<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------------------------------
OR
/x/ 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 1-7335
-------------------------------------------------------
LEE PHARMACEUTICALS
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 95-2680312
- ------------------------------------ ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1444 Santa Anita Avenue, South El Monte, California 91733
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(818) 442-3141
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) 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
--- ---
As of June 30, 1996 there were outstanding 4,135,162 shares of common stock
of the registrant.
Transitional Small Business Disclosure Format (check one):
Yes No x
--- ---
<PAGE>
FORM 10-QSB
LEE PHARMACEUTICALS
BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
Cash
$ 7
Accounts and notes receivable (net of allowances: $369) 1,400
Inventories:
Raw materials $1,784
Work in process 254
Finished goods 268
------
Total inventories 2,306
------
Other current assets 1,167
------
Total current assets 4,880
Property, plant and equipment (less
accumulated depreciation and
amortization: $6,570) 470
Goodwill and other assets, net of
accumulated amortization 2,483
------
TOTAL $7,833
------
------
See notes to financial statements.
<PAGE>
FORM 10-QSB
LEE PHARMACEUTICALS
BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
LIABILITIES
Bank overdraft $ 101
Note payable to bank 8
Notes payable, other 464
Current portion - royalty agreements 743
Accounts payable 1,070
Other accrued liabilities 852
Due to related parties 342
Deferred income 65
--------
Total current liabilities 3,645
--------
Long-term notes payable to related parties 3,319
--------
Long-term notes payable, other 281
--------
Long-term payable--royalty agreements, less current portion $743 960
--------
Deferred income 224
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, $.10 par value; authorized, 7,500,00 shares;
issued and outstanding, 4,135,162 shares 413
Additional paid-in capital 4,222
Accumulated deficit (5,231)
--------
Total stockholders' deficiency (596)
--------
TOTAL $ 7,833
--------
--------
See notes to financial statements.
<PAGE>
FORM 10-QSB
LEE PHARMACEUTICALS
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Gross revenues $ 2,274 $ 2,302 $ 6,414 $ 7,688
Less: Sales returns (261) (93) (808) (775)
Cash discounts and others (79) (22) (109) (63)
--------- --------- --------- ---------
Net revenues 1,934 2,187 5,497 6,850
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 950 968 2,423 3,052
Selling and advertising expense 677 934 2,378 3,123
General and administrative expense 393 346 1,179 1,138
--------- --------- --------- ---------
Total costs and expenses 2,020 2,248 5,980 7,313
--------- --------- --------- ---------
Loss from operations (86) (61) (483) (463)
Other income 19 18 57 66
--------- --------- --------- ---------
Net loss $ (67) $ (43) $ (426) $ (397)
--------- --------- --------- ---------
--------- --------- --------- ---------
Per share:
Net loss $ (.02) $ (.01) $ (.10) $ (.10)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to financial statements.
<PAGE>
FORM 10-QSB
LEE PHARMACEUTICALS
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
1996 1995
--------- ---------
(UNAUDITED) (UNAUDITED)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (426) $ (397)
--------- ---------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 198
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . 211 191
(Gain) on disposal of property, plant and equipment. . . . . . . . . (12) (11)
Change in operating assets and liabilities:
(Increase) in accounts receivable. . . . . . . . . . . . . . . . . . (69) (283)
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . 154 259
(Increase) decrease in other current assets. . . . . . . . . . . . . (80) 58
(Decrease) in accounts payable . . . . . . . . . . . . . . . . . . (566) (56)
(Decrease) increase in accounts payable related party. . . . . . . . (46) 170
(Decrease) in note payable bank. . . . . . . . . . . . . . . . . . . (281) --
Increase in notes payable - other. . . . . . . . . . . . . . . . . . 299 --
Increase in other accrued liabilities. . . . . . . . . . . . . . . . 396 80
(Decrease) in deferred income. . . . . . . . . . . . . . . . . . . . (49) (49)
--------- ---------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . 88 557
--------- ---------
Net cash (used in) provided by operating activities. . . . . . . . . (338) 160
--------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment. . . . . . . . . . . . . (11) (52)
Acquisition of product brands. . . . . . . . . . . . . . . . . . . . (134) (511)
Proceeds from sale of equipment. . . . . . . . . . . . . . . . . . . 12 11
--------- ---------
Net cash (used in) investing activities. . . . . . . . . . . . . (133) (552)
--------- ---------
Cash flows from financing activities:
Increase in bank overdraft . . . . . . . . . . . . . . . . . . . . 101 82
(Payments on) proceeds from notes payable to related parties . . . (27) 228
Proceeds from (payments on) notes payable, other . . . . . . . . . 281 (9)
--------- ---------
Net cash provided by financing activities. . . . . . . . . . . 355 301
--------- ---------
Net (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . (116) (91)
Cash, beginning of year. . . . . . . . . . . . . . . . . . . . . . . . 123 106
--------- ---------
Cash, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 $ 15
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162 $ 104
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
<PAGE>
FORM 10-QSB
NOTES TO FINANCIAL INFORMATION
1. Basis of presentation:
The accompanying balance sheet as of June 30, 1996, and the statements of
operations and cash flows for the periods ended June 30, 1996, and 1995,
have not been audited by independent accountants but reflect all
adjustments, consisting of any normal recurring adjustments, which are, in
the opinion of management, necessary to a fair statement of the results for
such periods. The results of operations for the three months and nine
months ended June 30, 1996, are not necessarily indicative of results to be
expected for the year ending September 30, 1996.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities
and Exchange Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the information
not misleading.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on
Form 10-KSB for the fiscal year ended September 30, 1995.
The Company is involved in various matters involving environmental cleanup
issues. SEE "Item 2. Management's Discussion and Analysis or Plan of
Operations" and Note 10 of Notes to Financial Statements included in the
Company's Form 10-KSB for the fiscal year ended September 30, 1995. The
ultimate outcome of these matters cannot presently be determined.
Environmental expenditures that relate to an existing condition caused by
past operations, and which do not contribute to current or future revenue
generation, are expensed. The Company's proportionate share of the
liabilities are recorded when environmental remediation and/or cleanups are
probable, and the costs can be reasonably estimated.
2. Net loss per share:
Net loss per share is based on the weighted average number of shares of
common stock outstanding during the periods presented. Common stock
equivalents (common stock options) are not included in these calculations
where their effect on net loss per share is anti-dilutive. The weighted
average number of shares was 4,135,162 for all periods presented.
3. Change in accounting policy:
The Company has changed its method of accounting for royalty agreements in
connection with brand acquisitions. Minimum royalty obligations that are
fixed and certain in amount are "grossed up" and recorded as liabilities.
The related intangible assets acquired are amortized over the life of the
royalty agreement. This change which is a grossing up of assets and
liabilities, in equal amounts, has no effect on the statements of
operations.
Certain reclassifications have been made in the Statement of Cash Flows for
the nine months ending June 30, 1995, to make the statement comparable to
the June 30, 1996 presentation.
4. Note payable to bank:
Effective April 26, 1996, the Company renewed its real estate loan with the
bank. The note payable to the bank, secured by deed on land and building,
requires a monthly payment of $4,200, including interest at Bank of
America's base rate plus 4%, maturing March 2001. At April 26, 1996, the
interest rate was 12.25%. The note is guaranteed by the former Chairman of
the Company and the Company's President.
5. Line of credit:
In May 1996, the Company obtained $1,000,000 of financing, in the form of a
revolving credit facility. The financing is secured by accounts
receivable, equipment, inventories and certain other assets. It is a two
year agreement, maturing May 1998, and will automatically continue
thereafter until either party terminates on a 90 day prior written notice.
The loan and security agreement is subject to a minimum interest of $3,000
per month. The loan bears interest at Bank of America's prime plus 8%.
<PAGE>
FORM 10-QSB
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, AND JUNE 30, 1995
Gross revenues were slightly lower (approximately 1%) for the quarter ended
June 30, 1996 ($2,274,000), as compared to the quarter ended June 30, 1995
($2,302,000). The lower gross revenues were attributed to decreased sales
of the Company's nail extender products. These lower gross revenues were
offset by sales of the Company's depilatories and newly acquired
over-the-counter brands such as; XS-Registered Trademark-,
Baby Gasz-TM-, Brush 'n Floss-Registered Trademark-, and
Breath-Gard-TM-.
Net revenues declined by approximately $253,000 or 12% for the three months
ended June 30, 1996, as compared to the three months ended June 30, 1995.
The lower net revenues were attributed to lower sales of the Company's nail
extender products. The reduction in net revenues was marginally offset by
sales of the Company's depilatories and newly acquired over-the-counter
brands such as; Brush 'n Floss-Registered Trademark-,
XS-Registered Trademark-, Breath-Gard-TM-, and Baby Gasz-TM-. The
Company's sales returns were in the historical range (9% - 13%) for the
quarter ended June 30, 1996. However, the sales returns were lower than
normal for the quarter ended June 30, 1995. The lower sales returns were
because of customer delays in replanogram changes. Credits issued to
customers due to the completion of certain promotional programs resulted in
a higher "cash discounts and others" for the quarter ended June 30, 1996.
Cost of sales as a percentage of gross revenues for the three months ended
June 30, 1996, as compared to the three months ended June 30, 1996, was
constant, 42% versus 42%, respectively. Cost of sales as a percentage of
gross revenues for the three months ended March 31, 1996 was 34%. The
higher cost of sales as a percentage of gross revenues for the three months
ended June 30, 1996 versus March 31, 1996 (42% vs. 34%) was a result, in
part, to the higher costs associated with the disposition of excess and
obsolete inventory.
