incurred through
December 31, 1997. The Company has signed contracts with an architect, a
process engineering firm and a construction company for the
12
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT.)
expansion project. The contracts provide for the expansion to be completed in
phases. The contracts may be terminated at any time at minimal cost to the
Company. Lifecore anticipates that approximately $8-10 million will be expended
in the remainder of fiscal year 1998 to complete the expansion project. Funding
will result from the redemption of investments, which at December 31, 1997
aggregate approximately $12 million.
On January 15, 1998, the Company entered into a $5,000,000 Credit Agreement and
Revolving Credit Note with a bank. The agreement allows for advances against
eligible securities and eligible accounts receivable, subject to a borrowing
base certificate. Interest is accrued at either the prime rate or the
Eurodollar Rate plus a basis point adjustment as defined in the Credit
Agreement. The Revolving Credit Note matures on October 31, 1998.
Certain statements in this Form 10-Q are forward-looking statements as defined
in the private Securities Litigation Reform Act of 1995. Such statements imply
continued financial improvement. Because of numerous risks and uncertainties in
Lifecore's business activity, actual results may differ materially from those
implied. Investors are referred to more detailed discussions of those risks
presented in the Company's Annual Report on Form 10-K.
13
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On November 13, 1997, the Company held its Annual Meeting of
Shareholders. At the meeting, the shareholders elected as directors
Orwin L. Carter (with 9,392,539 affirmative votes and 35,150 negative
votes) and Donald W. Larson (with 9,322,691 affirmative votes, and
104,998 negative votes).
The shareholders also ratified the appointment of Grant Thornton LLP
as the Company's independent public accountants for fiscal year
1998 with 9,390,042 affirmative votes, 24,743 negative votes and
12,904 votes abstained).
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits and Exhibit Index
Exhibit Description
Number -----------
- ------
10.1 Employment Agreement dated June 1, 1991 with James W. Bracke
(incorporated by reference to Exhibit 10.11 to 1991 S-2 Registration
Statement [File No. 33-41291]), as amended by letter agreement dated
August 15, 1995 (incorporated by reference to Exhibit 10.6 to Form
10-K for the year ended June 30, 1995), as amended by letter agreement
dated November 14, 1996, filed herewith
10.2 Credit Agreement dated January 15, 1998 between the Company and First
Bank National Association, filed herewith
10.3 Revolving Credit Note dated January 15, 1998 between the
Company and First Bank National Association, filed herewith
10.4 Security Agreement dated January 15, 1998 by the Company in favor of
First Bank National Association, filed herewith
14
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION (CONTINUED)
10.5 Custodial Pledge and Security Agreement dated January 15, 1998 by and
between the Company, Norwest Investment Services, Inc., and First Bank
National Association, filed herewith
27 Financial Data Schedule
b. Reports on Form 8-K
On December 15, 1997, the Company filed a report on Form 8-K to
report the completion of the initial analysis of the data obtained
from its pivotal clinical trial evaluating the use of Intergel
Adhesion Prevention Solution in female abdominal surgery patients.
15
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
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 thereunto duly authorized.
LIFECORE BIOMEDICAL, INC.
Dated: January 28, 1998 /s/ James W. Bracke
-------------------------
James W. Bracke
President & Chief Executive Officer
Dated: January 28, 1998 /s/ Dennis J. Allingham
-------------------------
Dennis J. Allingham
Executive Vice President & Chief Financial Officer
Principal Financial Officer)
16
<PAGE>
Exhibit 10.1
LIFECORE BIOMEDICAL, INC.
3515 Lyman Boulevard
Chaska, MN 55318
November 14, 1996
James W. Bracke, Ph.D.
3947 Huntington Drive
Minnetonka, MN 55343
Dear Jim:
Reference is made to the Employment Agreement as of June 1, 1991, between
Lifecore Biomedical, Inc. (the "Company"), a Minnesota corporation, and James
W. Bracke ("Employee"). The Company and Employee hereby agree to amend the
Agreement as follows:
A. Paragraph 3 of the Agreement is hereby amended and restated as follows:
3. Term. The term of this agreement shall extend through November 14,
2000, subject to the provisions of Section 5 and Section 16 hereof.
B. Paragraph 5 of the Agreement is hereby amended and restated as follows:
5. Renewal. If Employee remains in the employment of Company after the
expiration of the term of this Agreement specified in Section 3, the
term of this Agreement shall automatically be extended for successive
one-year terms, unless either party to this Agreement gives written
notice to the other party at least 30 days prior to the end of such
term of such party's intention not to renew the term of this
Agreement.
If these terms are acceptable to you, please indicate by signing this letter
in the space indicated below.
Very truly yours,
LIFECORE BIOMEDICAL, INC.
By /s/ Richard W. Perkins
--------------------------------
Richard W. Perkins
Chairman, Compensation Committee
Agreed and accepted this
14th day of November, 1996
/s/ James W. Bracke
- ----------------------------
James W. Bracke, Ph.D.
<PAGE>
EXHIBIT 10.2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of January 15, 1998,
by and between LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the
"Borrower"), whose address is 3515 Lyman Boulevard, Chaska, Minnesota 55318,
and FIRST BANK NATIONAL ASSOCIATION, national banking association (the
"Lender"), whose address is 300 Prairie Center Drive, Eden Prairie, Minnesota
55344.
RECITALS
WHEREAS, Borrower has applied to Lender for a revolving credit facility
in the principal amount of $5,000,000, and Lender is willing to extend
financial accommodations to the Borrower, subject to the terms, conditions
and agreement set forth herein.
NOW, THEREFORE, for and in consideration of the loans and advances to be
made by the Lender to the Borrower hereunder, the mutual covenants, promises
and agreements contained herein, and other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the Borrower
and the Lender agree as follows:
The following terms when used in this Credit Agreement shall, except
where the context otherwise requires, have the following meanings both in the
singular and plural forms thereof:
1. DEFINITIONS
"ACCOUNT" means any right of the Borrower to payment for goods sold or
services rendered.
"ADVANCE" means any advance by the Lender made under the Revolving
Credit Commitment.
"AFFILIATE" means any corporation, association, partnership, joint
venture or other business entity directly or indirectly controlling or
controlled by, or under direct or indirect common control of, the Borrower or
any of its Subsidiaries.
"BORROWER" means Lifecore Biomedical, Inc., a Minnesota corporation.
"BORROWING BASE" means, at any time, the lesser of (a) Five Million
Dollars ($5,000,000) or (b) seventy-five to ninety percent (75%-90%) of the
Borrower's Eligible Securities, as determined by Lender based on the type of
Eligible Securities as detailed in EXHIBIT A hereto, plus, after June 30,
1998, eighty percent (80%) of the Borrower's Eligible Accounts.
"BORROWING BASE CERTIFICATE" means the Borrowing Base Certificate in the
form attached hereto as EXHIBIT A.
"BUSINESS DAY" means any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to
be open in Minneapolis, Minnesota and, with respect to obligations of the
Borrower to bear interest at the Eurodollar Rate, a day on which dealings in
United States dollars may be carried on by the Lender in the interbank
eurodollar market.
<PAGE>
"COLLATERAL" means all of the assets of the Borrower or any other party
in which the Lender holds a security interest pursuant to any of the Loan
Documents.
"COMPLIANCE CERTIFICATE" means the Compliance Certificate in the form of
EXHIBIT B hereto whereby the Borrower certifies, in accordance with SECTION
5.1((f)) that it is in compliance with its covenants and obligations under this
Credit Agreement.
"CREDIT AGREEMENT" means this Credit Agreement, as originally executed
and as may be amended, modified, supplemented, or restated from time to time
by written agreement between the Borrower and the Lender.
"CURRENT ASSETS" means, at any date, the aggregate amount of all assets
of the Borrower that are classified as current assets in accordance with GAAP.
"CURRENT LIABILITIES" means, at any time, the aggregate amount of all
liabilities of the Borrower that are classified as current liabilities in
accordance with GAAP (including taxes and other proper accruals and the
matured portion of any indebtedness).
"CUSTODIAN" means Norwest Investment Services, Inc., a Minnesota
corporation and custodian under the Pledge Agreement.
"DEBT" means (i) all items of indebtedness or liability that, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liabilities side of a balance sheet as at the date of which Debt
is to be determined; (ii) indebtedness secured by any mortgage, pledge, lien
or security interest existing on property owned by the Person whose Debt is
being determined, whether or not the indebtedness secured thereby shall have
been assumed; and (iii) guaranties, endorsements (other than for purposes of
collection in the ordinary course of business) and other contingent
obligations in respect of, or to purchase or otherwise acquire indebtedness
of others, provided that, in computing the amount of any contingent
obligation at any time, it is intended that such obligation will be computed
at the amount which, in light of the facts and circumstances existing at such
time, represents the amount that is reasonably determined to be an actual or
matured liability as determined in accordance with GAAP.
"DEBT SERVICE COVERAGE RATIO" means the ratio of the Borrower's net
profit before taxes plus depreciation, amortization, operating lease and
interest expenses and less dividends and distributions in respect of its
capital stock, to its combined annual payments of principal and interest and
other amounts due and payable on the Borrower's Debt, including without
limitation operating lease expense.
"DEFAULT" means any event which if continued uncured would, with notice
or lapse of time or both, constitute an Event of Default.
"ELIGIBLE ACCOUNTS" means earned and undisputed Accounts of the
Borrower, excluding all of the following:
(i) Accounts from any Person which is a parent corporation or a
Subsidiary of the Borrower or which is under common control or
ownership with the Borrower or which is otherwise affiliated with
the Borrower or due from any employee, officer, director or
shareholder of the Borrower;
(ii) Accounts which are more than sixty (60) days past the due date
set forth in the related invoice;
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(iii) Accounts from any unit of local, state or United States
government, or any agency or subdivision thereof, unless the
Lender has valid, first priority lien in such Accounts pursuant
to an assignment of government contracts acceptable to Lender;
(iv) Accounts from an Account debtor which has filed, or had filed
against it, a petition in bankruptcy which has not been
dismissed; or which has currently made an assignment for the
benefit of its creditors; or which has a receiver currently
appointed for it or its assets;
(v) Accounts subject to a written claim of setoff, credit, allowance
or adjustment, except for discount allowed for prompt payment, or
subject to any Lien other than Liens in favor of the Lender;
(vi) Accounts receivable from any Account debtor ten percent (10%) or
more of whose accounts payable to the Borrower are more than
sixty (60) days past the due date set forth in the related
invoices;
(vii) Accounts from any Account debtor organized under laws other than
those of the United States or the individual states or
territories thereof or whose chief executive office or principal
place of business is not located in the United States or the
territories thereof unless supported by letters of credit or
foreign credit insurance acceptable to Lender;
(viii) Any and all notes receivable not pledged and delivered to the
Lender and not due and payable within ninety (90) days;
(ix) Accounts representing progress billings or retainages or for work
covered by any payment or performance bond unless acceptable to
the Lender in its sole discretion; and
(x) All other Accounts reasonably deemed ineligible by the Lender for
its lending purposes as necessitated by changes in Borrower's
business or business practices.
"ELIGIBLE SECURITIES" means those securities owned by the Borrower shown
on Schedule I to the Pledge Agreement and pledged to the Lender pursuant to
the Pledge Agreement, and such other marketable securities owned by the
Borrower, validly pledged to Lender and deemed "Eligible Securities" by
Lender in its reasonable discretion.
"EURODOLLAR ADVANCE" means an Advance designated as such in a notice of
borrowing under SECTION 2.5((a)) or a notice of conversion under SECTION
2.5((c)).
"EURODOLLAR INTERBANK RATE" means, for each Business Day, the offered
rate for deposits in United States Dollars (rounded upward, if necessary, to
the nearest 1/16 of 1%) as reported on the Reuters Screen LIBO Page for such
Business Day for delivery of such deposits two (2) Business Days later for an
Interest Period of one (1) month. If at least two rates appear on the
Reuters Screen LIBO Page, the rate for such Interest Period shall be the
arithmetic mean of such rates (rounded as provided above). If fewer than two
rates appear, the Lender may, at its discretion, determine the rate based on
rates offered to the Lender for United States Dollar deposits in the
interbank eurodollar market.
"EURODOLLAR RATE (RESERVE ADJUSTED)" means a rate per annum (rounded
upward, if necessary to the nearest 1/16 of 1%) calculated for each Business
Day in accordance with the following formula which shall continue in effect
until the next succeeding Business Day:
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ERRA = EURODOLLAR INTERBANK RATE
-------------------------
1.00 - ERR
in such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance as determined by the
Lender for the applicable Interest Period. The Lender's determination of all
such rates for any Interest Period shall be conclusive in the absence of
manifest error.
"EURODOLLAR RESERVE RATE" means a percentage, determined for each
Business Day, equal to the daily average during such Interest Period of the
aggregate maximum reserve requirements (including all basic, supplemental,
marginal and other reserves), as specified under Regulation D of the Federal
Reserve Board or any other applicable regulation that prescribes reserve
requirements applicable to Eurocurrency liabilities (as presently defined in
Regulation D) or applicable to extensions of credit by the Lender the rate of
interest on which is determined with regard to rates applicable to
Eurocurrency liabilities. Without limiting the generality of the foregoing,
the Eurodollar Reserve Rate shall reflect any reserves required to be
maintained by the Lender against (i) any category of liabilities that
includes deposits by reference to which the Eurodollar Rate is to be
determined, or (ii) any category of extensions of credit or other assets that
includes Eurodollar Advances.
"EVENT OF DEFAULT" means any event of default described in SECTION 7
hereof.
"FINANCING STATEMENTS" means the UCC-1 financing statements naming
Borrower as Debtor and Lender as Secured Party to be filed with the Secretary
of State of Minnesota and such other jurisdictions as are necessary to
perfect Lender's security interest in the Collateral.
"GAAP" means the generally accepted accounting principles in the United
States in effect from time to time including, but not limited to, Financial
Accounting Standards Board (FASB) Standards and Interpretations, Accounting
Principles Board (APB) Opinions and Interpretations, Committee on Accounting
Procedure (CAP) Accounting Research Bulletins, and certain other accounting
principles which have substantial authoritative support.
"INTEREST PERIOD" shall mean, except as otherwise indicated, a period
commencing on a Business Day and continuing until the following Business Day.