Selling and advertising expenses declined $257,000 or 28% when comparing
the three months ended June 30, 1996, with the three months ended June 30,
1995. The reduction of expenses was basically due to the following
factors; 1) lower payroll and related fringe benefits, 2) decline in
media and cooperative advertising, and 3) lower manufacturer
representative commissions (due to reduced commission rate).
General and administrative expenses increased $47,000 (14%) when comparing
the quarters ended June 30, 1996, and 1995. The increase was principally
due to the loan fees related to the Company's renewal of a note payable to
the bank regarding a real estate loan and the Company's accounts receivable
financing and security agreement plus slightly higher legal fees.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996, AND JUNE 30, 1995
Gross revenues for the nine months ended June 30, 1996, were $6,414,000, a
decrease of approximately $1,274,000 or 17% from the comparable nine month
period ended June 30, 1995. The decline in gross revenues was attributed
to lower sales of the Company's nail extender products and depilatories.
An overall decline in the artificial nail marketplace is the cause for the
reduced sales volume. The reduction in gross revenues was marginally
offset by sales of the newly acquired over-the-counter brands such as;
XS-Registered Trademark-, Baby Gasz-TM-, Brush 'n
Floss-Registered Trademark-, and Breath-Gard-TM-. Net revenues for the
nine months ended June 30, 1996 were $5,497,000, a decrease of $1,353,000
or 20%, from the comparable nine month period ended June 30, 1995.
Cost of sales as a percentage of gross revenues for the nine months ended
June 30, 1996, as compared to the nine month period ended June 30, 1995,
was 38% versus 40% respectively. The lower percentage was the result of
the product mix, utilization of less direct labor manpower, and the
Company's ability to consolidate its production facilities (reducing the
overall occupied facility square footage by 25%) since August 1995.
<PAGE>
FORM 10-QSB
Selling and advertising expenses decreased $745,000 or 24% when comparing
the nine months ended June 30, 1996, with the nine months ended June 30,
1995. The lower expenses when comparing the nine month period ended June
30, 1996, and 1995 is basically due to the reasons stated above when
comparing the current quarter June 30, 1996, and 1995.
General and administrative expenses remained relatively constant when
comparing the nine months ended June 30, 1996, and June 30,1995.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 1996, working capital decreased to
$1,235,000 from $1,260,000 at September 30, 1995. The Company's current
ratio was 1.3 to 1 at June 30, 1996, and September 30, 1995.
The Company has taken steps to conserve cash by reducing its occupied
facility square footage by 25% since August 1995. The six month advance
rent buyout and subleases associated with two vacated facilities will have
an annualized economic savings of approximately $133,000. The Company is
continuing a review of its inventory and is diligently working to reduce
the amount of working capital tied up in inventory.
The Company has an accumulated deficit of $5,231,000. The Company's
recurring losses from operations and inability to generate sufficient cash
flow from normal operations to meet its obligations as they came due raise
substantial doubt about the Company's ability to continue as a going
concern. Effective May 21, 1996, the Company obtained $1,000,000 of
financing in the form of a revolving credit facility. The loan is secured
by accounts receivable, equipment, inventories, and certain other assets.
See Note 5 of Notes to Financial Information. The Company's ability to
continue in existence is dependent upon future developments, including
achieving a level of profitable operations sufficient to enable it to meet
its obligations as they become due.
ENVIRONMENTAL MATTERS
The Company owns a manufacturing facility located in South El Monte,
California. The California Regional Water Quality Control Board (The
"RWQCB"), has alleged that the soil and shallow groundwater at the site are
contaminated. On August 12, 1991, the Board issued a "Cleanup and
Abatement Order" directing the Company to conduct further testing and
cleanup the site. The Company did not complete the testing, and in June,
1992, the RWQCB requested that the EPA evaluate the contamination and take
appropriate action. At the EPA's request, Ecology & Environment, Inc.
conducted an investigation of soil and groundwater on the Company's
property. Ecology & Environment Inc.'s Final Site Assessment Report, which
was submitted to the EPA in June, 1994, did not rule out the possibility
that some of the contamination originated onsite, and resulted from either
past or current operations on the property. While the Company may be
liable for all or part of the costs of remediating the contamination on its
property, the remediation cost is not known at this time. The EPA has not
taken any further action in this matter, but may do so in the future.
The Company and nearby property owners are in the process of engaging a
consultant to perform a site investigation with respect to soil and shallow
groundwater contamination. Based upon proposals received to date, the
Company currently estimates the cost to perform the site investigation to
be $175,000. Accordingly, while recognizing it may be jointly and
severally liable for the entire cost, the financial statements as of
September 30, 1995, recognized the proportionate amount ($87,500) which the
Company believes is its liability for a site investigation.
The tenants of nearby properties upgradient have sued the Company alleging
that hazardous materials from the Company's property caused contamination
on the properties leased by the tenants. The case name is DEL RAY
INDUSTRIAL ENTERPRISES, INC. v. ROBERT MALONE, ET AL., Los Angeles County
Superior Court, Northwest District, commenced August 21, 1991. In this
action, the plaintiff alleges environmental contamination by defendants of
its property, and seeks a court order preventing further contamination and
monetary damages. The Company does not believe there is any basis for the
allegations and is vigorously defending the lawsuit.
<PAGE>
FORM 10-QSB
The Company's South El Monte manufacturing facility is also located over a
large area of possibly contaminated regional groundwater which is part of
the San Gabriel Valley Superfund site. The Company has been notified that
it is a potentially responsible party ("PRP") for the contamination. The
cost of cleanup of the groundwater is not known at this time. In September
1992, EPA announced that the levels of contamination in the Whittier
Narrows area of the Superfund site were sufficiently low and that it was
not planning a cleanup at this time, but rather would continue to monitor
the groundwater for an indefinite period. The Company's property is
adjacent to the Whittier Narrows area. Except as described above, it is
not clear what action the EPA will take with respect to the Company's
property.
In August 1995, the Company was informed that the EPA entered into an
Administrative Order on Consent with Cardinal Industrial Finishes
("Cardinal") for a PRP lead remedial investigation and feasibility study
(the "Study") which, the EPA states, will both characterize the extent of
groundwater contamination in South El Monte and analyze alternatives to
control the spread of contamination. The Company and others have entered
into the South El Monte Operable Unit Site Participation Agreement with
Cardinal pursuant to which, among other things, Cardinal will contract with
an environmental firm to conduct the Study. The Study is anticipated to
take eighteen to twenty-four months. The Company's share of the cost of
the Study is currently $15,000 and was accrued for in the financial
statements as of September 30, 1995.
The City of South El Monte, the city in which the Company has it's
manufacturing facility, is located in the San Gabriel Valley. The San
Gabriel Valley has been declared a Superfund site. The 1995 Water Quality
Control Plan issued by the California Regional Water Quality Control Board
states that the primary groundwater basin pollutants in the San Gabriel
Valley are volatile organic compounds from industry, nitrates from
subsurface sewage disposal and past agricultural activities. In addition,
the Plan noted that hundreds of underground storage tanks leaking gasoline
and other toxic chemicals have existed in the San Gabriel Valley. The
California Department of Toxic Substance Control have declared large areas
of the San Gabriel Valley to be environmentally hazardous and subject to
cleanup work.
The Company believes the City of South El Monte does not appear to be
located over any of the major plumes. However, the EPA recently announced
it is studying the possibility that, although the vadose soil and
groundwater, while presenting cleanup problems, there may be a
contamination by DNAPs (dense non-aqueous phase liquids), i.e., "sinkers",
usually chlorinated organic cleaning solvents. The EPA has proposed to
drill six "deep wells" throughout the City of South El Monte at an
estimated cost of $1,400,000. The EPA is conferring with SEMPOA (South El
Monte Property Owners Association) as to cost sharing on this project.
SEMPOA has obtained much lower preliminary cost estimates. The outcome
cost and exact scope of this are unclear at this time.
The Securities and Exchange Commission has issued a formal order of
investigation concerning certain matters, including the Company's
environmental liabilities. The Company is cooperating with the
investigation.
The Company has been seeking reimbursement of cleanup costs from its
insurance carriers. One carrier has paid certain amounts towards cleanup
costs that may be incurred and legal fees actually incurred. The Company
continues to seek reimbursement from other carriers, although no such
payments have been received or agreed to, and there can be no assurances
that any such payments will be received. Some carriers have denied
liability for costs, based on their review and analysis of the insurance
policies, the history of the site, the nature of the claims, and current
court decisions in such cases.
<PAGE>
FORM 10-QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Part I, Item 2, "Management's Discussion and
Analysis or Plan of Operations - Environmental Matters" is incorporated herein
by reference. SEE ALSO "Legal Proceedings" in the Company's Form 10-KSB for the
fiscal year ended September 30, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the registrant occurred on March 12, 1996.
At that meeting, the following directors were elected:
VOTES
----------------------------
DIRECTOR FOR WITHHELD
-------- --- --------
Dr. Henry L. Lee 3,409,165 137,370
Ronald G. Lee 3,408,715 137,820
William M. Caldwell IV 3,414,647 131,880
The appointment of George Brenner, CPA as independent auditor of the registrant
was also approved by a vote of 3,337,121 shares "FOR", 182,406 shares "AGAINST"
and 27,008 shares "ABSTAIN".
Item 6. Exhibits
The following exhibits have previously been filed by the Company:
3.1 - Articles of Incorporation, as amended (1)
3.4 - By-laws, as amended December 20, 1977 (2)
3.5 - Amendment of By-laws effective March 14, 1978 (2)
3.6 - Amendment to by-laws effective November 1, 1980 (3)
10.1 - Note payable to bank dated April 26, 1996, between Lee
Pharmaceuticals and San Gabriel Valley Bank, secured by the
deed on land and building.