"LENDER" means First Bank National Association, a national banking
association, its successors and assigns.
"LIABILITIES" means (i) all items of indebtedness or liability that, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liabilities side of a balance sheet as at the date of which
Liabilities are to be determined; (ii) indebtedness secured by any mortgage,
pledge, lien or security interest existing on property owned by the Person
whose Liabilities are being determined, whether or not the indebtedness
secured thereby shall have been assumed; and (iii) guaranties, endorsements
(other than for purposes of collection in the ordinary course of business)
and other contingent obligations in respect of, or to purchase or otherwise
acquire, indebtedness of others, provided that, in computing the amount of
any contingent obligation at any time, it is intended that such obligation
will be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that is reasonably determined to
be an actual or matured liability as determined in accordance with GAAP.
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"LIEN" means any lien, security interest, pledge, mortgage, statutory or
tax lien, or other encumbrance of any kind whatsoever (including without
limitation, the lien or retained security title of a conditional vendor),
whether arising under a security instrument or as a matter of law, judicial
process or otherwise or by an agreement of the Borrower to grant any lien or
security interest or to pledge, mortgage or otherwise encumber any of its
assets.
"LOAN DOCUMENTS" means this Credit Agreement, the Revolving Credit Note,
the Security Agreement, the Financing Statements and the Pledge Agreement and
such other documents as the Lender may reasonably require as security for, or
otherwise executed in connection with, any loan hereunder, all as originally
executed and as may be amended, modified or supplemented from time to time by
written agreement between the parties thereto.
"MATERIAL ADVERSE OCCURRENCE" means any occurrence which materially
adversely affects the present or prospective financial condition or
operations of the Borrower, or which materially impairs, or may materially
impair, in the Lender's reasonable judgment, the ability of the Borrower to
perform its obligations under the Loan Documents.
"MATURITY" of the Revolving Credit Note means the earlier of (a) the
date on which the Revolving Credit Note becomes due and payable upon the
occurrence of an Event of Default; or (b) the Termination Date.
"NET WORTH" means the aggregate of capital and surplus (and Subordinated
Debt) of the Borrower, all determined in accordance with GAAP.
"NOTE" means the Revolving Credit Note and any note or notes issued in
substitution or replacement thereof.
"PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual fiduciary or other capacity.
"PLEDGE AGREEMENT" means the Custodial Pledge and Security Agreement, of
even date herewith, executed by Borrower," the Lender and the Custodian, as
originally executed and as may be amended, modified or supplemented by
written agreement between the Borrower and the Lender.
"QUICK RATIO" means the ratio of the Borrower's Current Assets, less all
inventory, to its Current Liabilities.
"REFERENCE RATE" means the rate of interest established and publicly
announced by the Lender from time to time as its "reference rate". The
Lender may lend to its customers at rates that are at, above or below the
Reference Rate.
"REFERENCE RATE ADVANCE" means an Advance designated as such in a notice
of borrowing under SECTION 2.5((a)) or a notice of continuation or conversion
under SECTION 2.5((c)).
"REGULATORY CHANGE" means any change after the date hereof in any (or
the adoption after the date hereof of any new) (a) Federal or state law or
foreign law applying generally to all banks of the same type and
classification as the Lender or any Person controlling the Lender; or (b)
regulation, interpretation, directive or request (whether or not having the
force of law) applying or in the reasonable opinion of the Lender applicable
generally to all banks of the same type and classification as the Lender or
any Person controlling the Lender or to any court or governmental authority
charged with the
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interpretation or administration of any law referred to in clause (a) of this
definition or to any fiscal, monetary, or other authority having jurisdiction
over the Lender or any Person controlling the Lender.
"REUTERS SCREEN LIBO PAGE" means the display designated as page "LIBO"
on the Reuter Monitor Money Rates Service (or such other page as may replace
the LIBO Page on that service for the purpose of displaying London interbank
offered rates of major banks for United States dollar deposits).
"REVOLVING CREDIT COMMITMENT" means the sum of Five Million Dollars
($5,000,000) or the Lender's obligation to extend Advances to the Borrower
under SECTION 2, as the context may require.
"REVOLVING CREDIT LOAN" means, at any date, the aggregate amount of all
Advances made by the Lender to the Borrower pursuant to SECTION 2 hereof.
"REVOLVING CREDIT NOTE" means the Revolving Credit Note of even date
herewith in the original principal amount of Five Million and no/100 Dollars
($5,000,000) made by the Borrower payable to the order of the Lender,
together with all extensions, renewals, modifications, substitutions and
changes in form thereof effected by written agreement between the Borrower
and the Lender.
"SALE PROCEEDS" has the meaning given in SECTION 5.5 hereof.
"SECURITY AGREEMENT" means the Security Agreement, of even date
herewith, executed by Borrower in favor of the Lender, as originally executed
and as may be amended, modified or supplemented from time to time by written
agreement between Borrower and the Lender.
"SUBORDINATED DEBT" means any Liability of the Borrower, now existing or
hereafter created, incurred or arising, which is subordinated in right of
payment to the payment of the obligations of the Borrower to the Lender.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect
a majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned by the Borrower
and/or one or more Subsidiary or Affiliate.
"TANGIBLE NET WORTH" means, at any date, (a) the par value (or value
stated on the books) of the capital stock of all classes of the Borrower plus
(or minus in the case of deficit) the amount of surplus or additional paid-in
capital, and the retained earnings of the Borrower, minus (b) the aggregate
amount carried as assets on the books of the Borrower for goodwill, licenses,
patents, trademarks, trade names treasury stock, unamortized debt discount
and expenses, leasehold improvements, copyrights, franchises, organization
costs, write-ups in the book value of the assets of the Borrower resulting
from a revaluation thereof, and any other intangible assets, all as
determined in accordance with GAAP.
"TERMINATION DATE" means the earlier of (a) October 31, 1998; or (b) the
date upon which the obligation of the Lender to make Advances is terminated
pursuant to SECTION 2.
2. THE REVOLVING CREDIT LOAN
2.1. COMMITMENT FOR REVOLVING CREDIT. Subject to the Conditions of
Lending set forth in SECTION 3 hereof and as long as no Event of Default has
occurred and is continuing hereunder, the Lender agrees to make Advances to
the Borrower from time to time from the date of this Credit Agreement through
the Termination Date, provided, however, that the Lender shall not be
obligated to make any
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Advance, if after giving effect to such Advance, the aggregate outstanding
principal amount of all Advances would exceed the Borrowing Base. Within the
limits set forth above, the Borrower may borrow, repay and reborrow amounts
under the Revolving Credit Note.
2.2. PURPOSE OF LOAN/USE OF PROCEEDS. The Borrower will use the
proceeds of any Advance hereunder for general working capital.
2.3. THE REVOLVING CREDIT NOTE. All Advances shall be evidenced by, and
the Borrower shall repay such Advances to the Lender, in accordance with, the
terms of the Revolving Credit Note; including without limitation the
provision of the Revolving Credit Note that the principal amount payable
thereunder at any time shall not exceed the then unpaid principal amount of
all Advances made by the Lender.
2.4. RECORDS OF ADVANCES AND PAYMENTS. The Borrower hereby irrevocably
authorizes the Lender to make or cause to be made, at or about the time each
Advance is made by the Lender, an appropriate notation on the Lender's
records of the principal amount of such Advance and the Lender shall make or
cause to be made, on or about the time a payment of any principal or interest
of the Revolving Credit Note is received an appropriate notation of such
payment on its records. The aggregate amount of all unpaid Advances set
forth on the records of the Lender shall be rebuttable presumptive evidence
of the principal amount owing and unpaid on the Revolving Credit Note.
2.5. INTEREST ON THE REVOLVING CREDIT NOTE.
(a) The Borrower agrees to pay interest on the outstanding principal
amount of the Revolving Credit Note from the date hereof until paid in
full at the following rates as designated by the Borrower: (i) the
Reference Rate, as to all Reference Rate Advances and (ii) the
Eurodollar Rate (Reserve Adjusted) plus (x) 200 basis points as to all
Eurodollar Advances supported by Eligible Securities, or (y) 275 basis
points as to all Eurodollar Advances supported by Eligible Accounts,
all in accordance with the terms of this Credit Agreement. All
advances outstanding under the Revolving Credit Note shall be deemed
Eurodollar Advances, unless the Borrower elects to designate, continue
or convert such Advances to Reference Rate Advances pursuant to
procedures outlined in SECTION 2.6 below.
(b) To the extent Eligible Securities are sold by the Borrower or
redeemed, and the proceeds of such sale or redemption are not applied
to reduce the amount outstanding under the Revolving Credit Note
pursuant to SECTION 5.5 hereof, the interest rate applicable to any
amounts outstanding under the Revolving Credit Note which were
supported by such sold or redeemed Eligible Securities shall
automatically increase to the rate applicable to Advances supported by
Eligible Accounts.
(c) Interest accrued on the Revolving Credit Note through Maturity shall
be payable on the first day of each calendar month, commencing
February 1, 1998 and at Maturity. Interest accrued after Maturity
shall be payable upon demand.
(d) No provision of this Credit Agreement or the Revolving Credit Note
shall require the payment or permit the collection of interest in
excess of the rate permitted by applicable law.
(e) All computation of interest on the outstanding principal amount of the
Revolving Credit Note shall be computed on the basis of a year
comprised of 360 days, but charged for the
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actual number of days elapsed. Each change in the interest rate
payable on the Revolving Credit Note due to a change in the Reference
Rate shall take place simultaneously with the corresponding change in
the Reference Rate. Whenever any payment to be made by or to the
Lender or other holder(s) of the Revolving Credit Note shall otherwise
be due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time
shall be included in computing the fees or interest payable on such
next succeeding Business Day.
2.6. BORROWING OR CONVERTING ADVANCES.
(a) MANNER OF BORROWING. Any request by the Borrower for an Advance shall
be by telephone (or, in the case of all Eurodollar Advances, in
writing, including by telefax, or by telephone promptly confirmed in
writing) and must be given so as to be received by the Lender not
later than 1:00 p.m. (Minneapolis time) on the date of the requested
Advance.
Each request for an Advance shall specify: (i) the borrowing date
(which shall be a Business Day) and (ii) the amount of the Advance and
the type of Advance, subject to the limitations elsewhere in this
Credit Agreement. Unless the Lender determines that conditions set
forth in this Credit Agreement have not been satisfied, each Advance
shall be deposited into the Borrower's account number 104755223831
with the Lender.
(b) MANNER OF CONVERSION. The Borrower may elect to convert any
outstanding Advance into another type of Advance by giving the Lender
notice by telephone (or, in the case of conversions to Eurodollar
Advances, in writing or by telephone promptly confirmed in writing)
given so as to be received by the Lender not later than 1:00 p.m.
(Minneapolis time) on the date of the requested continuation or
conversion.
Each notice of conversion of an Advance shall specify: (i) the
effective date of the conversion (which shall be a Business Day) and
(ii) the amount and the type of Advances following such conversion
(subject to limitations contained elsewhere in this Credit Agreement).
2.7. PAYMENTS. Any other provision of this Credit Agreement to the
contrary notwithstanding, the Borrower shall make all payments of interest on
and principal of the Revolving Credit Note in immediately available funds to
the Lender at its office shown on the first page hereof. The Borrower
authorizes the Lender to charge from time to time against the Borrower's
account no. 104755223831 with the Lender any payments when due.
2.8. TERMINATION. The obligation of the Lender to make Advances shall
terminate:
(a) Upon receipt by the Lender of five (5) days' written notice of
termination from the Borrower given at any time when no amount is
outstanding under the Revolving Credit Note;
(b) Immediately and without further action upon the occurrence of an Event
of Default of the nature referred to in SUBSECTION 7.1((d)) or
(c) Immediately when any Event of Default (other than of the nature
specified in SUBSECTION 7.1((d)) shall have occurred and be continuing
and either (i) the Lender shall
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have demanded payment of the Revolving Credit Note in writing or
(ii) the Lender shall elect by giving written notice to Borrower.
2.9. MANDATORY PREPAYMENT. In the event that the outstanding balance
under the Revolving Credit Note exceeds the Borrowing Base then in effect,
the Lender shall give the Borrower written notice of such excess amount and
the Borrower shall reduce the amount of outstanding Advances to less than or
equal to the Borrowing Base (or execute and deliver to the Lender such
documents necessary to pledge, assign, or grant the Lender a security
interest in, such additional Collateral acceptable to the Lender with a
collateral value equal to or greater than the amount of the excess of the
outstanding Advances over the Borrowing Base).
2.10. UNUSED LINE FEE. For the purposes of this SECTION 2.10,
"Unused Amount" means the Revolving Credit Commitment reduced by outstanding
Advances. The Borrower agrees to pay to the Lender an unused line fee at the
rate of one quarter of one percent (0.25%) per annum on the average daily
Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day of the
month and on the Termination Date.
2.11. SECURITY. The indebtedness, liabilities and other obligations of
the Borrower to the Lender under the Revolving Credit Note and this Credit
Agreement are secured by, inter alia, security interests granted pursuant to the
Security Agreement and the Pledge Agreement.
3. CONDITIONS OF LENDING
3.1. CONDITIONS PRECEDENT. This Credit Agreement and the Lender's
obligations hereunder are subject to receipt by the Lender of the following,
each to be in form and substance satisfactory to the Lender, unless the
Lender waives receipt of any of the following in writing:
(a) This Credit Agreement and the Revolving Credit Note each appropriately
completed and duly executed by the Borrower;
(b) The Security Agreement and corresponding financing statement(s)
appropriately completed and duly executed by the Borrower;
(c) The Pledge Agreement appropriately completed and duly executed by all
parties thereto;
(d) A current UCC secured transaction search, federal and state tax lien
search, judgment and bankruptcy search, reflecting results
satisfactory to the Lender, on Borrower from the appropriate filing
offices as required by the Lender;
(e) A Certificate of Good Standing for the Borrower issued by the
Secretary of State of Minnesota and in all states where the Borrower
is qualified to do business;
(f) A copy of the Borrower's Bylaws, together with all amendments,
certified by the Secretary of the Borrower to be a true and correct
copy thereof;
(g) A copy of the Articles of Incorporation of the Borrower, together with
all amendments, certified by the Secretary of State of the state of
Minnesota to be a true and correct copy thereof;
(h) A certified copy of the resolutions of the Board of Directors of the
Borrower authorizing or ratifying the transactions contemplated
hereby, and the execution, delivery and
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performance of the Loan Documents, and designating the officers
authorized to execute the Loan Documents to which the Borrower is
a party and to perform the obligations of the Borrower thereunder;
(i) A certificate of the Secretary of the Borrower certifying the names of
the officers authorized to execute the Loan Documents, together with a
sample of the true signature of each such officer;
(j) A favorable opinion of counsel for the Borrower, satisfactory to the
Lender, as to the matters set forth in SUBSECTIONS 4.1, 4.2, 4.3 AND
4.5, and other matters as requested by the Lender, satisfactory to the
Lender and its counsel;
(k) The Borrower shall have reimbursed Lender for all of its expenses
pursuant to SECTION 8.3 of this Credit Agreement;
(l) Policies or certificates of insurance evidencing insurance coverage
required under this Credit Agreement and any other of the Loan
Documents;
(m) Such other documents, information and actions as the Lender may
reasonably request.