10.2 - Loan and security agreement dated May 21, 1996, between Lee
Pharmaceuticals and Preferred Business Credit, Inc.
regarding a revolving credit facility financing.
27 - Financial Data Schedule
(1) Filed as an Exhibit of the same number with the Company's Form
S-1 Registration Statement filed with the Securities and Exchange
Commission on February 5, 1973, (Registrant No. 2-47005), and
incorporated herein by reference.
(2) Filed as Exhibits 3.4 and 3.5 with the Company's Form
10-K Annual Report for the fiscal year ended September 30, 1978,
filed with the Securities and Exchange Commission and
incorporated herein by reference.
(3) Filed as an Exhibit of the same number with the Company's Form
10-K Annual Report for the fiscal year ended September 30, 1979,
filed with the Securities and Exchange Commission and
incorporated herein by reference.
<PAGE>
FORM 10-QSB
SIGNATURES
In accordance with the requirements of the Securities Exchange Acts of
1934, the registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LEE PHARMACEUTICALS
-------------------
(Registrant)
Date: AUGUST 12, 1996 RONALD G. LEE
------------------- ------------------------
Ronald G. Lee
President
Date: AUGUST 12, 1996 MICHAEL L. AGRESTI
------------------- ------------------------
Michael L. Agresti
Vice President - Finance
<PAGE>
[SAN GABRIEL VALLEY BANK LOGO]
Exhibit 10.1
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$285,136.60 03-26-2001 21600092 1E T.D. TDJ
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -----------------------------------------------------------------------------
BORROWER: LENDER:
LEE PHARMACEUTICALS, INC. (TIN: 952680312) SAN GABRIEL VALLEY BANK
1444 SANTA ANITA AVE. SOUTH EL MONTE
SOUTH EL MONTE, CA. 91733-3312 1127 NORTH SANTA ANITA AVENUE
SOUTH EL MONTE, CA 91733
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $285,136.60 DATE OF AGREEMENT: MARCH 26, 1996
DESCRIPTION OF EXISTING INDEBTEDNESS. PROMISSORY NOTE DATE 3/26/91 FOR
$331,500.00.
DESCRIPTION OF COLLATERAL. 1ST TRUST DEED COMMERCIAL PROPERTY LOCATED AT:
1428 SANTA ANITA AVE., SOUTH EL MONTE, CA.
DESCRIPTION OF CHANGE IN TERMS. EXTEND MATURITY DATE TO 3-26-2001. CHANGE
MONTHLY PAYMENT AMOUNT OF $4,200.00 STARTING 4-26-96. CHANGE INTEREST RATE TO
BANK OF AMERICA +4% (12.25%). CUSTOMER TO PAY THE FOLLOWING FEES: 2
POINTS.....$5,702.00, LOAN PROCESSING FEE.....$250.00, FLOOD.....$27.50, TAX
TRACKING.....$48.00. ALL OTHER TERMS AND CONDITIONS TO REMAIN THE SAME.
PROMISE TO PAY. LEE PHARMACEUTICALS, INC.. ("Borrower") promises to pay to
SAN GABRIEL VALLEY BANK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Two Hundred Eight Five Thousand One
Hundred Thirty Six & 60/100 Dollars ($286,136.60), together with interest on
the unpaid principal balance from March 26, 1996, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the index,
Borrower will pay this loan on demand, or if no demand is made, in 59 regular
payments of $4,200.00 each and one Irregular last payment estimated at
$183,533.75. Borrower's first payment is due April 26, 1996, and all
subsequent payments are due on the same day of each month after that.
Borrower's final payment due March 26, 2001, will be for all principal and
all accrued interest not yet paid. Payments include principal and interest.
Interest on this Agreement is computed on a 365/365 simple interest basis;
that is, by applying the ratio of the annual interest rate over the number of
days in a year, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest,
then to principal, and any remaining amount to any unpaid collection costs
and late charges.
DEMAND FEATURE. REQUIRED TO MAINTAIN ALL MAJOR BUSINESS ACCOUNTS WITH SAN
GABRIEL VALLEY BANK, IF NOT, INCREASE RATE WILL INCREASE BY
2%..........(BORROWER'S INITIAL).
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to
change from time to time based on changes in an independent index which is
the BANK OF AMERICA'S BASE RATE (the "index"). The index is not necessarily
the lowest rate charged by Lender on its loans. If the index becomes
unavailable during the term of this loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the current index
rate upon Borrower's request. Borrower understands that Lender may make loans
based on other rates as well. The interest rate change will not occur more
often than each DAY. The index currently is 8.250% per annum. The interest
rate to be applied to the unpaid principal balance of this Agreement will be
at a rate of 4.000 percentage point over the index, resulting in an initial
rate of 12.250% per annum. NOTICE: Under no circumstances will the interest
rate on this Agreement be more than the maximum rate allowed by applicable
law. Whenever increases occur in the interest rate, Lender, at its option,
may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the
number of Borrower's payments, and (d) continue Borrower's payments at the
same amount and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan
and will not be subject to refund upon early payment (whether voluntary or as
a result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Agreement, Borrower understands that Lender is
entitled to a minimum interest charge of $100.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result
in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $10.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other
agreement or loan Borrower has with Lender. (c) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect either now or at the time made or
furnished. (d) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or in solvency laws. (e) Any creditors tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Agreement. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this
Agreement within the preceding twelve (12) months, it may be cured (and no
event of default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default, (a) cures the default
within ten (10) days; or (b) if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest
<PAGE>
Loan No 21600092 (CONTINUED)
=============================================================================
immediately due, without notice, and then Borrower will pay that amount. Upon
Borrower's failure to pay all amounts declared due pursuant to this section,
including failure to pay upon final maturity, Lender, at its option, may
also, if permitted under applicable law, increase the variable interest rate
on this Agreement to 9.000 percentage points over the index. Lender may hire
or pay someone else to help collect this Agreement if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law. This Agreement has been delivered
to Lender and accepted by Lender in the State of California. If there is a
lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of LOS ANGELES County, the State of California Subject to the
provisions on arbitration, this Agreement shall be governed by and construed
in accordance with the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of the
American Arbitration Association, upon request of either party. No act to
take or dispose of any collateral securing this Agreement shall constitute a
waiver of this arbitration agreement or be prohibited by this arbitration
agreement. This includes, without limitation, obtaining injunctive relief or
a temporary restraining order; invoking a power of sale under any deed of
trust or mortgage; obtaining a writ of attachment or imposition of a receiver,
or exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any collateral securing this Agreement,
including any claim to rescind, reform, or otherwise modify any agreement
relating to the collateral securing this Agreement, shall also be arbitrated,
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of any party. Lender and Borrower agree that in
the event of an action for judicial foreclosure pursuant to California Code
of Civil Procedure Section 726, or any similar provision in any other state,
the commencement of such an action will not constitute a waiver of the right
to arbitrate and the court shall refer to arbitration as much of such action,
including counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms
of the original obligation or obligations, including all agreements evidenced
or securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a
satisfaction of the obligation(s). It is the intention of Lender to retain as
liable parties all makers and endorsers of the original obligation(s),
including accommodation parties, unless a party is expressly released by
Lender in writing. Any maker or endorser, including accommodation makers,
will not be released by virtue of this Agreement. If any person who signed
the original obligation does not sign this Agreement below, then all persons
signing below acknowledge that this Agreement is given conditionally, based
on the representation to Lender that the non-signing party consents to the
changes and provisions of this Agreement or otherwise will not be released by
it. This waiver applies not only to any initial extension, modification or
release, but also to all such subsequent actions.
MISCELLANEOUS PROVISIONS. This Agreement has a demand feature and is payable
on demand. The inclusion of specific default provisions or rights of Lender
shall not preclude Lender's right to declare payment of this Agreement on its
demand. Lender may delay or forgo enforcing any of its rights or remedies
under this Agreement without losing them. Borrower and any other person who
signs, guarantees or endorses this Agreement, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this
Agreement, and unless otherwise expressly stated in writing, no party who
signs this Agreement, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan,
or release any party or guarantor or collateral; or impair, fail to realize
upon or perfect Lenders' security interest in the collateral; and take any
other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan without
the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
LEE PHARMACEUTICALS, INC.
BY: /s/ RONALD G. LEE
----------------------------------
RONALD G. LEE, PRESIDENT/SECRETARY
<PAGE>
SAN GABRIEL VALLEY BANK
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
__________________________________________________________________________________________________________
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$285,136.60 03-26-2001 2160092 1E T.D. TDJ
__________________________________________________________________________________________________________
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
_______________________________________________________________________________
BORROWER: LENDER:
LEE PHARMACEUTICALS, INC. (TIN: 952680312) SAN GABRIEL VALLEY BANK
1444 SANTA ANITA AVE. SOUTH EL MONTE
SOUTH EL MONTE, CA 91733-3312 1127 NORTH SANTA ANITA AVENUE
SOUTH EL MONTE, CA 91733
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT between LEE PHARMACEUTICALS,INC. ("Borrower") and
SAN GABRIEL VALLEY BANK ("Lender") is made and executed on the following
terms and conditions. Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any
exhibit or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as
the "Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower's representations, warranties, and agreements, as set forth in
this Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject to the
following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of March 26, 1996, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means LEE PHARMACEUTICALS, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means SAN GABRIEL VALLEY BANK, its successors
and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
<PAGE>
Loan No 21600092 (CONTINUED)
=============================================================================
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization, or bylaws, or
any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has not material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not, used or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the
properties by any prior owners or occupants of any of the properties, or
(ii) any actual or threatened litigation or claims of any kind by any
person relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other authorized user of any of the properties shall
use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender and its agents to
enter upon the properties to make such inspections and tests as Lender
may deem appropriate to determine compliance of the properties with this
section of the Agreement. Any inspections or tests made by Lender shall
be at Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating
the properties for hazardous waste and hazardous substances. Borrower
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release occurring prior to
Borrower's ownership or interest in the properties, whether or not the
same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of
any interest in any of the properties, whether by foreclosure or
otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledge by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment of
Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 1444 SANTA ANITA AVE., SOUTH EL MONTE,
CA 91733-3312. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be,
<PAGE>
LOAN NO 21600092 (CONTINUED)
=============================================================================
true and accurate in every material respect on the date as of which such
information is dated or certified; and none of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in
no event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended,
compiled by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than sixty (60) days after the
end of each fiscal quarter, Borrower's balance sheet and profit and loss
statement for the period ended, prepared and certified as correct to the
best knowledge and belief by Borrower's chief financial officer or other
officer or person acceptable to Lender. All financial reports required to
be provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
GUARANTORS AMOUNTS
----------------- -----------
HENRY L. LEE, JR. $285,136.60
RONALD G. LEE $285,136.60
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(a) the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with
all minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
<PAGE>
LOAN NO 21600092 (CONTINUED)
================================================================================
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds with
a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets,
or (c) sell with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal and
state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTEES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; (d) any Guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender; or (e) Lender in good
faith deems itself insecure, even though no Event of Default shall have
occurred.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on
the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the Insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given a
notice of a similar default within the preceding twelve (12) months, it may
be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within ten (10)
<PAGE>
LOAN NO 21600092 (CONTINUED)
================================================================================
days; or (b) if the cure required more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate and, at Lender's
option, all Indebtedness immediately will become due and payable, all without
notice of any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall
have all the rights and remedies provided in the Related Documents or
available at law, in equity, or otherwise. Except as may be prohibited by
applicable law, all of Lender's rights and remedies shall be cumulative and
may be exercised singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower or of any
Grantor shall not affect Lender's right to declare a default and to exercise
its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS
ANGELES COUNTY, THE STATE OF CALIFORNIA SUBJECT TO THE PROVISIONS ON
ARBITRATION, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any similar provision in any other state, the commencement of such
an action will not constitute a waiver of the right to arbitrate and the
court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The statute
of limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
CAPTION HEADINGS. Caption heading in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to
such matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans and
to enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs,
in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. To the
extent permitted by applicable law, if there is more than one Borrower,
notice to any Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
<PAGE>
LOAN NO 21600092 (CONTINUED)
================================================================================
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
MARCH 26, 1996.
BORROWER:
LEE PHARMACEUTICALS, INC.
By: /s/ RONALD G. LEE
-------------------------------------
RONALD G. LEE, PRESIDENT/SECRETARY
LENDER:
SAN GABRIEL VALLEY BANK
By: /s/ TERRY D. JENKINS
-------------------------------------
AUTHORIZED OFFICER
================================================================================
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
__________________________________________________________________________________________________________
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
1E T.D. TDJ
__________________________________________________________________________________________________________
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
_______________________________________________________________________________
Borrower: Lender:
LEE PHARMACEUTICALS, INC. (TIN: 952680312) SAN GABRIEL VALLEY BANK
144 SANTA ANITA AVE. SOUTH EL MONTE
SOUTH EL MONTE, CA 91733-3312 1127 NORTH SANTA ANITA AVENUE
SOUTH EL MONTE, CA 91733
Guarantor: RONALD G. LEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMOUNT OF GUARANTY. THIS IS A GUARANTY OF PAYMENT OF THE NOTE, INCLUDING
WITHOUT LIMITATION THE PRINCIPAL NOTE AMOUNT OF TWO HUNDRED EIGHTY FIVE
THOUSAND ONE HUNDRED THIRTY SIX & 60/100 DOLLARS ($285,136.60)
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, RONALD G. LEE ("GUARANTOR")
ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO SAN GABRIEL
VALLEY BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
LEE PHARMACEUTICALS, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS
SET FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
BORROWER. The word "Borrower" means LEE PHARMACEUTICALS, INC..
GUARANTOR. The word "Guarantor" means RONALD G. LEE.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated March 26, 1996.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the Note
or to any collateral for the Note. Collection costs and expenses include
without limitation all of Lender's attorneys' fees and Lender's legal
expenses, whether or not suit is instituted, and attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services.
LENDER. The word "Lender" means SAN GABRIEL VALLEY BANK, its successors and
assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
March 26, 1996. IN THE ORIGINAL PRINCIPAL AMOUNT OF $285,136.60 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
RELATED DOCUMENTS. The word "Related Documents" means and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
SHALL NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED
ABOVE, PLUS ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND
(B) COLLECTION AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of
Indebtedness of Borrower to Lender either in the aggregate or at any one
time. If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all
guaranties shall be cumulative. This Guaranty shall not (unless specifically
provided below to the contrary) affect or invalidate any such other
guaranties. The liability of Guarantor will be the aggregate liability of
Guarantor under the terms of this Guaranty and any such other unterminated
guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the
performance and prompt payment when due, whether at maturity or earlier by
reason of acceleration or otherwise, of all indebtedness within the limits set
forth in the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness shall
have been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. Release of
any other guarantor or termination of any other guaranty of the Indebtedness
shall not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors shall not affect the
liability of any remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without
notice or demand and without lessening Guarantor's liability under this
Guaranty, from time to time: (a) to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower,
or otherwise to extend additional credit to Borrower; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change one or more times
the time for payment or other terms of the Indebtedness or any part of the
Indebtedness, including increases and decreases of the rate of interest on
the Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any such security, with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of
sale thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust, as Lender
in its discretion may determine; (g) to sell, transfer, assign, or grant
participations in all or any part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind have
been made to Guarantor which would limit or qualify in any way the terms of
this Guaranty; (b) this Guaranty is executed at Borrower's request and not at
the request of Lender; (c) Guarantor has full power, right and authority to
enter into this Guaranty; (d) the provisions of this Guaranty do not conflict
with or result in a default under any agreement or other instrument binding
upon Guarantor and do not result in a violation of any law, regulation, court
decree or order applicable to Guarantor; (e) Guarantor has not and will not,
without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has
been, and all future financial information which will be provided to Lender
is and will be true and correct in all material respects and fairly present
the financial condition of Guarantor as the dates the financial information
is provided; (g) no material adverse change has occurred in
<PAGE>
Loan No 21600092 (CONTINUED)
================================================================================
Guarantor's financial condition since the date of the most recent financial
statements provided to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no litigation, claim,
investigation, administrative proceeding or similar action (including those
for unpaid taxes) against Guarantor is pending or threatened; (i) Lender has
made no representation to Guarantor as to the creditworthiness of Borrower;
and (j) Guarantor has established adequate means of obtaining from Borrower on
a continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of
the Indebtedness, default by Borrower or any other guarantor or surety, any
action or nonaction taken by Borrower, Lender, or any other guarantor or
surety of Borrower, or the creation of new or additional Indebtedness; (b)
proceed against any person, including Borrower, before proceeding against
Guarantor; (c) proceed against any collateral for the Indebtedness, including
Borrower's collateral, before proceeding against Guarantor; (d) apply any
payments or proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the collateral pursuant
to the Uniform Commercial Code or any other law governing such sale; (f)
disclose any information about the Indebtedness, the Borrower, the
collateral, or any other guarantor or surety, or about any action or
nonaction of Lender; or (g) pursue any remedy or course of action in Lender's
power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the
discharge of Borrower or any other guarantor or surety, or the Indebtedness,
or the loss or release of any collateral by operation of law or otherwise;
(l) any statute of limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the Indebtedness,
whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the Indebtedness is due
and any change in the interest rate. Until all Indebtedness is paid in full,
Guarantor waives all rights and any defenses Guarantor may have arising out
of an election of remedies by Lender even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower or any other guarantor or surety by operation of Section
580a, 580b, 580d and 726 of the California Code of Civil Procedure or
otherwise. This waiver includes, without limitation, any loss of rights
Guarantor may suffer by reason of any rights or protections of Borrower in
connection with any anti-deficiency laws or other laws limiting or
discharging the Indebtedness or Borrower's obligations (including, without
limitation, Sections 726, 580a, 580b, and 580d of the California Code of
Civil Procedure). Guarantor waives all rights and protections of any kind
which Guarantor may have for any reason, which would affect or limit the
amount of any recovery by Lender from Guarantor following a nonjudicial sale
or judicial foreclosure of any real or personal property security for the
Indebtedness including, but not limited to, the right to any fair market
value hearing pursuant to California Code of Civil Procedure Section 580a.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be
entitled under state and federal law. The rights and defenses waived include,
without limitation, those provided by California laws of suretyship and
guaranty, anti-deficiency laws, and the Uniform Commercial Code. Guarantor
acknowledges that Guarantor has provided these waivers of rights and defenses
with the intention that they be fully relied upon by Lender. Until all
Indebtedness is paid in full, Guarantor waives any right to enforce any
remedy Lender may have against Borrower or any other guarantor, surety, or
other person, and further, Guarantor waives any right to participate in any
collateral for the Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in
favor of Lender and Borrower, and their respective successors, any claim or
right to payment Guarantor may now have or hereafter have or acquire against
Borrower, by subrogation or otherwise, so that at no time shall Guarantor be
or become a "creditor" of Borrower within the meaning of 11 U.S.C. section
547(b), or any successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted
by law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent.