3.2. CONDITIONS PRECEDENT TO ALL LOANS AND ADVANCES. The obligation of
the Lender to make any loan or Advance hereunder, including the initial loans
and Advances, is subject to the satisfaction of each of the following, unless
waived in writing by the Lender:
(a) The representations and warranties set forth in SECTION 4 are true and
correct in all material respects on the date hereof and on the date of
any loan or Advance, other than exceptions to such representations and
warranties thereto which have been disclosed in writing to the Lender
and which have been approved in writing by the Lender.
(b) No Default or Event of Default shall have occurred and be continuing.
(c) No litigation, arbitration or governmental investigation or proceeding
shall be pending, or, to the knowledge of the Borrower, threatened,
against the Borrower or affecting the business or operations of the
Borrower which was not previously disclosed to the Lender and which,
if determined adversely to the Borrower, would have a material adverse
effect on the operation or financial condition of the Borrower.
(d) No Default or Event of Default shall result from the making of any
such loan or Advance.
(e) No Material Adverse Occurrence shall have occurred and be continuing.
4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
4.1. ORGANIZATION, ETC. The Borrower is a corporation validly organized
and existing and in good standing under the laws of the State of Minnesota,
has full power and authority to own its property and conduct its business
substantially as presently conducted by it and is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its business makes such qualification
necessary and the failure to do so would cause a Material Adverse Occurrence.
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The Borrower has full power and authority to enter into and perform its
obligations under the Loan Documents and to obtain the loans and Advances
hereunder.
4.2. DUE AUTHORIZATION. The execution, delivery and performance by the
Borrower of the Loan Documents have been duly authorized by all necessary
corporate action, do not require any approval or consent of, or any
registration, qualification or filing with, any governmental agency or
authority or any approval or consent of any other Person (including, without
limitation, any stockholder), do not and will not conflict with, result in
any violation of or constitute any default under, any provision of the
Borrower's certificate of incorporation, or where such violation or default
would cause a Material Adverse Occurrence, under any agreement binding on or
applicable to the Borrower or any of its property, or any law or governmental
regulation or court decree or order, binding upon or applicable to the
Borrower or of any of its property and will not result in the creation or
imposition of any Lien on any of its property pursuant to the provisions of
any agreement binding on or applicable to the Borrower or any of its property
except pursuant to the Loan Documents.
4.3. VALIDITY OF THE LOAN DOCUMENTS. The Loan Documents to which the
Borrower is a party are the legal, valid and binding obligations of the
Borrower and are enforceable in accordance with their terms, subject only to
bankruptcy, insolvency, reorganization, moratorium or similar laws, rulings
or decisions at the time in effect affecting the enforceability of rights of
creditors generally and to general equitable principles which may limit the
right to obtain equitable remedies.
4.4. FINANCIAL INFORMATION. The financial statements of the Borrower
furnished to the Lender have been and will be prepared in accordance with
GAAP consistently applied by the Borrower and present fairly the financial
condition of the Borrower as of the dates thereof and for the periods covered
thereby. The Borrower is not aware of any contingent liabilities or
obligations which would, upon becoming non-contingent liabilities or
obligations, be a Material Adverse Occurrence. Since the date of the most
recent such statements, neither the condition (financial or otherwise), the
business nor the properties of the Borrower have been materially and
adversely affected in any way.
4.5. LITIGATION, OTHER PROCEEDINGS. Except as previously disclosed to
and approved of in writing by the Lender, there is no action, suit or
proceeding at law or equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
pending or, to the knowledge of the Borrower, threatened, against the
Borrower or any of its property, which, if determined adversely would be a
Material Adverse Occurrence; and the Borrower is not in default with respect
to any final judgment, writ, injunction, decree, rule or regulation of any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, where such default would be a Material
Adverse Occurrence.
4.6. TITLE TO ASSETS. Except for Liens permitted by SECTION 6.2, the
Borrower has good and marketable title to all of its assets, real and
personal.
4.7. LIEN PRIORITY. The Liens created by the Security Agreement and the
Pledge Agreement are attached and first, perfected Liens on the Collateral.
4.8. GUARANTEES AND INDEBTEDNESS. Except as disclosed on financial
statements of the Borrower furnished to the Lender or on SCHEDULE 6.3, the
Borrower is not a party to any contract of guaranty or suretyship and none of
its assets is subject to any contract of that nature and the Borrower is not
indebted to any other party, except the Lender.
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4.9. MARGIN STOCK. No part of any loan or Advance hereunder shall be
used at any time by the Borrower to purchase or carry margin stock (within
the meaning of Regulation U promulgated by the Board of Governors of the
Federal Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any margin stock. The Borrower is not engaged
principally, or as one of its important activities, in the business of
extending credit for the purposes of purchasing or carrying any such margin
stock. No part of the proceeds of any loan or Advance hereunder will be used
by the Borrower for any purpose which violates, or which is inconsistent
with, any regulations promulgated by the Board of Governors of the Federal
Reserve System.
4.10. TAXES. The Borrower has filed all federal, state and other
income tax returns which are required to be filed through the date of this
Credit Agreement and has paid all taxes as shown on said returns, and all
taxes due or payable without returns and all assessments received to the
extent such taxes and assessments have become due, other than such taxes or
assessments which are being contested in good faith by the Borrower and are
supported by adequate book reserves. All tax liabilities of the Borrower are
adequately provided for on its books, including interest and penalties. No
income tax liability of a material nature has been asserted by taxing
authorities for taxes in excess of those already paid, other than such tax
liabilities which are being contested in good faith by the Borrower and are
supported by adequate book reserves. The Borrower has made all required
withholding deposits.
4.11. ACCURACY OF INFORMATION. All factual information furnished by
or on behalf of the Borrower to the Lender in writing for purposes of or in
connection with this Credit Agreement or any transaction contemplated by this
Credit Agreement is, and all other such factual information furnished by or
on behalf of the Borrower to the Lender in the future, will be true and
accurate in every material respect on the date as of which such information
is dated or certified. No such information contains any material
misstatement of fact or omits any material fact or any fact necessary to
prevent such information from being misleading.
4.12. MATERIAL AGREEMENTS. The Borrower is not a party to any
agreement or instrument or subject to any restriction that materially and
adversely affects its business, property or assets, operations or condition
(financial or otherwise).
4.13. DEFAULTS. The Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any: (a) agreement to which such entity is a party, which
default would constitute a Material Adverse Occurrence; or (b) instrument
evidencing any indebtedness or under any agreement relating to such
indebtedness would constitute a Material Adverse Occurrence.
4.14. ERISA. (a) No Reportable Event has occurred and is continuing
with respect to any Plan; (b) the Pension Benefit Guaranty Corporation or any
successor entity has not instituted proceedings to terminate any Plan; and
(c) each Plan of the Borrower has been maintained and funded in all material
respects in accordance with its terms and with ERISA. All undefined
capitalized terms used in this Section shall have the meanings ascribed to
them in ERISA.
4.15. FINANCIAL STATUS. The Borrower, as a going concern, is not
insolvent (as such term is defined in Section 101(32) of the United States
Bankruptcy Code of 1978, as amended or Minnesota Statutes Section 513.42, as
amended) and, as a going concern, will not be rendered insolvent (as such
term is defined in Section 101(32) of the United States Bankruptcy Code of
1978, as amended or Minnesota Statutes Section 513.42, as amended) by
execution of this Credit Agreement or any other of the Loan Documents, or
consummation of the transactions contemplated thereby.
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4.16. SURVIVAL OF REPRESENTATIONS. All representations and
warranties contained in this SECTION 4 shall survive the delivery of the
Revolving Credit Note and the making of the loans and Advances evidenced
thereby and any investigation at any time made by or on behalf of Lender
shall not diminish its rights to rely thereon.
5. AFFIRMATIVE COVENANTS
As long as there remains any amount outstanding under the Revolving
Credit Note or the Lender has any obligation to make Advances under the
Revolving Loan Commitment, the Borrower shall, unless waived in writing by
the Lender:
5.1. FINANCIAL STATEMENTS AND REPORTS. Furnish to the Lender, at the
times set forth below, the following financial statements, reports and
information:
(a) As soon as available, but in any event within one hundred twenty (120)
days after each fiscal year end, the Borrower's Annual Report on Form
10-K (together with all Exhibits thereto, other than Exhibits
incorporated by reference) as submitted to the United States
Securities and Exchange Commission;
(b) As soon as available, but in any event within forty-five (45) days
after each fiscal year-end, the Borrower's internally prepared
preliminary financial statements, including without limitation a
balance sheet, income statement and sources of income to have been
prepared in accordance with GAAP consistently applied, subject to year
end adjustments in the Borrower's annual audited financial statements,
together with a preliminary Compliance Certificate for such period;
(c) As soon as available, but in any event within forty-five (45) days
after the last day of each quarterly fiscal period the Borrower's
Quarterly Report on Form 10-Q as submitted to the United States
Securities and Exchange Commission;
(d) At any time there are Advances outstanding which are supported by
Eligible Accounts, as soon as available, but in any event within
forty-five (45) days after the last day of each month, unaudited
financial statements of the Borrower consisting of a balance sheet and
statement of income and surplus statement dated as of the last
Business Day of such month in form and detail reasonably required by
Lender certified by the Chief Financial Officer of the Borrower to
have been prepared from the records of the Borrower in accordance with
GAAP consistently applied by the Borrower, subject to year end
adjustments in the Borrower's annual audited financial statements;
(e) As soon as available, but in any event within forty-five (45) days
after the last day of each quarterly fiscal period of the Borrower, an
aging of accounts receivable of the Borrower setting forth the name
and address for each account debtor, the amount owed by each such
account debtor and the number of days past due;
(f) As soon as available, but in any event within thirty (30) days after
the last day of each calendar month and within five (5) days of the
sale or redemption of any Eligible Securities, a Borrowing Base
Certificate appropriately completed and duly executed by the Borrower;
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(g) As soon as available, but in any event within forty-five (45) days
after the last day of each quarterly fiscal period of the Borrower, a
Compliance Certificate completed and duly executed by the Borrower and
certified by the Borrower's Chief Financial Officer;
(h) As soon as available, but in any event within fifteen (15) days prior
to the last day of each fiscal year of Borrower, a projected monthly
budget for the next fiscal year, in form and with such detail as is
acceptable to Lender; and
(i) Such other information concerning the business, operations and
condition (financial or otherwise) of the Borrower as the Lender may
reasonably request.
5.2. MAINTENANCE OF CORPORATE EXISTENCE. Maintain and preserve its
corporate existence.
5.3. TAXES. Pay and discharge as the same shall become due and payable,
all taxes, assessments and other governmental charges and levies against or
on any of its property, as well as claims of any kind which, if unpaid, might
become a Lien upon any of its properties, unless such tax, levy, charge,
assessment or Lien is being contested in good faith by the Borrower and is
supported by an adequate book reserve. The Borrower shall make all required
withholding deposits.
5.4. NOTICES. As soon as practicable, give notice to the Lender of:
(a) The commencement of any litigation relating to the Borrower involving
claimed damages in excess of $50,000.00 in excess of insurance
coverage, or relating to the transactions contemplated by this Credit
Agreement;
(b) The commencement of any material arbitration or governmental
proceeding or investigation not previously disclosed to the Lender
which has been instituted or, to the knowledge of the Borrower, is
threatened against the Borrower or its property which, if determined
adversely to the Borrower, would cause a Material Adverse Occurrence;
(c) Any Reportable Event or "prohibited transaction" or the imposition of
a Withdrawal Liability, within the meaning of ERISA, in connection
with any Plan and, when known, any action taken by the Internal
Revenue Service, Department of Labor or Pension Benefit Guaranty
Corporation with respect thereto, and any adverse development which
occurs in any litigation, arbitration or governmental investigation or
proceeding previously disclosed to the Lender which if determined
adversely to the Borrower would constitute a Material Adverse
Occurrence; and
(d) Any Default or Event of Default under this Credit Agreement.
5.5. PROCEEDS OF SALES AND REDEMPTIONS OF ELIGIBLE SECURITIES. So long
as there are amounts outstanding under the Revolving Credit Note, the
Borrower shall direct the Custodian to pay to Lender for application to the
amount outstanding under the Revolving Credit Note all proceeds of any sales
or redemptions of Eligible Securities net of costs, commissions and fees
incurred in connection with such sales or redemptions (the "Sale Proceeds"),
immediately upon receipt thereof, unless (i) after giving effect to such sale
or redemption, and assuming the Sale Proceeds will not be applied to reduce
the amount outstanding under the Revolving Credit Note, the amount
outstanding under the Revolving Credit Note does not exceed the Borrowing
Base, or (ii) the Sale Proceeds are used to purchase securities of equal or
greater value, in which Lender is granted a perfected, first priority lien
pursuant to the Pledge Agreement and which are held by the Custodian pursuant
to the terms of the Control Agreement.
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5.6. COMPLIANCE WITH LAWS. Carry on its business activities in
substantial compliance with all applicable federal or state laws and all
applicable rules, regulations and orders of all governmental bodies and
offices having power to regulate or supervise its business activities, where
failure to do so would constitute a Material Adverse Occurrence. The
Borrower shall maintain all material rights, liens, franchises, permits,
certificates of compliance or grants of authority required in the conduct of
its business, where failure to do so would constitute a Material Adverse
Occurrence.