Guarantor hereby expressly subordinates any claim Guarantor may have against
Borrower, upon any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and consequent
liquidation of the assets of Borrower, through bankruptcy, by an assignment
for the benefit of creditors, by voluntary liquidation, or otherwise, the
assets of Borrower applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by Lender to the
Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender
all claims which it may have or acquire against Borrower or against any
assignee or trustee in bankruptcy of Borrower: provided however, that such
assignment shall be effective only for the purpose of assuring to Lender full
payment in legal tender of the Indebtedness. If Lender so requests, any notes
or credit agreements now or hereafter evidencing any debts or obligations of
Borrower to Guarantor shall be marked with a legend that the same are subject
to this Guaranty and shall be delivered to Lender. Guarantor agrees, and
Lender hereby is authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements and to
execute such other documents and to take such other actions as Lender deems
necessary or appropriate to perfect, preserve and enforce its rights under
this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that Guarantor has
read and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this
Guaranty; the Guaranty fully reflects Guarantor's intentions and parol
evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or incurred
by Lender as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or amendment
to this Guaranty shall be effective unless given in writing and signed by
the parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of LOS
ANGELES County, State of California. Subject to the provisions on
arbitration, this Guaranty shall be governed by and construed in accordance
with the laws of the State of California.
ARBITRATION. Lender and Guarantor agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Guaranty or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of the
American Arbitration Association, upon request of either party. No act to
take or dispose of any Collateral shall constitute a
<PAGE>
Loan No 21600092 (CONTINUED)
=============================================================================
waiver of this arbitration agreement or be prohibited by this arbitration
agreement. This includes, without limitation, obtaining injunctive relief
or a temporary restraining order; invoking a power of sale under any deed
of trust or mortgage; obtaining a writ of attachment or imposition of a
receiver; or exercising any rights relating to personal property,
including taking or disposing of such property with or without judicial
process-pursuant to Article 9 of the Uniform Commercial Code. Any
disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right, concerning any
Collateral, including any claim to rescind, reform, or otherwise modify
any agreement relating to the Collateral, shall also be arbitrated,
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of any party. Lender and Guarantor agree that
in the event of an action for judicial foreclosure pursuant to California
Code of Civil Procedure Section 726, or any similar provision in any other
state, the commencement of such an action will not constitute a waiver of
the right to arbitrate and the court shall refer to arbitration as much of
such action, including counterclaims, as lawfully may be referred to
arbitration. Judgment upon any award rendered by any arbitrator may be
entered in any court having jurisdiction. Nothing in this Guaranty shall
preclude any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply
to the construction, interpretation, and enforcement of this arbitration
provision.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Guaranty. Lender may pay someone else to help enforce this Guaranty,
and Guarantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lender's attorneys' fees and legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Guarantor also shall pay all court costs and such
additional fees as may be directed by the court.
NOTICES. All notices required to be given by either party to
the other under this Guaranty shall be in writing, may be sent by
telefacsimile, and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier, or when
deposited in the United States mail, first class postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above or to such other addresses as either party may designate to
the other in writing. If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of Guarantor's
current address.
INTERPRETATION. In all cases where there is more than one
Borrower or Guarantor, then all words used in this Guaranty in the
singular shall be deemed to have been used in the plural where the
context and construction so require; and where there is more than one
Borrower named in this Guaranty or when this Guaranty is executed by more
than one Guarantor, the words "Borrower" and "Guarantor" respectively
shall mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and
transferees of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Guaranty. If a court of competent jurisdiction
finds any provision of this Guaranty to be invalid or unenforceable as
to any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any persons or circumstances,
and all provisions of this Guaranty in all other respects shall remain
valid and enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to inquire
into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
Indebtedness made or created in reliance upon the professed exercise of
such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights
under this Guaranty unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Guaranty shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Guaranty.
No prior waiver by Lender, nor any course of dealing between Lender
and Guarantor, shall constitute a waiver of any of Lender's rights or of
any of Guarantor's obligations as to any future transactions. Whenever
the consent of Lender is required under this Guaranty, the granting of
such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in all
cases such consent may be granted or withheld in the sole discretion of
Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS
OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE
UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION
OF GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS
GUARANTY EFFECTIVE. THIS GUARANTY IS DATED MARCH 26, 1996.
GUARANTOR:
X /s/ RONALD G. LEE
--------------------------------
RONALD G. LEE
================================================================================
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
__________________________________________________________________________________________________________
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
1E T.D. TDJ
__________________________________________________________________________________________________________
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
_______________________________________________________________________________
BORROWER: LENDER:
LEE PHARMACEUTICALS, INC. (TIN: 952680312) SAN GABRIEL VALLEY BANK
1444 SANTA ANITA AVE. SOUTH EL MONTE
SOUTH EL MONTE, CA 91733-3312 1127 NORTH SANTA ANITA AVENUE
SOUTH EL MONTE, CA 91733
GUARANTOR: HENRY L. LEE, JR.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMOUNT OF GUARANTY. THIS IS A GUARANTY OF PAYMENT OF THE NOTE, INCLUDING
WITHOUT LIMITATION THE PRINCIPAL NOTE AMOUNT OF TWO HUNDRED EIGHTY FIVE
THOUSAND ONE HUNDRED THIRTY SIX & 60/100 DOLLARS ($285,136.60).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, HENRY L. LEE, JR.
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY
TO SAN GABRIEL VALLEY BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL
TENDER OF THE UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS
DEFINED BELOW) OF LEE PHARMACEUTICALS, INC. ("BORROWER") TO LENDER ON THE
TERMS AND CONDITIONS SET FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
BORROWER. The word "Borrower" means LEE PHARMACEUTICALS, INC.
GUARANTOR. The word "Guarantor" means HENRY L. LEE, JR.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated March 26, 1996.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late changes, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the Note
or to any collateral for the Note. Collection costs and expenses include
without limitation all of Lender's attorneys' fees and Lender's legal
expenses, whether or not suit is instituted, and attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services.
LENDER. The word "Lender" means SAN GABRIEL VALLEY BANK, its successors
and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
March 26, 1996. In the original principal amount of $285,136.60 from the
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
SHALL NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED
ABOVE, PLUS ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND
(B) COLLECTION AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all
guaranties shall be cumulative. This Guaranty shall not (unless specifically
provided below to the contrary) affect or invalidate any such other
guaranties. The liability of Guarantor will be the aggregate liability of
Guarantor under the terms of this Guaranty and any such other unterminated
guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the
performance and prompt payment when due, whether at maturity or earlier by
reason of acceleration or otherwise, of all Indebtedness within the limits
set forth in the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness shall
have been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. Release of
any other guarantor or termination of any other guaranty of the Indebtedness
shall not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors shall not affect the
liability of any remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without
notice or demand and without lessening Guarantor's liability under this
Guaranty, from time to time: (a) to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the indebtedness,
including increases and decreases of the rate of interest on the
Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any such security, with or without the
substitution of new collateral; (d) to release, substitute, agree not to
sue, or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of
sale thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust, as Lender
in its discretion may determine; (g) to sell, transfer, assign, or grant
participations in all or any part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been
made to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not conflict with
or result in a default under any agreement or other instrument binding upon
Guarantor and did not result in a violation of any law, regulation, court
decree or order applicable to Guarantor; (e) Guarantor has not and will not,
without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide tho Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has
been, and all future financial information which will be provided to Lender
is and will be true and correct in all material respects and fairly present
the financial condition of Guarantor as of the dates the financial
information is provided; (g) no material adverse change has occurred in
<PAGE>
LOAN NO 21600092 (CONTINUED)
================================================================================
Guarantor's financial condition since the date of the most recent financial
statements provided to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no litigation, claim,
investigation, administrative proceeding or similar action (including those
for unpaid taxes) against Guarantor is pending or threatened; (i) Lender has
made no representation to Guarantor as to the creditworthiness of Borrower;
and (j) Guarantor has established adequate means of obtaining from Borrower
on a continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of
the Indebtedness, default by Borrower or any other guarantor or surety, any
action or nonaction taken by Borrower, Lender, or any other guarantor or
surely of Borrower, or the creation of new or additional Indebtedness; (b)
proceed against any person, including Borrower, before proceeding against
Guarantor; (c) proceed against any collateral for the Indebtedness, including
Borrower's collateral, before proceeding against Guarantor; (d) apply any
payments or proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the collateral pursuant
to the Uniform Commercial Code or any other law governing such sale; (f)
disclose any information about the Indebtedness, the Borrower, the
collateral, or any other guarantor or surety, or about any action or
nonaction of Lender; or (g) pursue any remedy or course of action in Lender's
power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the
discharge of Borrower or any other guarantor or surety, or the Indebtedness,
or the loss or release of any collateral by operation of law or otherwise; (l)
any statute of limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the Indebtedness,
whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the Indebtedness is due
and any change in the interest rate. Until all Indebtedness is paid in full,
Guarantor waives all rights and any defenses Guarantor may have arising out
of an election of remedies by Lender even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower or any other guarantor or surety by operation of Section
580a, 580b, 580d and 726 of the California Code of Civil Procedure or
otherwise. This waiver includes, without limitation, any loss of rights
Guarantor may suffer by reason of any rights or protections of Borrower in
connection with any anti-deficiency laws or other laws limiting or
discharging the Indebtedness or Borrower's obligations (including, without
limitation, Sections 726, 580a, 580b, and 580d of the California Code of
Civil Procedure). Guarantor waives all rights and protections of any kind
which Guarantor may have for any reason, which would affect or limit the
amount of any recovery by Lender from Guarantor following a nonjudicial sale
or judicial foreclosure of any real or personal property security for the
Indebtedness including, but not limited to, the right to any fair market
value hearing pursuant to California Code of Civil Procedure Section 580a.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be
entitled under state and federal law. The rights and defenses waived include,
without limitation, those provided by California laws of suretyship and
guaranty, anti-deficiency laws, and the Uniform Commercial Code. Guarantor
acknowledges that Guarantor has provided these waivers of rights and defenses
with the intention that they be fully relied upon by Lender. Until all
Indebtedness is paid in full, Guarantor waives any right to enforce any
remedy Lender may have against Borrower or any other guarantor, surety, or
other person, and further, Guarantor waives any right to participate in any
collateral for the Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in
favor of Lender and Borrower, and their respective successors, any claim or
right to payment Guarantor may now have or hereafter have or acquire against
Borrower, by subrogation or otherwise, so that at no time shall Guarantor be
or become a "creditor" of Borrower within the meaning of 11 U.S.C. section
547(b), or any successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted
by law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent.
Guarantor hereby expressly subordinates any claim Guarantor may have against
Borrower, upon any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and consequent
liquidation of the assets of Borrower, through bankruptcy, by an assignment
for the benefit of creditors, by voluntary liquidation, or otherwise, the
assets of Borrower applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by Lender to the
Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender
all claims which it may have or acquire against Borrower or against any
assignee or trustee in bankruptcy of Borrower; provided however, that such
assignment shall be effective only for the purpose of assuring to Lender full
payment in legal tender of the Indebtedness. If Lender so requests, any notes
or credit agreements now or hereafter evidencing any debts or obligations of
Borrower to Guarantor shall be marked with a legend that the same are subject
to this Guaranty and shall be delivered to Lender. Guarantor agress, and
Lender hereby is authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements and to
execute such other documents and to take such other actions as Lender deems
necessary or appropriate to perfect, preserve and enforce its rights under
this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agress that Guarantor has
read and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this
Guaranty; the Guaranty fully reflects Guarantor's intentions and parol
evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or incurred
by Lender as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or amendment
to this Guaranty shall be effective unless given in writing and signed by
the parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of LOS
ANGELES County, State of California. Subject to the provisions on
arbitration, this Guaranty shall be governed by and construed in accordance
with the laws of the State of California.
ARBITRATION. LENDER AND GUARANTOR AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS GUARANTY OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE
AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to
take or dispose of any collateral shall constitute a
<PAGE>
LOAN NO 21600092 (CONTINUED)
================================================================================
waiver of this arbitration agreement or be prohibited by this arbitration
agreement. This includes, without limitation, obtaining injunctive relief of
a temporary restraining order; invoking a power of sale under any deed of
trust or mortgage; obtaining a writ of attachment or imposition of a
receiver; or exercising any rights relating to personal property, including
taking or disposing of such property with or without judicial process
pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims,
or controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Guarantor agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any similar provision in any other state, the commencement of such
an action will not constitute a waiver of the right to arbitrate and the
court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Guaranty shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
ATTORNEY'S FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and shall
be effective when actually delivered or when deposited with a nationally
recognized overnight courier, or when deposited in the United States mail,
first class postage prepaid, addressed to the party to whom the notice is to
be given at the address shown above or to such other addresses as either
party may designate to the other in writing. If there is more than one
Guarantor, notice to any Guarantor will constitute notice to all Guarantors.
For notice purposes, Guarantor agrees to keep Lender informed at all times
of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction so
require; and where there is more than one Borrower named in this Guaranty or
when this Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any one or more
of them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption headings in
this Guaranty are for convenience purposes only and are not to be used to
interpret or define the provisions of this Guaranty. If a court of
competent jurisdiction finds any provision of this Guaranty to be invalid
or unenforceable as to any person or circumstance, such finding shall not
render that provision invalid or unenforceable as to any other persons or
circumstances, and all provisions of this Guaranty in all other respects
shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender
to inquire into the powers of Borrower or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act on their behalf,
and any Indebtedness made or created in reliance upon the professed exercise
of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing any signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Guaranty shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall
not constitute continuing consent to subsequent instances where such
consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS
THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF
THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED
IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO
FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE.
THIS GUARANTY IS DATED MARCH 26, 1996.
GUARANTOR:
x /s/ HENRY L. LEE, JR.
--------------------------------------
HENRY L. LEE, JR.
================================================================================
<PAGE>
NOTICE OF FINAL AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$285,136.60 03-26-2001 21600092 1E T.D. TDJ
- -----------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: LENDER:
LEE PHARMACEUTICALS, INC. (TIN: 952680312) SAN GABRIEL VALLEY BANK
1444 SANTA ANITA AVE. SOUTH EL MONTE
SOUTH EL MONTE, CA 91733-3312 1127 NORTH SANTA ANITA AVENUE
SOUTH EL MONTE, CA 91733
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THE
WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES,
(B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THE
WRITTEN LOAN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE
PARTIES.
AS USED IN THIS NOTICE, THE FOLLOWING TERMS HAVE THE FOLLOWING MEANINGS:
LOAN. The term "Loan" means the following described loan: a Variable Rate
(4.000% over BANK OF AMERICA'S BASE RATE, making an initial rate of
12.250%), Nondisclosable Balloon Loan to a Corporation for $285,136.60
due on March 26, 2001.
PARTIES. The term "Parties" means SAN GABRIEL VALLEY BANK and any and all
entities or individuals who are obligated to repay the loan or have
pledged property as security for the Loan, including without limitation
the following:
BORROWER: LEE PHARMACEUTICALS, INC.
GUARANTOR #1: RONALD G. LEE
GUARANTOR #2: HENRY L. LEE, JR.
LOAN AGREEMENT. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds
of trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
Corporate Resolution to Borrow Loan Agreement / Negative Pledge
Promissory Note / Change in Terms Agr. Commercial Guaranty
Agreement to Provide Insurance Disbursement Request and Authorization
Notice of Final Agreement
EACH PARTY WHO SIGNS BELOW, OTHER THAN SAN GABRIEL VALLEY BANK, ACKNOWLEDGES,
REPRESENTS, AND WARRANTS TO SAN GABRIEL VALLEY BANK THAT IT HAS RECEIVED, READ
AND UNDERSTOOD THIS NOTICE OF FINAL AGREEMENT. THIS NOTICE IS DATED
MARCH 26, 1996.
BORROWER:
LEE PHARMACEUTICALS, INC.
BY: /s/ RONALD G. LEE
--------------------------------------
RONALD G. LEE, PRESIDENT/SECRETARY
GUARANTOR:
X /s/ RONALD G. LEE
----------------------------------------
RONALD G. LEE
GUARANTOR:
X /s/ HENRY L. LEE, JR.
----------------------------------------
HENRY L. LEE, JR.
LENDER:
SAN GABRIEL VALLEY BANK
BY: /s/ TERRY D. JENKINS
--------------------------------------
AUTHORIZED OFFICER
================================================================================
<PAGE>
----------------------------------------
LOAN AND SECURITY AGREEMENT
----------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.5 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Overadvance. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Interest: Rate; Payments; and Calculation. . . . . . . . . . . . 6
2.5 Crediting Payments . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Statements of Obligations. . . . . . . . . . . . . . . . . . . . 7
2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Term; Automatic Renewal. . . . . . . . . . . . . . . . . . . . . 7
3.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 8
3.3 Early Termination by Borrower. . . . . . . . . . . . . . . . . . 8
3.4 Termination Upon Event of Default. . . . . . . . . . . . . . . . 8
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 8
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . 8
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . 8
4.3 Collection of Accounts, Negotiable Collateral. . . . . . . . . . 9
4.4 Delivery of Additional Documentation Required. . . . . . . . . . 9
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Right To Inspect . . . . . . . . . . . . . . . . . . . . . . . . 9
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 10
5.1 No Prior Encumbrances. . . . . . . . . . . . . . . . . . . . . . 10
5.2 Bona Fide Accounts . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Merchantable Inventory . . . . . . . . . . . . . . . . . . . . . 10
5.4 Location of Inventory and Equipment. . . . . . . . . . . . . . . 10
5.5 Inventory Records. . . . . . . . . . . . . . . . . . . . . . . . 10
5.6 Retail Merchant Inventory. . . . . . . . . . . . . . . . . . . . 10
5.7 Location of Principal Place of Business/Chief Executive Office/
Residence. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.8 Due Organization and Qualification . . . . . . . . . . . . . . . 10
5.9 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . 11
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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5.11 No Material Adverse Change in Financial Statements . . . . . . . 11
5.12 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Environmental Condition. . . . . . . . . . . . . . . . . . . . . 12
5.15 Reliance by PBC; Cumulative. . . . . . . . . . . . . . . . . . . 12
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Collateral Reports . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Assignments of Accounts. . . . . . . . . . . . . . . . . . . . . 12
6.4 Financial Statements, Reports, Certificates. . . . . . . . . . . 13
6.5 Tax Returns, Receipts. . . . . . . . . . . . . . . . . . . . . . 13
6.6 Guarantor Reports. . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 Designation of Inventory . . . . . . . . . . . . . . . . . . . . 13
6.8 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.9 Title to Equipment . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 Maintenance of equipment . . . . . . . . . . . . . . . . . . . . 14
6.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.13 PBC Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Extraordinary Transactions and Disposal of Assets. . . . . . . . 15
7.2 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.3 Merge, Acquire . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.4 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.5 Restructure. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.6 Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.7 Change of Ownership. . . . . . . . . . . . . . . . . . . . . . . 15
7.8 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . 15
7.9 Consignments . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.10 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.11 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . 16
7.12 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.13 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 16
7.14 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. EVENT OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. PBC'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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10. TAXES AND EXPENSES REGARDING THE COLLATERAL . . . . . . . . . . . . . . 19
11. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.1 Demand; protest; etc.. . . . . . . . . . . . . . . . . . . . . . 20
11.2 PBC's Liability for Inventory or Equipment . . . . . . . . . . . 20
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . 21
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . 21
15. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 21
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . 22
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 22
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . . . 22
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . . . 22
15.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
Page III
<PAGE>
This LOAN AND SECURITY AGREEMENT, is entered into as of May 21, 1996 between
PREFERRED BUSINESS CREDIT, INC. a California corporation ("PBC"), with its sole
place of business located at 300 N. Lake Avenue, Suite 1115, Pasadena,
California 91101, and LEE PHARMACEUTICALS, a California corporation
("Borrower") located at 1444 Santa Anita Avenue, South El Monte CA 91733.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by borrower and borrower's books relating to any of the
foregoing.