5.7. BOOKS AND RECORDS. Keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP consistently
applied and permit the Lender, and its representatives, at reasonable times
and intervals, to visit all of its offices, discuss its financial matters
with officers of the Borrower and its independent public accountants (and by
this provision the Borrower authorizes its independent public accountants to
participate in such discussions) and examine any of its books and other
corporate records.
5.8. INSURANCE. Procure and maintain insurance with financially sound
and reputable insurers, insurance with respect to its property against
damage and loss by theft, fire, collision (in the case of motor vehicles) and
such other risks as are reasonably required by the Lender in an amount equal
to the fair market value thereof and, in any event, in an amount sufficient
to avoid the application of any coinsurance provisions other than customary
deductible amounts. The Borrower shall also procure and maintain other such
insurance including workers compensation insurance, liability and business
interruption insurance, and other insurance as the Lender may reasonably
require and/or that may be required under any of the Loan Documents, all in
such amounts as may be reasonably required by the Lender. The Borrower shall
provide evidence of such insurance and the policies of insurance or copies
thereof to the Lender upon written request.
5.9. MAINTAIN PROPERTY. Maintain and keep its assets, property and
equipment, other than such assets, property or equipment which have become
obsolete or worn out, in good repair, working order and condition and from
time to time make or cause to be made all needed renewals, replacements and
repairs.
5.10. CONDUCT OF BUSINESS. Continue to engage primarily in the
business being conducted on the date of this Credit Agreement.
5.11. MINIMUM PRE-TAX NET INCOME. For the fiscal year ending June
30, 1998, achieve pre-tax net income, less interest income and extraordinary
income, of not less than $1,000,000, as determined in accordance with GAAP.
5.12. LIABILITIES TO TANGIBLE NET WORTH. Maintain at all times,
measured at the end of each quarterly fiscal period, a ratio of its
Liabilities to Tangible Net Worth of not more than .50 to 1.0. The Borrower
agrees that if it should assume, guarantee, endorse or otherwise become
liable in connection with the indebtedness of any other person or entity in
an aggregate amount exceeding $25,000, except for endorsements of negotiable
instruments for deposit or collection in the ordinary course of business, all
such amounts in excess of $25,000 and reasonably classified, in light of the
facts and circumstances existing at such time, as actual or matured
liabilities determined in accordance with GAAP, shall be included within the
term "Liabilities" for purposes of determining compliance with this covenant.
5.13. QUICK RATIO. Maintain, at all times, measured at the end of
each quarterly fiscal period, a Quick Ratio of not less than 1.75 to 1.00.
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5.14. DEBT SERVICE COVERAGE. Maintain, as of the end of each fiscal
year, a Debt Service Coverage Ratio of not less than 1.75 to 1.0.
5.15. FIELD AUDITS. Permit the Lender and its agents and
representatives, to conduct an annual business survey of the Borrower and
audits of the Collateral from time to time as the Lender deems necessary, all
at the Borrower's expense; provided, however, that so long as no Event of
Default shall have occurred and be continuing, Borrower shall only be
required to reimburse Lender for one field audit per fiscal year, and the
expense of each such field audit shall not exceed $2,000 so long as Accounts
and Eligible Securities are the primary items of Collateral hereunder.
5.16. FURTHER ASSURANCES. The Borrower agrees upon reasonable
request by the Lender to execute and deliver such further instruments, deeds
and assurances, including financing statements under the Uniform Commercial
Code of Minnesota and/or any other relevant states, and to do such further
acts as may be reasonably necessary or proper to carry out more effectively
the purposes of this Credit Agreement and the Loan Documents and, without
limiting the foregoing, to make subject to the liens and security interests
of the Security Agreement and any other of the Loan Documents any property
agreed to be subjected, or intended to be subject, or covered by the granting
clauses of the Security Agreement or such other of the Loan Documents.
5.17. ERISA COMPLIANCE. Comply at all times with all applicable
provisions of ERISA and the regulations and published interpretations
thereunder.
6. NEGATIVE COVENANTS
As long as there remains any amount outstanding under the Revolving
Credit Note or the Lender has any obligation to make Advances under the
Revolving Loan Commitment, the Borrower shall not, unless waived in writing
by the Lender:
6.1. CONSOLIDATION; MERGER; SALE OF ASSETS; ACQUISITIONS. Consolidate
with or merge into or with any other entity; or sell (other than sales of
inventory in the ordinary course of business), transfer, lease or otherwise
dispose of all or a substantial part of its assets; or acquire a substantial
interest in another Person either through the purchase of all or
substantially all of the assets of that Person or the purchase of a
controlling equity interest in that Person.
6.2. LIENS. Create, incur, assume or suffer to exist any Lien or any of
its property, real or personal, except (a) Liens in favor of the Lender; (b)
Liens disclosed to and approved of in writing by the Lender or as shown on
SCHEDULE 6.2(b) hereto; and (c) Liens for current taxes and assessments which
are not yet due and payable.
6.3. ADDITIONAL INDEBTEDNESS. Create, incur, assume or suffer to exist
any indebtedness except: (a) indebtedness in favor of the Lender; (b) current
liabilities incurred in the ordinary course of business; (c) indebtedness
disclosed on SCHEDULE 6.3 hereto and all refinancings thereof in amounts not
to exceed the principal amount thereof; (d) indebtedness consisting of
purchase money financing and capitalized lease obligations in an aggregate
principal amount not to exceed $250,000 at any time; and (e) indebtedness
secured by any lien permitted under SECTION 6.2.
6.4. GUARANTIES. Assume, guarantee, endorse or otherwise become liable
in connection with the indebtedness of any other person or entity except
endorsements of negotiable instruments for deposit or collection in the
ordinary course of business.
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6.5. DIVIDENDS. Declare or pay any cash dividends, purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding, other than in shares of the capital stock of the
Borrower, return any capital to its stockholders as such, or make any
distribution of assets to its stockholders as such, other than in shares of
the capital stock of the Borrower.
7. EVENTS OF DEFAULT AND REMEDIES
7.1. EVENTS OF DEFAULT. The term "Event of Default" shall mean any of
the following events:
(a) The Borrower shall default in the payment when due, or if payable on
demand, upon demand, of any principal or interest on the Revolving
Credit Note; or
(b) The Borrower shall default (other than a default in payment under
subsection (a) above) in the due performance and observance of any of
the covenants contained in any of the Loan Documents and such default
shall continue unremedied for a period of fifteen (15) days after
notice from the Lender to the Borrower thereof; or
(c) A default under any bond, debenture, note or other evidence of
indebtedness in excess of $50,000 of the Borrower owed to any Person
other than the Lender (including without limitation, those certain
industrial development revenue bonds, and any indenture or loan
agreement executed in connection therewith, issued by the Borrower to
finance the acquisition and construction of Borrower's facility in
Chaska, Minnesota), or under any indenture or other instrument under
which any such evidence of indebtedness has been issued or by which it
is governed, or under any lease of any of the Premises, and the
expiration of the applicable period of grace, if any, specified in
such evidence of indebtedness, indenture, other instrument or lease;
or
(d) The Borrower shall become insolvent or generally fail to pay or admit
in writing its inability to pay its debts as they become due; or the
Borrower shall apply for, consent to, or acquiesce in the appointment
of a trustee, receiver or other custodian for itself or any of its
property, or make a general assignment for the benefit of its
creditors; or a trustee, receiver or other custodian shall otherwise
be appointed for the Borrower or any of its assets and such
appointment is not rescinded within thirty (30) days; or any
bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution
or liquidation proceeding shall be commenced by or against the
Borrower and, if commenced against the Borrower, is not dismissed
within thirty (30) days; or the Borrower shall take any corporate
action to authorize, or in furtherance of, any of the foregoing; or
(e) Any judgments, writs, warrants of attachment, executions or similar
process (not undisputedly covered by insurance) in an aggregate amount
in excess of $50,000.00 shall be issued or levied against the Borrower
or any of its assets and shall not be released, vacated or fully
bonded prior to any sale and in any event within twenty (20) days
after its issue or levy; or
(f) Any garnishment summons, writ of attachment, or other legal paper
referring to the Borrower shall be served on the Lender; or
(g) Any representation or warranty set forth in this Credit Agreement or
any other Loan Document shall be untrue in any material respect on the
date as of which the facts set forth are stated or certified; or
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(h) The occurrence of any Material Adverse Occurrence; or
(i) Failure by the Borrower to make any mandatory prepayment as required
under SECTION 2.9 of this Credit Agreement; or
(j) A Reportable Event (as defined under ERISA) shall have occurred.
7.2. REMEDIES. If an Event of Default described in SECTION 7.1((d)) shall
occur, the full unpaid balance of the Revolving Credit Note (outstanding
balance plus accrued interest) and all other obligations of the Borrower to
the Lender shall automatically be due and payable without declaration,
notice, presentment, protest or demand of any kind (all of which are hereby
expressly waived) and the obligation of the Lender to make additional
Advances shall automatically terminate. If any other Event of Default shall
occur and be continuing, the Lender may by written notice to the Borrower
terminate its obligation to make additional Advances and may declare the
outstanding balance of the Revolving Credit Note and all other obligations of
the Borrower to the Lender to be due and payable without other further
notice, presentment, protest or demand of any kind (all of which are hereby
expressly waived), whereupon the full unpaid amount of the Revolving Credit
Note and all other obligations of the Borrower to the Lender shall become
immediately due and payable. Upon any Event of Default, the Lender shall be
entitled to exercise any and all rights and remedies available under any of
the Loan Documents or otherwise available at law or in equity to collect the
Revolving Credit Note and all other obligations of the Borrower to the Lender
and to realize upon or otherwise pursue any and all Collateral and other
security (including without limitation any and all guarantees) for the loans
under this Credit Agreement.
8. MISCELLANEOUS
8.1. WAIVERS, AMENDMENTS. The provisions of the Loan Documents may from
time to time be amended, modified, or waived, if such amendment, modification
or waiver is in writing and signed by the Lender and, as to amendments and
modifications by the Borrower. No failure or delay on the part of the Lender
or the holder(s) of the Revolving Credit Note in exercising any power or
right under any of the Loan Documents shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or
right. No notice to or demand on the Borrower in any case shall entitle it
to any notice or demand in similar or other circumstances.
8.2. NOTICES. All communications and notices provided under this Credit
Agreement shall be in writing and addressed or delivered to the Borrower or
the Lender at their respective addresses shown on the first page hereof, or
to any party at such other address as may be designated by such party in a
written notice to the other parties. Such notices shall be delivered by any
of the following means: (i) mailing through the United States Postal Service,
postage prepaid, by registered or certified mail, return receipt requested;
(ii) delivery by reputable overnight delivery service including without
limitation, and by way of example only: Federal Express, DHL, Airborne
Express and Express Mail; or (iii) delivery by reputable private personal
delivery service. Notices delivered in accordance with (i) above shall be
deemed delivered the second Business Day after deposit in the mail; notices
delivered in accordance with (ii) above shall be deemed delivered the first
Business Day after delivery to the delivery service; and notices delivered in
accordance with (iii) above shall be deemed delivered the same Business Day
as that specified by the notifying party to the delivery service.
8.3. COSTS AND EXPENSES. The Borrower agrees to pay all expenses for
the preparation of this Credit Agreement, including exhibits, and any
amendments to this Credit Agreement as may from time
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to time hereafter be required, and the reasonable attorneys fees and legal
expenses of counsel for the Lender, from time to time incurred in connection
with the preparation and execution of this Credit Agreement and any document
relevant to this Credit Agreement, any amendments hereto or thereto, and the
consideration of legal questions relevant hereto and thereto, provided that
the amount of such expenses incurred by the Lender in connection with the
preparation and execution of the Loan Documents shall not exceed $6,500 for
legal fees and expenses, and $1,800 for the Lender's collateral audits and
related activities through the date of this Agreement. The Borrower agrees to
reimburse Lender upon demand for, all reasonable out-of-pocket expenses
(including attorneys fees and legal expenses) in connection with the Lender's
enforcement of the obligations of the Borrower hereunder or under the Note or
any other of the Loan Documents, whether or not suit is commenced including,
without limitation, attorneys fees, and legal expenses in connection with any
appeal of a lower court's order or judgment. The obligations of the Borrower
under this SECTION 8.3 shall survive any termination of this Credit Agreement.
8.4. INTEREST LIMITATION. All agreements between the Borrower and the
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced or secured thereby or otherwise, shall the rate of interest charged
or agreed to be paid to the Lender for the use, forbearance, loaning or
detention of such indebtedness exceed the maximum permissible interest rate
under applicable law ("Maximum Rate"). If for any reason or in any
circumstance whatsoever fulfillment of any provision of this Credit Agreement
and/or the Revolving Credit Note, any document securing or executed in
connection herewith or therewith, or any other agreement between the Borrower
and the Lender, at any time shall require or permit the interest rate applied
thereunder to exceed the Maximum Rate, then the interest rate shall
automatically be reduced to the Maximum Rate, and if the Lender should ever
receive interest at a rate that would exceed the Maximum Rate, the amount of
interest received which would be in excess of the amount receivable after
applying the Maximum Rate to the balance of the outstanding obligation shall
be applied to the reduction of the principal balance of the outstanding
obligation for which the amount was paid and not to the payment of interest
thereunder. This provision shall control every other provision of any and
all agreements between the Borrower and the Lender and shall also be binding
upon and applicable to any subsequent holder of this Revolving Credit Note.
8.5. SEVERABILITY. Any provision of this Credit Agreement or any other
of the Loan Documents executed pursuant hereto which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such portion or unenforceability without
invalidating the remaining provisions of this Credit Agreement or such Loan
Document or affecting the validity or enforceability of such provisions in
any other jurisdiction.
8.6. CROSS-REFERENCES. References in this Credit Agreement or in any
other of the Loan Documents executed pursuant hereto to any Section are,
unless otherwise specified, to such Section of this Credit Agreement or such
Loan Document, as the case may be.
8.7. HEADINGS. The various headings of this Credit Agreement or of any
other of the Loan Documents executed pursuant hereto are inserted for
convenience only and shall not affect the meaning or interpretation of this
Credit Agreement or such Loan Document or any provisions hereof or thereof.
8.8. GOVERNING LAW; VENUE. Each of the Loan Documents shall be deemed
to be a contract made under and governed by the laws of the State of
Minnesota. The Borrower hereby consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related to this Credit Agreement and any other of the Loan
Documents, waives any argument that venue in any such forum is not convenient
and agrees that any litigation instigated by the
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Borrower against the Lender in connection herewith or therewith shall be
venued in the federal or state court that has jurisdiction over matters
arising in Minneapolis, Minnesota.
8.9. SUCCESSORS AND ASSIGNS. This Credit Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns, except that Borrower may not assign or
transfer its rights hereunder without the prior written consent of Lender;
provided that the Lender shall, in all such cases in which the Lender
transfers any interest hereunder pursuant to a participation agreement or
other syndication arrangement, remain as the Lender hereunder and shall be
solely responsible for administering the obligations and enforcing the rights
of the Lender under the Loan Documents.
8.10. RECITALS INCORPORATED. The recitals to this Credit Agreement
are incorporated into and constitute an integral part of this Credit
Agreement.
8.11. MULTIPLE COUNTERPARTS. This Credit Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original
and all of which shall constitute one and the same instrument.
8.12. CONFIDENTIALITY. The Lender agrees to exercise reasonable
care to maintain the confidentiality of all information relating to the
Borrower which has been provided to the Lender by the Borrower, and neither
the Lender nor any of its affiliates shall use any such information for any
purpose in any manner other than pursuant to the terms contemplated by the
Loan Documents, except to the extent such information (a) was or becomes
generally available to the public, other than as a result of a disclosure by
the Lender, or (b) was or becomes available on a non-confidential basis from
a source other than the Borrower, provided that such source is not bound by a
confidentiality agreement with the Borrower which is known to the Lender;
provided further, however, that the Lender may disclose such information (i)
at the request of or pursuant to any requirement of any governmental
authority to which the Lender is subject or in connection with the
examination of the Lender by any such authority, (ii) pursuant to a subpoena
or other court process, (iii) when required to do so in accordance with the
provisions of any applicable law, (iv) to the Lender's independent auditors
and other professional advisors, and (v) to any person or entity and in any
proceeding necessary in the Lender's reasonable judgment to protect the
Lender's interests in connection with any claim or dispute involving the
Lender. The Borrower authorizes the Lender to disclose to any prospective
transferee such financial and other information in the Lender's possession
concerning the Borrower which has been delivered to the Lender in connection
with the Loan Documents; provided that, unless otherwise agreed by the
Borrower, the transferee has agreed in writing to keep such information
confidential to the same extent required of the Lender under this Section.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be executed by their respective officers thereunto duly authorized as of
the day and year first above written.
LIFECORE BIOMEDICAL, INC.,
a Minnesota corporation
By: /s/ Dennis J. Allingham
--------------------------------------
Name: Dennis J. Allingham
Title: Executive Vice President and Chief
Financial Officer
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By: /s/ Therese L. Knutson
--------------------------------------
Name: Therese L. Knutson
Title: Vice President
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SCHEDULE 6.2(b)
LIENS
1. Liens of carriers, warehousemen, mechanics and materialmen, landlord's and
other like liens arising in the ordinary course of business for sums not
due or which are being diligently contested in good faith.
2. Liens incurred or deposits or pledges made or given in connection with or
to secure payment of indemnity, performance or other similar bonds.
3. Banker's Liens, rights of setoff and similar Liens incurred on deposits
made in the ordinary course of business.
4. Judgment, attachment or similar Liens, unless the judgment it secures has
not been discharged or execution thereof effectively stayed and bonded
against pending appeal within 30 days after the entry thereof.
5. Liens in the nature of easements, rights of way, restrictions and other
similar encumbrances on title to, or restrictions on the use of real
property which are not substantial in amount and do not materially detract
from the value of the property subject thereto.
6. Liens securing the indebtedness described in items 2 and 3 of Schedule 6.3.
7. Liens securing indebtedness described in Section 6.3(d).
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SCHEDULE 6.3
INDEBTEDNESS
1. Letter agreement of Borrower in favor of Credito Italiano-Verona Branch,
dated June 12, 1997, relating to an Italian lira credit facility for
Lifecore Biomedical SpA in the aggregate amount of approximately
US$131,000, by which the Borrower agreed to maintain its investment in
Lifecore Biomedical SpA, and to provide to Lifecore Biomedical SpA, if the
above-referenced credit facility Credito Italiano-Verona Branch becomes
past due, the capital necessary to settle such credit facility or to make a
direct payment to Credito Italiano-Verona Branch in an amount sufficient to
pay such credit facility.
2. $1,600,000 promissory note in favor of Bridger Biomed, Inc. Such note
bears interest at 6% per annum, with principal payments of $800,000, plus
interest, due in May, 1998 and May, 1999. Principal payments may be made
in cash or the Borrower's common stock, at the Borrower's option. The
Borrower's obligations under such note are secured by the assets which the
Borrower acquired from Bridger Biomed, Inc., consisting of technology and
regulatory rights in the TefGen product line.
3. $7,000,000 Industrial Development Revenue Bonds, bearing interest at 10.25%
per annum. The bonds are secured by a first mortgage on the Borrower's
manufacturing and administrative facility. The Borrower is required to
make debt service payments on the bonds of approximately $775,000 per year
for the fiscal years 1996 through 2021. As of December 31, 1997, the
outstanding principal balance of the Industrial Development Revenue Bonds
is $6,704,000.
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EXHIBIT 10.3
REVOLVING CREDIT NOTE
$5,000,000 MINNEAPOLIS, MINNESOTA
DUE: OCTOBER 31, 1998 JANUARY 15, 1998
LOAN AMOUNT AND INTEREST RATE. FOR VALUE RECEIVED, LIFECORE BIOMEDICAL,
INC., a Minnesota corporation ("Maker") promises to pay to the order of FIRST
BANK NATIONAL ASSOCIATION, a national banking association ("Lender"), its
successors and assigns, at its office at 300 Prairie Center Drive, Eden
Prairie, Minnesota 55344, or such other place as the holder hereof may
designate in writing from time to time, the principal sum of Five Million and
no/100 Dollars ($5,000,000), or so much thereof as may be advanced from time
to time pursuant to that certain Credit Agreement dated of even date herewith
between the Maker and the Lender, as the same may be amended, modified,
restated or replaced from time to time as agreed upon in writing by the
Lender ("Credit Agreement"), in lawful money of the United States, together
with interest from the date hereof on the unpaid balance hereof from time to
time outstanding at the variable rate of interest established from time to
time pursuant to the Credit Agreement. Interest hereon shall be computed on
the actual number of days elapsed and a 360-day year.
1. PAYMENT SCHEDULE. This Note shall be payable in the following manner:
1.1 Accrued interest hereon shall be due and payable on the first day of
each calendar month, commencing February 1, 1998, until all
indebtedness evidenced hereby is paid in full. All outstanding
principal and accrued and unpaid interest shall be due and payable on
October 31, 1998.
1.2 Each payment made under this Note shall be applied, first, to the
amount then due for any expenses, costs or other expenditures incurred
by the Lender in connection with this Note and payable by the Maker,
and then applied to any accrued interest then due under this Note, and
any balance thereafter remaining shall be applied against principal
outstanding hereunder.
1.3 Any payment due on any non-Business Day of the Lender shall be due
upon (and interest shall accrue to) the next Business Day.
2. CREDIT AGREEMENT. This Note is the Revolving Credit Note issued
pursuant to the terms and provisions of the Credit Agreement and this Note
and the holder hereof are entitled to all of the benefits provided for in the
Credit Agreement, or referred to therein. Reference is made to the Credit
Agreement for a statement of the terms and conditions under which this
indebtedness was incurred and is to be repaid and under which the due date of
this Note may be accelerated. The provisions of the Credit Agreement are
hereby incorporated by reference with the same force and effect as if fully
set forth herein.)
3. SECURITY. This Note is secured by, INTER ALIA, security interests
granted by Maker in favor of Lender pursuant to the Security Agreement and
the Pledge Agreement (as defined in the Credit Agreement).
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4. DEFAULT AND ACCELERATION. If an Event of Default, as defined in
the Credit Agreement or any other agreement made by any party in connection
with this Note, shall occur, or if any portion of the indebtedness evidenced
hereby is not paid when due, the Lender or other holder of this Note may, as
provided in the Credit Agreement, declare the indebtedness evidenced hereby
and all other indebtedness and obligations of the Maker to the Lender or
holder hereof immediately due and payable and the Lender or other holder
hereof may, without notice, immediately exercise any right of setoff and
enforce any lien or security interest securing payment hereof. The foregoing
shall be in addition to the rights of acceleration that may be provided in
any loan agreement, security agreement, mortgage and/or other writing
relating to the indebtedness evidenced hereby. If this Note is placed with
any attorney(s) for collection upon any default, the Maker agrees to pay to
the Lender or holder, its reasonable attorneys' fees and all lawful costs and
expenses of collection, whether or not a suit is commenced.
5. WAIVER. Time is of the essence. No delay or omission on the part
of the Lender or other holder hereof in exercising any right or remedy
hereunder shall operate as a waiver of such right or of any other right or
remedy under this Note or any other document or agreement executed in
connection herewith. All waivers by the Lender must be in writing to be
effective and a waiver on any occasion shall not be construed as a bar to or
a waiver of any similar right or remedy on a future occasion. The makers,
endorsers, sureties, guarantors and all other persons liable for all or any
part of the indebtedness evidenced by this Note jointly and severally waive
presentment for payment, protest and notice of nonpayment. Such parties
hereby consent without affecting their liability to any extension or
alteration of the time or terms of payment hereon, any renewal, any release
of all or any part of the security given for the payment hereof, any
acceptance of additional security of any kind, and any release of, or resort
to any party liable for payment hereof and such parties shall remain bound in
the same capacities as prior thereto upon each such event.
6. ADDITIONAL SECURITY. As additional security for this Note, the
Maker and any other party to this Note hereby grant to the Lender a security
interest in any deposits or other sums at any time credited by or due from
the Lender to any maker, endorser or guarantor hereof and any securities or
other property of any maker, endorser or guarantor hereof in the possession
of the lender or other holder of this Note. The Lender or other holder
hereof may apply or set off such property deposits or other sums against the
obligations hereunder at any time in case of makers, but only with respect to
matured liabilities in the case of endorsers or guarantors.
7. JURISDICTION. This Note represents a loan negotiated, executed
and to be performed in the State of Minnesota and shall be construed,
interpreted and governed by the law of said state. The Maker hereby consents
to the personal jurisdiction of the state and federal courts located in the
State of Minnesota in connection with any controversy related to this Note,
waives any argument that venue in such forums is not convenient and agrees
that any litigation instigated by the Maker against the Lender in connection
with this Note shall be venued in the federal or state court that has
jurisdiction over matters arising in Minneapolis, Minnesota.
8. INTEREST LIMITATION. All agreements between the Maker and the
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced or secured thereby or otherwise, shall the rate of interest charged
or agreed to be paid the Lender for the use, forbearance, loaning or
detention of such indebtedness exceed the maximum permissible interest rate
under applicable law ("Maximum Rate"). If for any reason or in any
circumstance whatsoever fulfillment of any provision of this Note, any
document securing or executed in connection with this Note, or any other
agreement between the Maker and the Lender, at any time shall require or
permit the interest rate applied thereunder to exceed the Maximum Rate, then
the interest rate shall automatically be reduced to the Maximum Rate, and if
the
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Lender should ever receive interest at a rate that would exceed the Maximum
Rate, the amount of interest received which would be in excess of the amount
receivable after applying the Maximum Rate to the balance of the outstanding
obligation shall be applied to the reduction of the principal balance of the
outstanding obligation for which the amount was paid and not to the payment
of interest thereunder. This provision shall control every other provision
of any and all agreements between the Maker and the Lender and shall also be
binding upon and available to any subsequent holder of this Note.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note to
the Lender as of the day and year first above written.
LIFECORE BIOMEDICAL, INC.,
a Minnesota corporation
By: /s/ Dennis J. Allingham
-------------------------------------
Name: Dennis J. Allingham
Title: Executive Vice President and Chief
Financial Officer
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EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made as of January
15, 1998, by LIFECORE BIOMEDICAL, INC., a Minnesota corporation, with its
chief executive office at 3515 Lyman Boulevard, Chaska, Minnesota 55318
(whether one or more, the "Debtor"), in favor of FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Secured Party").
RECITALS
WHEREAS, the Debtor and the Secured Party have entered into that certain
credit agreement dated the date hereof (as may be amended from time to time
hereafter, the "Credit Agreement") and the Debtor has agreed to secure all of
its debts, obligations and duties arising under the Credit Agreement to the
Secured Party pursuant to this Security Agreement and the grant of Collateral
hereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged by each of the parties hereto, it
is agreed as follows:
1. DEFINITIONS
As used herein, the following terms shall have the meaning set forth:
"ACCOUNTS" means the Debtor's right to the payment of money from the
sale, lease or other disposition of goods or other property by the Debtor,
any franchise now or hereafter at any time held by the Debtor, a rendering of
services by the Debtor, a loan by the Debtor, the overpayment of taxes or
other liabilities of the Debtor, or otherwise any contract or agreement,
whether such right to payment is already earned by performance, and howsoever
such right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) that the Debtor may at
any time have by law or agreement against any account debtor (as defined in
the Minnesota Uniform Commercial Code) or other obligor obligated to make any
such payment or against any of the property of such account debtor or other
obligor, including, but not limited to, all present and future debt
instruments, chattel papers, insurance proceeds and accounts of the Debtor.
"CHATTEL PAPER" means any writing or writings which evidence both a
monetary obligation and a security interest in, or a lease of, specific goods.
"COLLATERAL" means all property in which a security interest is granted
hereunder wherever located.
"DATA PROCESSING RECORDS AND SYSTEMS" means all of Debtor's now existing
or hereafter acquired electronic data processing and computer records,
software, systems, manuals, procedures, disks, tapes and all other storage
media and memory used by Debtor with respect to Accounts, Chattel Paper and
Instruments, but excluding all software, systems, manuals and other storage
media and memory which restricts Debtor's ability to transfer an interest
therein.