"Agreement" means this Loan And Security Agreement and any
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan And Security Agreement.
"Authorized Officer" means any officer of Borrower authorized in
writing to transact business with PBC.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing , or evidencing Borrower's
assets or liabilities, or the Collateral; all information relating to Borrower's
business operations or financial condition; and all computer programs, disk or
tape files, printouts, runs, or other computer prepared information, and the
equipment containing such information.
"Borrowing Base" has the meaning set forth in section 2.1 hereof.
"Business Day" means any day which is not a Saturday, Sunday, or
other day on which banks in the state of California are authorized or required
to close.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts; the
Equipment; the General Intangibles; the Inventory; the Negotiable Collateral;
any money, or other assets of Borrower which hereafter come into the possession,
custody, or control of PBC and the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Equipment, General
Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other
tangible or intangible property resulting from the sale or other disposition of
the Collateral, or any portion thereof or interest therein, and the proceeds
thereof.
"Daily Balance" means the amount of the Obligations owed by
Borrower at the end of a given day.
1
<PAGE>
"Eligible Accounts" means those Accounts created by Borrower in
the ordinary course of business arising out of Borrower's sale of goods or
rendition of services, which have been validly assigned and strictly comply with
all of Borrower's representations and warranties to PBC, and which are and at
all times shall continue to be acceptable to PBC in all respects; PROVIDED,
HOWEVER, that standards of eligibility may be fixed and revised from time to
time by PBC in PBC's exclusive judgment. Eligible Accounts shall not include
the following:
(a) Accounts which the account debtor has failed to pay within
NINETY (90) days of invoice date;
(b) Accounts with selling terms of more than thirty (30) days (if
approved by PBC, accounts with selling terms of more than thirty (30) days would
remain eligible under (a) above for 120 days from invoice date);
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is not a
resident of the United States, and which are not either (1) covered by credit
insurance in form and amount, and by an insurer, satisfactory to PBC, or (2)
supported by one or more letters of credit in favor of PBC as co-beneficiary, in
an amount and of a tenor, and issued by a financial institution, acceptable to
PBC;
(f) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States, any State of the United States, or any city, town, municipality, or
division thereof;
(g) Accounts with respect to which the account debtor is a
subsidiary of, related to, affiliated with or has common shareholders, officers
or directors with borrower;
(h) Accounts with respect to which Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to borrower;
(i) Accounts with respect to an account debtor whose total
obligations to Borrower exceed ten percent (10%) of all Eligible Accounts to the
extent such obligations exceed the aforementioned percentage;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto, or is subject to any
insolvency proceeding, or becomes insolvent, fails, or goes out of business; and
(k) Accounts the collection of which PBC believes to be doubtful
by reason of the account debtor's financial condition.
"Eligible Inventory" means Inventory consisting of first quality
finished goods held for resale in the ordinary course of Borrower's business and
raw materials for such finished goods, which are located at Borrower's premises
and acceptable to PBC in all respects. Eligible Inventory shall not include
work in process, components which are not part of finished goods, spare parts,
packaging and
2
<PAGE>
shipping materials, supplies used or consumed in Borrower's business, Inventory
at the premises of third parties or subject to a security interest or lien in
favor of any third party, bill and hold goods, inventory which is not subject to
PBC's perfected security interest, returned and/or defective goods, "seconds"
and Inventory purchased on consignment. Eligible Inventory shall be valued at
the lower of Borrower's cost or market.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
motor vehicles, tools, parts, dies, jigs, goods (other than consumer goods or
farm products), and any interest in any of the forgoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the forgoing, wherever located.
"ERISA" means the Employee Retirement Income Security act of 1974,
as amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a
single employer under ERISA Section 4001(b) (1), or IRC Section 414.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blue prints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, monies due under any royalty or
licensing agreements, infringement claims, computer programs, computer discs,
computer tapes, literature, reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims) other than goods and
Accounts, and Borrower's Books relating to any of the foregoing.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with its creditors.
"Inventory" means all present and future inventory in which
borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packaging and shipping
materials, wherever located, and any documents of title representing any of the
above, and Borrower's books relating to any of the foregoing.
"IRC" means the Internal Revenue Code of 1986, as amended, and
regulations thereunder.
"Judicial Officer or Assignee" means any trustee, receiver,
controller, custodian, assignee for the benefit of creditors, or any other
person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian, or assignee for the
benefit of creditors.
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"Loan Documents" means, collectively, this Agreement, any note or
notes (including the term note) executed by Borrower to the order of PBC, and
any other agreement entered into between Borrower and PBC in connection with
this Agreement.
"Multiemployer plan" means a "multiemployer plan" as defined in
ERISA Section 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of the Borrower of any ERISA Affiliate.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, documents, leases, and chattel
paper, and Borrower's books relating to any of the foregoing.
"Obligations" means all loans, advances, debts, principal,
interest (including any interest which, but for the provisions of the United
States Bankruptcy Code, would have accrued), premiums, liabilities (including
all amounts charged to Borrower's loan account pursuant to any agreement
authorizing PBC to charge Borrower's loan account), obligations, fees (including
early termination fees), lease payments, guaranties, covenants, and duties owing
by Borrower to PBC of any kind and description (whether pursuant to or evidenced
by the Loan Documents, by any note or other instrument, or by any other
agreement between PBC and Borrower, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from Borrower to others which PBC may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all PBC Expenses which Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.3 hereof.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Plan" means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a Multiemployer
plan.
"Prohibited Transaction" means any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c)(2) of the IRC.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by BANK OF AMERICA at its headquarters office in SAN
FRANCISCO or any successor thereto, as its "prime rate", with the understanding
that the "prime rate" merely serves as a basis upon which effective rates of
interest are calculated for loans making reference thereto and may not be the
lowest or best rate available from such financial institution.
"Reportable Event" means a reportable event described in Section
4043 of ERISA or the regulations thereunder, a withdrawal from a plan described
in Section 4063 of ERISA, or a cessation of operations described in Section
4068(f) of ERISA.
"PBC Expenses" means all: costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents which are paid or advanced by PBC: filing, recording, publication,
appraisal, and search fees paid or incurred by PBC in connection with PBC's
transactions with Borrower; costs and expenses incurred by PBC in the
disbursement of funds
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to Borrower (by wire transfer or otherwise); charges resulting from the dishonor
of checks; costs and expenses incurred by PBC to correct any default or enforce
any provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, whether or not a
sale is consummated; costs and expenses of auditing Borrower; costs and expenses
of third party claims or any suit incurred by PBC in enforcing or defending the
Loan Documents; and PBC's reasonable attorneys' fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing, defending, or concerning the Loan Documents, whether or
not suit is brought.
"Term Note" has the meaning set forth in Section 2.2 hereof.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto.
1.3 CODE. Any terms used in this Agreement which are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, to the
singular include the plural. The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section, sub-
section, clause, and exhibit references are to this Agreement unless otherwise
specified.
1.5 EXHIBITS. All of the exhibits attached to this Agreement shall be
deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 REVOLVING ADVANCES. Subject to the terms and conditions of this
Agreement, PBC agrees to make revolving advances to Borrower in an amount not to
exceed the Borrowing Base. For purposes of this Agreement "Borrowing Base"
shall mean the sum of:
(a) an amount equal to the lesser of:
(I) SIXTY-FIVE percent (65%) of the amount of Eligible Accounts; and (II) an
amount equal to Borrower's cash collections for the immediately preceding forty-
five (45) day period; plus
(b) an amount equal to the least of:
(I) N/A percent (N/A%) of the amount of Eligible Inventory, (II) the
outstanding balance of advances against Eligible Accounts and (III) N/A Dollars
($N/A).
PBC shall have no obligation to make advances hereunder to the
extent they would cause the outstanding balance of revolving advances under this
Section 2.1 to exceed a maximum amount of ONE MILLION AND 00/100 Dollars
($1,000,000.00). PBC is authorized to make advances under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
officer, employee or representative of Borrower, or without instructions if in
PBC's discretion such advances are necessary to meet Obligations. PBC will
charge the amount of advances made under this Section 2.1 to Borrower's loan
account. Amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time during the term of this Agreement so long as no Event of
default has occurred and is continuing.
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2.2 TERM LOAN. PBC has agreed to make a term loan to Borrower
evidenced by, and repayable in accordance with, that certain Secured Promissory
Note, of even date herewith, by Borrower to the order of PBC, in the original
principal amount of N/A (the "Term Note"). Obligations owing under the Term
Note shall constitute Obligations, and the Term Note, together with each
amendment, extension, supplement, or replacement thereto, shall be deemed to be
a Loan Document.
2.3 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to PBC pursuant to Section 2.1 of this Agreement is
greater than the dollar or percentage limitation set forth in Section 2.1 hereof
(an "overadvance"), Borrower shall immediately pay to PBC, in cash, the amount
of such excess, plus any fees owing pursuant to Section 2.7(b) of this
Agreement.
2.4 INTEREST: RATE; PAYMENTS; AND CALCULATIONS.
(a) INTEREST RATE. Except as specified to the contrary in any
Loan Document, the obligations shall bear interest, on the average Daily
Balance, at a rate of EIGHT percentage points (8%) above the Prime Rate.