"DEFAULT" means any event which, with the passage of time, the giving of
notice, or both, would constitute an Event of Default.
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"DEPOSIT ACCOUNTS" mean all deposit accounts now existing or hereafter
arising, maintained for or in Debtor's name and any and all funds at any time
held therein.
"EVENT OF DEFAULT" has the meaning specified in SECTION 6 hereof.
"GOODS" means any tangible personal property or fixtures, including all
things that are movable, but not including money, documents, Instruments,
Accounts, Chattel Paper, general intangibles or minerals or the like before
extraction.
"INSTRUMENTS" means any negotiable instrument or certificated or
non-certificated security or any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease and is of a
type which is in the ordinary course of business transferred by delivery with
any necessary endorsement or assignment.
"LIENS" means any and all mortgages, pledges, security interests, tax
and other statutory liens, judgment liens, and other encumbrances of any
nature whatsoever, whether consensual or non-consensual.
"OBLIGATIONS" means:
a. That certain Promissory Note dated of even date herewith in the
original principal amount of Five Million Dollars ($5,000,000)
executed by Debtor and payable to the order of Secured Party, together
with each extension, renewal, modification, substitution and change in
form thereof which may be from time to time and for any term or terms
effected between the holder(s) and any party primarily obligated
thereon without notice to other parties;
b. All of Debtor's indebtedness, obligations and liabilities under the
Credit Agreement between, and all other indebtedness, obligations and
liabilities of the Debtor to Secured Party, including all future loans
and advances, whether direct or indirect, absolute or contingent,
joint or several, howsoever owned, held or acquired by the Secured
Party and howsoever evidenced, presently existing and hereafter
arising; and
c. All amounts expended or incurred by the Secured Party in exercising
any rights or remedies consequent on any default, including without
limitation, court costs, attorneys, fees and expenses in connection
with the enforcement of this Security Agreement whether or not suit
has been filed.
"PERMITTED LIENS" means the Liens permitted pursuant to Section 6.2 of
the Credit Agreement.
"PROCEEDS" means whatever is received upon the sale, exchange,
collection or other disposition of Collateral or Proceeds.
Other terms defined herein shall have the meaning ascribed to them
herein. All capitalized terms used herein not specifically defined herein
shall have the meaning ascribed to them in the Credit Agreement.
2. SECURITY INTERESTS
2.1 COLLATERAL. As security for the payment of all Obligations, Debtor
hereby grants to Secured Party a security interest in all of Debtor's now
owned or hereafter acquired or arising:
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a. Accounts;
b. Chattel Paper;
c. Data Processing Records and Systems;
d. Instruments; and
e. Proceeds (whether cash or non-cash Proceeds, including non-cash
Proceeds of all types including, but not limited to, tangible personal
property acquired with cash Proceeds).
3. REPRESENTATIONS AND WARRANTIES OF DEBTOR
Debtor represents, warrants and covenants that:
3.1 ORGANIZATION, ETC. The Debtor is a corporation validly organized
and existing and in good standing under the laws of the state of Minnesota,
has full power and authority to own its property and conduct its business
substantially as presently conducted by it and is duly qualified to do
business and is in good standing as a corporation in each jurisdiction where
the nature of its business makes such qualification necessary. The Debtor
has full power and authority to enter into and perform its obligations under
this Security Agreement and grant the liens and security interests hereunder.
3.2 DUE AUTHORIZATION. The execution, delivery and performance by the
Debtor of this Security Agreement have been duly authorized by all necessary
corporate action, do not require any approval or consent of, or any
registration, qualification or filing with, any governmental agency or
authority or any approval or consent of any other Person (including, without
limitation, any stockholder), do not and will not conflict with, result in
any violation of or constitute any default under, any provision of the
Debtor's certificate of incorporation, any agreement binding on or applicable
to the Debtor or any of its property, or any law or governmental regulation
or court decree or order, binding upon or applicable to the Debtor or of any
of its property and will not result in the creation or imposition of any Lien
on any of its property pursuant to the provisions of any agreement binding on
or applicable to the Debtor or any of its property except pursuant to this
Security Agreement.
3.3 VALIDITY OF THIS SECURITY AGREEMENT. This Security Agreement
represents a legal, valid and binding obligation of the Debtor enforceable in
accordance with its terms, subject only to bankruptcy, insolvency,
reorganization, moratorium or similar laws, rulings or decisions at the time
in effect affecting the enforceability of rights of creditors generally and
to general equitable principles which may limit the right to obtain equitable
remedies. This Security Agreement grants to Secured Party a valid, first
priority perfected and enforceable lien on the Collateral.
3.4 TITLE TO COLLATERAL. The Debtor is sole owner of, has rights in,
and has good and marketable title to all of the Collateral and none of the
Collateral is subject to any Lien except for Permitted Liens and the security
interest created pursuant to this Security Agreement.
3.5 SURVIVAL OF REPRESENTATIONS. All representations and warranties
contained in this SECTION 3 shall survive the delivery of this Security
Agreement and any investigation at any time made by or on behalf of Secured
Party shall not diminish its rights to rely thereon.
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4. COVENANTS OF THE DEBTOR
4.1 DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Debtor will not
encumber, sell or otherwise transfer or dispose of the Collateral without the
prior written consent of Secured Party.
4.2 VALIDITY OF ACCOUNTS. The Debtor warrants that all Accounts,
Chattel Paper and Instruments will be bona fide existing obligations created
by the sale and actual delivery of Goods or the rendition of services to
customers in the ordinary course of business, which the Debtor then owns free
and clear of any Liens other than the security interest created by this
Security Agreement and Permitted Liens and which are then unconditionally
owing to Debtor without defenses, offset or counterclaim known to Borrower,
and that all shipping or delivery receipts, invoice copies and other
documents furnished to Secured Party in connection therewith will be genuine,
and that the unpaid principal amount of any Chattel Paper or Instrument and
any security therefor is and will be as represented to Secured Party on the
date of the delivery thereof to the Secured Party. Upon the request of the
Secured Party, Debtor shall furnish to the Secured Party, from time to time,
a list of the Debtor's Accounts, including without limitation, the name and
address of each account debtor and the amount owed.
4.3 NOTATION ON CHATTEL PAPER. For purposes of the security interest
granted pursuant to this Security Agreement, Secured Party has been granted a
direct security interest in all Chattel Paper and such Chattel Paper is not
claimed merely as Proceeds of inventory. Upon Secured Party's request,
Debtor will deliver to Secured Party the originals of all Chattel Paper.
Debtor will not execute any copies of Chattel Paper other than those which
are clearly marked as a copy. Secured Party may stamp any such Chattel Paper
with a legend reflecting Secured Party's security interest therein.
4.4 INSTRUMENTS AS PROCEEDS. Notwithstanding any other provision in
this Security Agreement concerning Instruments, Debtor covenants that
Instruments constituting cash Proceeds (for example, money and checks) shall
be deposited in deposit accounts with Secured Party containing only Proceeds
to the extent required under SECTION 5.2.
4.5 PROTECTION OF COLLATERAL. All costs of keeping the Collateral free
of any Liens prohibited by this Security Agreement and of removing the same
if they should arise, and any and all excise, property, sales and use taxes
imposed by any state, federal or local authority on any of the Collateral or
in respect of the sale thereof, shall be borne and paid by Debtor and if
Debtor fails to promptly pay any thereof when due, Secured Party may, at its
option, but shall not be required to, pay the same whereupon the same shall
constitute Obligations and shall bear interest at the highest annual rate
specified in the Obligations (the "Default Rate") and shall be secured by the
security interest granted hereunder.
4.6 COMPLIANCE WITH LAW. Debtor will not use the Collateral, or
knowingly permit the Collateral to be used, for any unlawful purpose or in
violation of any federal, state or municipal law.
4.7 BOOKS AND RECORDS; ACCESS.
a. Debtor will permit Secured Party, upon reasonable notice to Debtor, to
examine Debtor's books and records (including Data Processing Records
and Systems) with respect to the Collateral and make extracts
therefrom and copies thereof at any time and from time to time, and
Debtor will furnish such information and reports to Secured Party
regarding the Collateral as Secured Party may from time to time
request. Debtor will also permit Secured Party, upon reasonable
notice to Debtor, to inspect the Collateral at any time and from time
to time as Secured Party may reasonably request.
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b. Secured Party shall have authority, at any time, to place, or require
Debtor to place, upon Debtor's books and records relating to Accounts,
Chattel Paper, Instruments and other rights to payment covered by the
security interest granted hereby a notation or legend stating that
such Accounts, Chattel Paper, Instruments and other rights to payment
are subject to a security interest of Secured Party.
4.8 ADDITIONAL DOCUMENTATION. Debtor will execute, from time to time,
such financing statements, assignments, and other documents covering the
Collateral, including Proceeds, as Secured Party may reasonably request in
order to create, evidence, perfect, maintain or continue its security
interest in the Collateral (including additional Collateral acquired by the
Debtor after the date hereof), and Debtor will pay the cost of filing the
same in all public offices in which Secured Party may deem filing to be
appropriate. Upon request, Debtor will deliver to Secured Party all Debtor's
Instruments and Chattel Paper.
4.9 CHIEF EXECUTIVE OFFICE. The location of the chief executive office
of Debtor is set forth in the preamble hereto and will not be changed without
thirty (30) days' prior written notice to Secured Party. Debtor warrants
that its books and records concerning its Accounts and Chattel Paper are
located at its chief executive office.
4.10 NAME OF DEBTOR. Debtor's true name is as set forth in the preamble
hereto. Debtor has not used any other name within the past five (5) years.
Neither Debtor nor any predecessor in title to any of the Collateral has
executed any financing statements or security agreements presently effective
as to the Collateral except those permitted under the Credit Agreement.
Debtor shall not change its name or use any trade or assumed name without
giving Secured Party thirty (30) days prior written notice.
4.11 POWER OF ATTORNEY. The Debtor appoints Secured Party, or any other
person, whom Secured Party may from time to time designate, as Debtor's
attorney with power, after the occurrence and during the continuance of an
Event of Default, to endorse Debtor's name on any checks, notes, acceptances,
drafts, or other forms of payment or security that may come into Secured
Party's possession, to sign Debtor's name on any invoice or bill of lading
relating to any Collateral, on drafts against customers, on schedules and
confirmatory assignments of Accounts, Chattel Paper, Instruments or other
Collateral, on notices of assignment, financing statements under the Uniform
Commercial Code (the "Code") and other public records, on verifications of
Accounts and on notices to customers, to notify the post office authorities
to change the address for delivery of Debtor's mail to an address designated
by Secured Party, to receive and open all mail addressed to Debtor, to send
requests for verification of Accounts, Chattel Paper, Instruments or other
Collateral to customers, make any compromise or settlement, and take any
action it deems advisable with respect to the Collateral, and to do all
things necessary to carry out this Security Agreement. The Debtor ratifies
and approves all acts of the attorney taken within the scope of the authority
granted. Neither Secured Party nor the attorney will be liable for any acts
of commission or omission nor for any error in judgment or mistake of fact or
law other than those acts, errors or mistakes arising from gross negligence
or willful misconduct by Secured Party. This power, being coupled with an
interest, is irrevocable so long as any Obligation remains unpaid. The
Debtor waives presentment and protest of all instruments and notice thereof,
notice of default and dishonor and all other notices to which Debtor may
otherwise be entitled, except as otherwise provided herein or in any other
Loan Document.
5. COLLECTIONS
5.1 COLLECTION OF ACCOUNTS. Except as otherwise provided in this
SECTION 5, the Debtor shall continue to collect at its own expense, all
amounts due or to become due to the Debtor, under the
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Accounts. In connection with such collections, the Debtor may take (and, at
the Secured Party's direction, shall take) such action as the Debtor or the
Secured Party, after the occurrence and during the continuance of an Event of
Default, may deem necessary or advisable to enforce collection of the
Accounts; provided, however, that the Secured Party, after the occurrence and
during the continuance of an Event of Default, shall have the right to notify
the account debtors under any Accounts of the assignment of such Accounts to
the Secured Party and to direct such account debtors to make payment of all
amounts due or to become due to the Debtor thereunder directly to the Secured
Party. Upon such notification and at the expense of Debtor, the Secured
Party shall have the right to enforce collection of such Accounts and to
adjust, settle, or compromise the amount or payment thereof in the same
manner and to the same extent as the Debtor might have done. The Secured
Party shall apply all collections hereunder in accordance with SECTION 7.7.
5.2 COLLECTION OF OTHER COLLATERAL PROCEEDS. Upon request of Lender,
following and during the continuance of an Event of Default, the Debtor shall
deposit into a collection account (the "Collection Account") maintained with
the Secured Party immediately upon receipt all Proceeds of Collateral, other
than accounts, in the original form such payments are received, except for
endorsement where necessary. The Secured Party is hereby authorized and
directed promptly to apply all such collected funds to the payment of the
Obligations in the manner and in the priority determined by the Secured Party
in the exercise of its discretion. Such funds shall be applied in accordance
with SECTION 7.7.
6. EVENTS OF DEFAULT
The occurrence of any Event of Default as defined in the Credit
Agreement shall constitute an Event of Default hereunder ("Event of Default")
7. RIGHTS AND REMEDIES ON DEFAULT
Upon the occurrence of an Event of Default, and at any time thereafter
until such Event of Default is cured to the satisfaction of Secured Party or
waived by the Secured Party, and in addition to the rights granted to Secured
Party under SECTION 5 hereof or under any other document, agreement or other
instrument evidencing, securing or otherwise relating to any of the
Obligations, Secured Party may exercise any one or more of the following
rights and remedies:
7.1 ACCELERATION OF OBLIGATIONS. Declare any and all Obligations to be
immediately due and payable as provided in the Credit Agreement, and the same
shall thereupon become immediately due and payable without further notice or
demand.
7.2 RIGHT OF OFFSET. Offset any deposits, including unmatured time
deposits, then maintained by Debtor with Secured Party, whether or not then
due, against any indebtedness then owed by Debtor to Secured Party whether or
not then due.
7.3 DEAL WITH COLLATERAL. In the name of Debtor or otherwise, demand,
collect, receive and receipt for, compound, compromise, settle and give
acquittance for and prosecute and discontinue any suits or proceedings in
respect of any or all of the Collateral.
7.4 REALIZE ON COLLATERAL. Take any action which Secured Party may
deem necessary or desirable in order to realize on the Collateral, including,
without limitation, the power to foreclose any security interest, to perform
any contract, to endorse in the name of Debtor any checks, drafts, notes, or
other instruments or documents received in payment of or on account of the
Collateral.
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7.5 ACCESS TO PROPERTY. Enter upon and into and take possession of all
or such part or parts of the properties of Debtor, including lands, plants,
buildings, machinery, equipment, Data Processing Records and Systems and
other property as may be necessary or appropriate in the judgment of Secured
Party, to permit or enable Secured Party to store, lease, sell or otherwise
dispose of or collect all or any part of the Collateral, and use and operate
said properties for such purposes and for such length of time as Secured
Party may deem necessary or appropriate for said purposes without the payment
of any compensation to Debtor therefor. Debtor shall provide Secured Party
with all information and assistance requested by Secured Party to facilitate
the storage, leasing, assembly, sale or other disposition or collection of
the Collateral after an Event of Default, and make such Collateral available
to Secured Party on Secured Party's demand.
7.6 OTHER RIGHTS. Exercise any and all other rights and remedies
available to it by law, in equity or by agreement, including rights and
remedies under the Minnesota Uniform Commercial Code or any other applicable
law, or under the Credit Agreement and, in connection therewith, Secured
Party may require Debtor to assemble the Collateral and make it available to
Secured Party at a place to be designated by Secured Party, and any notice of
intended disposition of any of the Collateral required by law shall be deemed
reasonable if such notice is mailed or delivered to Debtor at its address as
shown on Secured Party's records at least ten (10) days before the date of
such disposition. The Secured Party may sell or otherwise dispose of any or
all of the Collateral in a single unit or in multiple units and the Secured
Party may be the purchaser at such sale or other disposition. The Debtor
shall remain liable for any deficiency remaining after any such sale or other
disposition of the Collateral.
7.7 APPLICATION OF PROCEEDS. All proceeds of Collateral shall be
applied in accordance with Minnesota Statute Section 336.9-504 and such
proceeds applied toward the Obligations shall be applied in such order as the
Secured Party may elect.
8. MISCELLANEOUS
8.1 NO LIABILITY ON COLLATERAL. It is understood that Secured Party
does not in any way assume any of the Debtor's obligations under any of the
Collateral and does not intend to create any third party beneficiary rights
by taking or omitting any action herein. Debtor hereby agrees to indemnify
Secured Party against all liability arising in connection with or on account
of any of the Collateral, except for any such liabilities arising on account
of Secured Party's gross negligence or willful misconduct.
8.2 NO WAIVER. Secured Party shall not be deemed to have waived any of
its rights hereunder or under any other agreement, instrument or paper signed
by Debtor unless such waiver be in writing and signed by Secured Party. No
delay or omission on the part of Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion.
8.3 REMEDIES CUMULATIVE. All rights and remedies of Secured Party
shall be cumulative and may be exercised singularly or concurrently, at its
option, and the exercise or enforcement of any one such right or remedy shall
not bar or be a condition to the exercise or enforcement of any other.
8.4 GOVERNING LAW/JURISDICTION. This Security Agreement shall be
construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of Minnesota. Debtor hereby
consents to the personal jurisdiction of the state and federal courts of the
State of Minnesota in connection with any controversy related to this
Security Agreement, waives any argument
7
<PAGE>
that venue in any such forum is not convenient and agrees that any litigation
initiated by Debtor against Secured Party shall be venued in the State or
Federal District Courts of Minnesota.
8.5 EXPENSES. Debtor agrees to pay all costs, fees and expenses
incurred by Secured Party in the exercise of any right or remedy available to
it under this Security Agreement, whether or not suit is commenced,
including, without limitation, attorneys' fees and legal expenses of counsel
for the Secured Party incurred in connection with any appeal of a lower
court's order or judgment, and any appraisal or survey fees, completion
costs, storage and transportation charges.
8.6 SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding
upon and inure to the benefit of the successors and assigns of Debtor and
Secured Party.
8.7 RECITALS. The above Recitals are true and correct as of the date
hereof and constitute a part of this Security Agreement.
8.8 COPY OF SECURITY AGREEMENT AS FINANCING STATEMENT. The Secured
Party may file a reproduced copy or photostatic copy or other reproduction of
this Security Agreement as a Financing Statement.
8.9 MULTIPLE COUNTERPARTS. This Security Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original,
and all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Debtor has caused the execution of this Security
Agreement by its duly authorized representative as of the date and year first
above written.
LIFECORE BIOMEDICAL, INC.,
a Minnesota corporation
By: /s/ Dennis J. Allingham
--------------------------------------
Name: Dennis J. Allingham
Title: Executive Vice President and
Chief Financial Officer
8
<PAGE>
EXHIBIT 10.5
CUSTODIAL PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AGREEMENT AND SECURITY AGREEMENT (the "Pledge Agreement")
dated January 15, 1998, by and between LIFECORE BIOMEDICAL, INC., a Minnesota
corporation (the "Pledgor"), NORWEST INVESTMENT SERVICES, INC., a Minnesota
corporation (the "Custodian") and FIRST BANK NATIONAL ASSOCIATION, a national
banking association ("Secured Party").
RECITALS
WHEREAS, the Pledgor and the Secured Party have executed and delivered
that certain credit agreement dated the date hereof ("Credit Agreement")
pursuant to which the Secured Party has agreed to lend to the Pledgor the
principal amount of $5,000,000, or such lesser amount as is advanced pursuant
to the terms of the Credit Agreement, and the Pledgor has agreed to secure
its obligations under the Credit Agreement to the Secured Party pursuant to
the terms of this Pledge Agreement.
NOW, THEREFORE, for and in consideration of the above premises, the
mutual promises and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Pledgor, the Custodian and the Lender agree as follows:
1. THE PLEDGE. The Pledgor does hereby pledge, hypothecate, assign,
transfer to the Secured Party and grant the Secured Party a continuous and
continuing security interest in and to all of its right, title and interest,
now owned and hereinafter acquired, in and to the property described on
SCHEDULE I attached hereto and made a part hereof, now or hereafter held by
the Custodian pursuant to any agreement or account (the "Custodial
Accounts"):
a. All stocks, bonds, debentures, certificates of deposit, commercial
paper, letters of credit, securities, whether certificated or
uncertificated, United States Treasury bills and securities and other
documents, instruments and obligations described on SCHEDULE I
attached hereto, howsoever evidenced and where and howsoever held,
whether by book entry, certificate or otherwise, in the physical
possession of the Secured Party or the Custodian or in a Depository
Trust Company or a Federal Reserve Bank in the name of or for the
account of the Pledgor, Secured Party or Custodian or otherwise;
b. All securities, instruments, and other property, rights or interests
of any description at any time issued or issuable as an addition to,
in substitution or exchange for or with respect to the items described
in subsection (a) above, including, without limitation, shares issued
as dividends or as the result of any reclassification, split-up, or
other corporate reorganization;
c. All cash, proceeds, revenues, profits, dividends, interest or other
income or property, accrued and hereafter accruing, received,
receivable or otherwise distributed in respect of, in exchange for or
upon the sale or other disposition of any or all of the property
described in subsections (a) and (b) above;
d. Property of every kind and description in which the Pledgor has or may
acquire an interest, now or hereafter in the control of the Secured
Party for any reason, including, without limitation, instruments,
money, documents or other property deposited with or delivered to the
Secured Party as collateral, for safekeeping or for collection or
exchange for other property, and all dividends and distributions on,
or other rights in connection with such
<PAGE>
property; and all general intangibles (as defined in the Minnesota
Uniform Commercial Code), now owned or hereafter acquired by the
Pledgor; and
e. All records, books, ledgers, computer tapes, disks, printouts and
other information in whatsoever form with respect to any of the
collateral described in subsections (a), (b), (c) and (d) above.
All of the above-described property shall be referred to herein as
"Collateral".
2. SECURITY INTEREST PARAMOUNT. The Pledgor hereby directs the Custodian
to recognize, and the Custodian hereby recognizes, that the pledge and
security interest and the rights in the Collateral granted to the Secured
Party hereunder are paramount and shall modify and supersede any obligations
or agreements regarding the Collateral between the Pledgor and the Custodian.
3. SECURED OBLIGATION. The pledge and security interest granted herein is
given to secure payment and performance of all and singular of the following
(all of which are referred to collectively herein as the "Secured
Obligation"):
a. That certain Promissory Note dated of even date herewith in the
original principal amount of Five Million Dollars ($5,000,000)
executed by Pledgor and payable to the order of Secured Party,
together with each extension, renewal, modification, substitution and
change in form thereof which may be from time to time and for any term
or terms effected between the holder(s) and any party primarily
obligated thereon without notice to other parties;
b. All of Pledgor's indebtedness, obligations and liabilities under that
certain Credit Agreement (the "Credit Agreement") dated the date
hereof between the Pledgor and the Secured Party, and all other
indebtedness, obligations and liabilities of the Pledgor to Secured
Party, including all future loans and advances, whether direct or
indirect, absolute or contingent, joint or several, howsoever owned,
held or acquired by the Secured Party and howsoever evidenced,
presently existing and hereafter arising; and
c. All amounts expended or incurred by the Secured Party in exercising
any rights or remedies consequent on any default, including without
limitation, court costs, attorneys' fees and expenses in connection
with the enforcement of this Pledge Agreement whether or not suit has
been filed.
4. DELIVERY OF SUBSTITUTE COLLATERAL. The Pledgor shall deliver promptly
to the Secured Party, in the exact form received, all securities and other
property which comes into the possession, custody or control of such party or
an agent thereof which has been issued as an addition to, substitution or
exchange for, proceeds of or with respect to the Collateral, provided that
all profits, dividends, interest and other income (but not principal or
proceeds, which shall be paid to Secured Party pursuant to the terms of the
Credit Agreement) distributed in respect of the Collateral may be received
and retained by Pledgor unless an Event of Default has occurred and is
continuing.
5. PROXIES, STOCK POWERS, OTHER ENDORSEMENTS. Upon demand by Secured
Party, the Pledgor shall execute, assign, and endorse all proxies,
applications, acceptances, stock powers, chattel paper, documents,
instruments or other evidences of payment or writing constituting or relating
to any of the Collateral. All such assignments and endorsements shall be in
form and substance satisfactory to the Secured Party and its counsel.
6. ACTIONS NOT AFFECTING PLEDGE. The Secured Party may (and the Secured
Party is hereby authorized to make from time to time, without notice to
anyone) without impairing or affecting the pledge and security interest
granted hereby:
2
<PAGE>
a. Sell, pledge, surrender, compromise, settle, release, renew, extend,
grant an indulgence, alter, substitute, change, modify, or otherwise
dispose of any of the Secured Obligation or any contract evidencing
the same or any part thereof or any security therefor;
b. Accept additional security for or additional parties or other
guarantors upon any of the Secured Obligation or release any portion
of the Collateral or any maker, endorser, security or guarantor or
other party liable on any portion of the Secured Obligation; and
c. Apply any and all payments it receives on account of the Secured
Obligation and the proceeds of the Collateral or any other security
therefor against any item or items of Secured Obligation as the
Secured Party, in its sole discretion, may determine, whether the same
shall then be due or not.
7. WARRANTIES AND REPRESENTATIONS OF PLEDGOR.
a. POWER AND AUTHORITY TO PLEDGE. Pledgor has full power and authority
to execute and deliver this Pledge Agreement and to perform its
obligations hereunder.
b. ENFORCEABILITY. This Pledge Agreement is the legal, valid and binding
obligation of Pledgor, enforceable against Pledgor according to its
terms, subject only to bankruptcy, insolvency, moratorium,
reorganization or similar laws, rulings or decisions at the time in
effect affecting the enforceability of rights of creditors generally
and to applicable equitable principles.
c. TITLE TO COLLATERAL. Pledgor warrants and represents to Secured Party
that it holds title to the Collateral free and clear of any liens,
pledges or encumbrances, except liens or encumbrances in favor of
Secured Party, and no financing statement or registration of pledge
covering all or any part of the Collateral is on file in any public
office or private office, except those in favor of Secured Party.
d. NO RESTRICTIONS. Except as disclosed to the Secured Party in writing,
the Collateral is not subject to a stockholder agreement, option
agreement, buy-sell agreement or other restriction of any kind upon
the sale thereof. If all or any portion of the Collateral is subject
to any stockholder agreement, buy-sell agreement, option agreement or
other agreement of any kind, Pledgor shall furnish to Secured Party
copies of all such agreements and any amendments, modifications, or
supplements thereto.
e. SECURITY INTEREST IS CONTINUING. The Pledgor agrees and acknowledges
that the pledge and security interest granted hereby is a continuing
security interest and shall continue in full force and effect
notwithstanding that from time to time no Secured Obligation may
exist. Except as expressly provided herein, the Secured Party shall
release its interest in the Collateral only upon payment in full of
all Secured Obligation and termination of any and all obligations of
the Secured Party to make advances to or on behalf of the Pledgor
under the Credit Agreement or any other document.
8. EVENTS OF DEFAULT. An Event of Default as defined in the Credit
Agreement shall constitute an "Event of Default" hereunder.
9. SECURED PARTY'S RIGHT TO SELL COLLATERAL. Upon the occurrence and
during the continuance of an Event of Default, the Secured Party shall be
entitled to sell any or all of the Collateral, without prior demand or notice
and without notice of the time or place of sale, all of which are hereby
expressly waived to the extent allowed by law. Such sale(s) may be made, at
the Secured Party's sole and exclusive discretion, on any Exchange or other
market where such business is then transacted, or at public auction or
private sale, with or without advertising. The Pledgor hereby expressly
authorizes the
3
<PAGE>
Secured Party, after the occurrence of and during the continuance of an Event
of Default, to sell any or all of the Collateral through one or more of the
Custodial Accounts without first registering the Collateral in the Secured
Party's name, provided, however, that the Secured Party may, in its sole
discretion, after the occurrence of and during the continuance of an Event of
Default, cause all or any portion of the Collateral to be registered in its
name and to receive all dividends, interest and other distributions thereon
and apply the same to the Secured Obligation in such order as it shall deem
appropriate. The Secured Party may limit such sales to purchasers who are
acquiring for investment and not with any view to distribution and may
condition any such sale or sales upon restrictions against future transfers
to the extent that the Secured Party or counsel for the Secured Party shall
deem necessary to protect the Lender from any liability under the Securities
Act of 1933, the Securities Exchange Act of 1934, the Minnesota securities
laws, and any like or similar laws now or hereafter in effect. Upon the
occurrence and during the continuance of an Event of Default under the Credit
Agreement and exercise of the Secured Party's rights under this SECTION 9,
all of the Pledgor's rights, title and interest in and to the Custodial
Accounts with respect to the Collateral shall terminate and any agreements
between the Pledgor and the Custodian with respect thereto shall be null and
void.
10. WAIVER OF REDEMPTION; NO LIABILITY FOR VALUE DECLINE. Any and all
sale(s) of Collateral held by the Secured Party pursuant to SECTION 9 above
shall be free from any right of redemption, which is hereby expressly waived
by the Pledgor. In addition, the Secured Party shall have no liability for
any increase or decrease in the value of any of the Collateral at any time.
11. APPLICATION OF SALES PROCEEDS. The proceeds of the sale(s) of the
Collateral under SECTION 9 above shall be applied as follows:
a. First, to the payment of all expenses incurred by the Secured Party
hereunder, including all costs and expenses of collection, whether or
not a suit has been filed, including but not limited to, all sales
commissions, brokers' fees and reasonable attorneys' fees;
b. Second, to the satisfaction of the Secured Obligation in such order as
the Secured Party in its sole discretion shall determine;
c. Third, to the payment of any other amounts required by applicable law
(including, but without limitation, Section 336.9-504(1)(c) of the
Minnesota Uniform Commercial Code); and
d. Fourth, any balance then remaining shall be paid to the Pledgor,
unless it is the subject of tax lien or levy, attachment, restraining
order, injunction or other such distraint.
12. DEFICIENCY. If the Secured Obligation is not satisfied in full by the
proceeds of the sale(s) of any or all of the Collateral, the Pledgor shall
remain liable thereon and the Secured Party may recover any deficiency
therefrom.
13. RIGHTS CUMULATIVE. All remedies of the Secured Party hereunder are in
addition to any remedies afforded the Secured Party under the Note, the
Credit Agreement or any other document or under law. All remedies are
cumulative and may be exercised by the Secured Party concurrently or
consecutively. No failure or omission of the Secured Party to exercise any
such right or remedy shall constitute a waiver thereof.
14. CUSTODIAN AS AGENT FOR SECURED PARTY. By delivery of this fully
executed Pledge Agreement to the Custodian, the Pledgor notifies the
Custodian that the Collateral in the Custodial Accounts described in SECTION
1 hereof is subject to the pledge and security interest of the Secured Party
granted hereby in the Collateral is now and shall be held by the Custodian as
agent for the Secured Party for the purposes of perfecting and enforcing the
pledge and security interests granted to the Secured Party hereunder and
disposing of the Collateral pursuant to the terms hereof.
4
<PAGE>
15. DUTY OF CARE. The Custodian shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral by
accounting for all money and things of value received by it upon or in
respect thereof. In addition, the Secured Party shall not be required to
take any steps necessary to preserve any rights in the Collateral against
prior parties or to protect, preserve or maintain any security interest given
to secure the Collateral. Further, neither the Custodian nor the Secured
Party shall be obligated to take any action to exercise any rights, warrants,
puts, calls or other options in respect of any Collateral, to present any
coupons for payment to effect redemption of, or make any presentment,
protest, notice of protest, notice of dishonor upon any Collateral or
otherwise protect any optional right or rights thereon.
16. PLEDGE AGREEMENT GOVERNS. The provisions of any custodial or brokerage
agreement between the Custodian and the Pledgor which are not consistent with
the terms and provisions of this Pledge Agreement and the rights and
interests of the Secured Party granted hereunder with respect to the
Collateral shall be suspended and be of no force and effect so long as this
Pledge Agreement remains in effect.
17. ACCOUNT FEES; INDEMNIFICATION OF SECURED PARTY. All fees, costs and
expenses due or to become due in connection with the maintenance of the
Custodial Accounts shall at all times remain the responsibility of the
Pledgor, without charge to the Secured Party, and the Secured Party shall
have no liability whatsoever in the event of a dispute or claim by the
Custodian against the Pledgor upon any matter arising out of, or related to,
any of the Custodial Accounts.
18. INDEMNIFICATION. The Pledgor indemnifies and holds the Secured Party
harmless from any and all claims, causes of action, suits, controversies,
executions and demands whatsoever, in law or equity, by or on behalf of each
of them or any third party, arising from or in connection with the Collateral
or the Custodial Accounts by virtue of the pledge and security interest
granted to the Secured Party hereunder.
19. NO RIGHT TO TERMINATE OR MODIFY. The Pledgor and Custodian shall not be
entitled to amend, modify, terminate or otherwise change the terms of the
Custodial Agreements with respect to the Collateral except as expressly set
forth herein without the prior written consent of the Secured Party to the
specific change or modification requested which consent shall be limited to
that specific request only.
20. NO OTHER PLEDGE, SET-OFF OR ASSIGNMENT. The Custodian shall not allow
any assignment, pledge or security interest in favor of itself or any other
party to attach to any of the Collateral, except those in favor of the
Secured Party without the express written consent of the Secured Party nor
shall it exercise any right of set-off it may have or debit any of the
Collateral in respect of any claim it may assert against the Pledgor.
21. ATTORNEY-IN-FACT. The Secured Party is authorized and is hereby
appointed as attorney-in-fact for the Pledgor for the purpose of executing
all stock certificates, stock or bond powers, coupons, releases,
notifications of transfer or other evidence of redemption or transfer which
may be required of the Pledgor to sell any or all of the Collateral at any
time after an Event of Default has occurred and is continuing. The Custodian
is hereby empowered to guarantee any and all such signatures by the Secured
Party as if made by the Pledgor.
22. INDEMNIFICATION OF CUSTODIAN. The Pledgor, jointly and severally if
more than one, indemnifies, holds and saves the Custodian harmless of and
from all claims, causes of action, suits, controversies, executions and
demands whatsoever, in law or equity, by or on behalf of each of them or any
third party arising from or in connection with Custodian's compliance with
the terms of this Pledge Agreement, other than arising out of Custodian's
gross negligence or willful misconduct.
5
<PAGE>
23. CUSTODIAL ACCOUNT REPORTS AND INFORMATION; CONTENTS OF ACCOUNT; NOTATION
ON ACCOUNT. The Pledgor hereby irrevocably authorizes and directs the
Custodian to provide Secured Party with monthly information regarding
Collateral in the Custodial Accounts through written or oral reports or
direct computer access, as the Secured Party, in its sole discretion, shall
request. In addition, the Custodian is authorized and directed to furnish
Secured Party with a copy of the monthly asset analysis it prepares with
regard to Collateral in each of the Custodial Accounts as soon as the same
shall become available, together with all other information and reports
supplied to the Pledgor in connection with Collateral in each Custodial
Account at the same time such information is furnished to such party.
Custodian warrants to Secured Party that all assets listed on SCHEDULE I are
held in the Custodial Accounts as of the date of this Agreement. Custodian
further warrants that it has marked its records to show the security interest
in the Collateral in the Custodial Accounts in favor of Secured Party.
24. DELIVERY OF COLLATERAL TO SECURED PARTY. Upon notice from the Secured
Party that it is exercising its rights under SECTION 9 of this Pledge
Agreement, the Custodian shall (and is hereby irrevocably authorized and
directed by the Pledgor) deliver to the Secured Party all of the Collateral
together with all appropriate assignments and endorsements in blank or to the
order of the Secured Party, whereupon the Custodial Agreements and the rights
of the parties thereunder with respect to the Collateral shall terminate and
be of no further effect; provided, however, that the Pledgor shall have sole
liability for all fees and expenses in connection with the Custodial Accounts
remaining unpaid as of the date of such termination.
25. HOLDING OF COLLATERAL. All Collateral shall be held by the Custodian in
one of these ways:
a. As a physical certificate in the Custodian's possession. It shall
either be a bearer certificate or shall be in the name of or endorsed
to the Custodian or its nominee.
b. As an uncertificated or book-entry security registered on the books of
the issuer of the security or of a Federal Reserve Bank in the name or
nominee name of the Custodian for the benefit of its customers.
c. As an asset in an account of the Custodian with a clearing corporation
containing only customer securities.
d. As an asset held in the Custodian's name with a bank, trust company or
registered broker-dealer that has delivered to the Custodian a written
confirmation of the Custodian's ownership of that asset.
26. TREATMENT OF FINANCIAL ASSETS. The Custodian and Pledgor agree that
each asset consisting of Collateral now or later held in the Custodial
Account(s) shall be treated as a "financial asset" under the Uniform
Commercial Code. That agreement is made for the benefit of the Secured
Party, and cannot be canceled or changed without the written consent of the
Secured Party.
27. MISCELLANEOUS.
a. WAIVERS, AMENDMENTS. The provisions of this Pledge Agreement may from
time to time be amended, modified, or waived, if such amendment,
modification or waiver is in writing and signed by the Secured Party,
and as to amendments and modifications by Pledgor and Custodian. No
failure or delay on the part of the Secured Party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power
or right. No notice to or demand on the Pledgor in any case shall
entitle it to any notice or demand in similar or other circumstances.
6
<PAGE>
b. NOTICES. All communications and notices provided under this Pledge
Agreement shall be in writing and addressed or delivered to the
parties hereto at their respective addresses set forth below, or to
any party at such other address as may be designated by such party in
a notice to the other parties. Any notice shall be deemed given upon
the first Business Day after the placing thereof in the United States
mail, postage prepaid, if addressed as follows:
Pledgor:
Lifecore Biomedical, Inc.
3515 Lyman Boulevard
Chaska, Minnesota 55318
Secured Party:
First Bank National Association
300 Prairie Center Drive
Eden Prairie, Minnesota 55344
Custodian:
Norwest Investment Services, Inc.
608 Second Avenue South
Minneapolis, Minnesota 55479
c. COSTS AND EXPENSES. The Pledgor agrees to reimburse the Secured Party
upon demand for, all reasonable out-of-pocket expenses (including
attorneys fees and legal expenses) in connection with the Secured
Party's enforcement of the obligations of the Pledgor hereunder,
whether or not suit is commenced including, without limitation,
attorneys fees, and legal expenses in connection with any appeal of a
lower court's order or judgment. The obligations of the Pledgor under
this SECTION 25c shall survive any termination of this Pledge
Agreement.
d. SEVERABILITY. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such portion or
unenforceability without invalidating the remaining provisions of this
Pledge Agreement or affecting the validity or enforceability of such
provisions in any other jurisdiction.
e. CROSS-REFERENCES. References in this Pledge Agreement or in any
document executed in connection herewith to any Section are, unless
otherwise specified, to such Section of this Pledge Agreement.
f. HEADINGS. The various headings of this Pledge Agreement are inserted
for convenience only and shall not affect the meaning or
interpretation of this Pledge Agreement or any provisions hereof.
g. GOVERNING LAW; VENUE. This Pledge Agreement shall be deemed to be a
contract made under and governed by the laws of the State of
Minnesota. The parties hereto each consents to the personal
jurisdiction of the state and federal courts located in the State of
Minnesota in connection with any controversy related to this Pledge
Agreement, waives any argument that venue in such forums is not
convenient and agrees that any litigation instigated by any party
hereto against the Secured Party in connection herewith shall be
venued in either the State or Federal District Courts for the District
of Minnesota.
h. RECITALS INCORPORATED. The recitals to this Pledge Agreement are
incorporated into and constitute an integral part of this Pledge
Agreement.
7
<PAGE>
i. MULTIPLE COUNTERPARTS. This Pledge Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original
and all of which shall constitute one and the same instrument.
j. AGREEMENT BINDING. This Pledge Agreement shall be binding upon the
beneficiaries, heirs, estates, personal representatives, successors
and assigns of the Pledgor and the death, insolvency, bankruptcy,
release of the Pledgor shall not release or discharge any other
borrower, endorser, or guarantor from liability hereunder; provided,
however, that the rights of the Pledgor hereunder may not be assigned
without the prior written consent of the Secured Party.
k. SURVIVAL OF REPRESENTATIONS. All covenants, agreements,
representations and warranties made herein shall survive the execution
and delivery of this Pledge Agreement.
[Signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Pledge
Agreement on the day and year first above written.
PLEDGOR:
LIFECORE BIOMEDICAL, INC.
By: /s/ Dennis J. Allingham
---------------------------------------
Name: Dennis J. Allingham
Title: Executive Vice President and Chief
Financial Officer
SECURED PARTY:
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Therese L. Knutson
----------------------------------------
Name: Therese L. Knutson
Title: Vice President
CUSTODIAN:
NORWEST INVESTMENT SERVICES, INC.
By: /s/ BeBe Gersbach
----------------------------------------
Name: BeBe Gersbach
-------------------------------------
Title: Vice President
-------------------------------------
9
<PAGE>
SCHEDULE I
The Collateral consists of the following investment securities held at
Norwest Investment Services, Inc. in account number 02142396:
MATURITY PAR
SECURITY CUSIP DATE VALUE
CIT GROUP HOLDINGS INC 125569DH3 4/30/98 1,000,000
INTL LEASE FINANCE MED TERM 45974VPA0 5/1/98 1,000,000
ASSOC CORP N.A. 046003FH7 8/15/98 1,000,000
FORD MTR CR MTN BE 345402BG5 9/8/97 2,000,000
INTL LEASE FIN CORP 459745AK1 10/1/98 1,000,000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,040,000
<SECURITIES> 11,915,000
<RECEIVABLES> 4,144,000
<ALLOWANCES> 314,000
<INVENTORY> 12,797,000
<CURRENT-ASSETS> 29,422,000
<PP&E> 30,448,000
<DEPRECIATION> 6,226,000
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0
0
<COMMON> 123,000
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<SALES> 11,472,000
<TOTAL-REVENUES> 11,472,000
<CGS> 5,365,000
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<INCOME-PRETAX> (1,078,000)
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<INCOME-CONTINUING> (1,078,000)
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<CHANGES> 0
<NET-INCOME> (1,078,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