(b) DEFAULT RATE. All obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate of TEN percentage points
(10%) above the Prime Rate.
(c) MINIMUM INTEREST. In no event shall interest chargeable
hereunder be less than ONE percent (1%) per month, nor less than THREE THOUSAND
AND 00/100 Dollars ($3,000.00) per month.
(d) PAYMENTS. Interest hereunder shall be due and payable on the
first Business Day of each calendar month during the term hereof. PBC shall, at
its option, charge such interest and all PBC Expenses to Borrower's loan
account, which amounts shall thereafter accrue interest at the rate then
applicable hereunder.
(e) COMPUTATION. The Prime Rate as of this date is EIGHT AND ONE
QUARTER Percent (8.25%) per annum. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased by an amount equal to the Prime Rate change on the
effective date of such change. All interest chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.
2.5 CREDITING PAYMENTS. The receipt of any wire transfer of funds,
check, or other item of payment by PBC shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of PBC or unless and until such check
or other item of payment is honored when presented for payment. For interest
calculation purposes, the receipt of any check, wire transfer, or other item of
payment by PBC shall be deemed to have been paid to PBC FIVE (5) calendar days
after the date PBC actually receives such wire transfer or possession of such
check or other item of payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by PBC after 11:00 a.m.
Los Angeles time shall be deemed to have been received by PBC as of the opening
of business on the immediately following business day.
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2.6 STATEMENT OF OBLIGATIONS. PBC shall render statements to
Borrower of the Obligations, including all statements of principal, interest,
fees, and PBC Expenses owing, and such statements shall be conclusively presumed
to be correct and accurate and constitute an account stated between Borrower
and PBC unless, within thirty (30) days after receipt thereof by Borrower,
Borrower shall deliver to PBC by registered or certified mail at its address
specified herein above, written objection thereto describing the error or
errors, if any, contained in any such statements.
2.7 FEES. Borrower shall pay to PBC the following fees:
(a) INITIAL FACILITY FEE. Concurrently with the execution and
delivery of this Agreement, a fee (the "Initial Facility Fee") in the amount of
EIGHT THOUSAND FIVE HUNDRED AND 00/100 Dollars ($8,500.00). The Initial
Facility Fee shall be fully earned at the time of payment and non-refundable;
(b) OVERADVANCE FEE. Upon the occurrence of any Overadvance, a
fee in an amount equal to one percent (1%) of the dollar amount of such
Overadvance, and every thirty (30) days thereafter that an Overadvance, or any
portion thereof, remains outstanding, a fee in an amount equal to one percent
(1%) of the highest dollar amount of Overadvance existing on any day during the
previous thirty (30) day period.
(c) ANNUAL FACILITY FEE. On each anniversary date of the
effective date of this Agreement while any Obligations are outstanding, a fee
(the "Annual Facility Fee") in the amount equal to One percent (1%) of the
maximum amount of revolving advances allowable under Section 2.1. The Annual
Facility Fee shall be fully earned at the time of payment and non-refundable.
(d) FINANCIAL EXAMINATION AND APPRAISAL. PBC's customary fee of
Five Hundred Dollars ($500) per day for each quarterly financial analysis and
examination of Borrower performed by PBC or its agents.
(e) COLLATERAL MANAGEMENT FEE. On the first day of each month
while this Agreement remains in effect, a fee (the "Collateral Management Fee")
in an amount equal to N/A of Borrower's net sales for the preceding month. The
Collateral Management fee shall be based upon Borrower's sales as assigned/or
reported to PBC each month.
3. TERM
3.1 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon acceptance by PBC and shall continue in full force and effect for a term
ending two years from the date of this Agreement (the "Renewal Date") and shall
be automatically renewed for successive ONE (1) year periods thereafter, unless
sooner terminated pursuant to terms hereof. Either party may terminate this
Agreement on the Renewal Date or on any ONE (1) year anniversary of the Renewal
date by giving the other party at least ninety (90) days prior written notice by
registered or certified mail, return receipt requested. Notwithstanding the
foregoing, PBC shall have the right to terminate this Agreement immediately and
without notice upon the occurrence of an Event of Default.
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3.2 EFFECT OF TERMINATION. On the date of termination, all
Obligations shall become immediately due and payable without notice or demand.
No termination of this Agreement, however, shall relieve or discharge Borrower
of Borrower's duties, Obligations, and covenants hereunder, and PBC's continuing
security interest in the Collateral shall remain in effect, until all
Obligations have been fully discharged and PBC's obligation to provide advances
hereunder is terminated. If Borrower has sent a notice of termination pursuant
to the provisions of Section 3.3, but fails to pay all Obligations as of the
date set in said notice, then PBC may, but shall not be required to, renew this
Agreement for an additional term of one (1) years.
3.3 EARLY TERMINATION BY BORROWER. Notwithstanding the provisions of
Section 3.1 hereof which allow termination of this Agreement by Borrower only on
the Renewal Date and certain anniversaries thereof, at any time subsequent to
the expiration of the initial term of this Agreement, Borrower has the option,
on ninety (90) days prior written notice to PBC, to terminate this Agreement on
a date other than an anniversary of the effective date by paying to PBC, in
cash, the Obligations together with all accrued and unpaid interest and
expenses.
3.4 TERMINATION UPON EVENT OF DEFAULT. If PBC terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of PBC's lost
profits as a result thereof, Borrower shall pay to PBC upon the effective date
of such termination, a fee ("Early Termination Fee") in an amount equal to THE
MINIMUM INTEREST DUE FOR THE REMAINING TERM OF THE AGREEMENT. The Early
Termination Fee shall be presumed to be the amount of damages sustained by PBC
as the result of the early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early Termination Fee provided
for in this Section 3.4. shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to PBC a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. PBC's security interest in
the Collateral shall attach to all Collateral without further act on the part of
PBC or Borrower.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of PBC, endorse and assign such
Negotiable Collateral to PBC and deliver physical possession of such Negotiable
Collateral to PBC.
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4.3 COLLECTION OF ACCOUNTS, NEGOTIABLE COLLATERAL. PBC or PBC's
designee may, at any time: (a) notify customers or account debtors of Borrower
that the Accounts or Negotiable Collateral have been assigned to PBC or that PBC
has a security interest therein; (b) require Borrower to establish a lock-box
or other restricted account satisfactory to PBC for the collection of Accounts;
and (c) collect the accounts and Negotiable Collateral directly and charge the
collection costs and expenses to Borrower's loan account; but, unless and until
PBC does so or gives Borrower other written instruction, Borrower shall collect
all Accounts and Negotiable Collateral for PBC, receive in trust all payments
thereon as PBC's trustee, and immediately deliver said payments to PBC in their
original form as received from the account debtor.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
execute and deliver to PBC, prior to or concurrently with Borrower's execution
and delivery of this Agreement and at any time thereafter at the request of PBC,
all financing statements, continuation financing statements, fixture fillings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that PBC
may reasonably request, in form satisfactory to PBC, to perfect and maintain
perfected PBC security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints PBC (and any of PBC's officers, employees, or agents
designated by PBC) as Borrower's true and lawful attorney, with power to: (a)
sign the name of Borrower on any of the documents described in Section 4.4 or on
any other similar documents to be executed, recorded, or filled in order to
perfect or continue perfected PBC's security interest in the Collateral; (b)
sign Borrower's name on any invoice or bill of lading relating to any Account,
drafts against account debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to account debtors; (c) send requests
for verification of Accounts; (d) endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts, or other forms of payment or security that
may come into PBC's possession; (e) notify the post office authorities to
change the address for delivery of Borrower's mail to an address designated by
PBC, to receive and open all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to Borrower; (f) make,
settle, and adjust all claims under Borrower's policies of insurance and make
all determinations and decisions with respect to such policies of insurance; and
(g) settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which PBC determines to be
reasonable, and PBC may cause to be executed and delivered any documents and
releases which PBC determines to be necessary. The appointment of PBC as
Borrower's attorney, and each and every one of PBC's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and PBC's obligation to provide advances hereunder is
terminated.
4.6 RIGHT TO INSPECT. PBC (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter, during Borrower's
usual business hours, or during the usual business hours of any third party
having control over the records of Borrower, to inspect Borrower's books and to
check and test the Collateral in order to verify Borrower's financial condition
or the amount, quality, value, condition of, or any other matter relating to,
the Collateral.
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5. REPRESENTATION AND WARRANTIES
Borrower represents and warrants as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of liens, claims, security interest, or
encumbrances (except as held by PBC and except as specifically disclosed herein,
or as may be consented to, in advance and in writing, by PBC).
5.2 BONA FIDE ACCOUNTS. The Accounts are, and at all times hereafter
shall be, bona fide existing obligations created by the sale and delivery of
Inventory or the rendition of services to account debtors in the ordinary course
of Borrower's business, unconditionally owed to Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation. The
property giving rise to such Accounts has been delivered to the account debtor,
or to the account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not, and at all times hereafter,
shall not have, received notice of actual or imminent bankruptcy, insolvency, or
financial embarrassment of any account debtor at the time an Account due from
such account debtor is assigned to PBC.
5.3 MERCHANTABLE INVENTORY. All Inventory is now and at all times
hereafter shall be of good and marketable quality, free from defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
is not now and shall not at any time hereafter be stored with a bailee,
warehouseman, or similar party without PBC's prior written consent. Borrower
shall keep the Inventory and Equipment only at the following location:
1428, 1434, 1444, 1460, 1470, 1500, AND 1516 SANTA ANITA AVENUE, SOUTH EL
MONTE, CA 91733 AND 1425 AND 1427 LIDCOMBE AVENUE, SOUTH EL MONTE, CA 91733
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at all times
shall keep, correct and accurate records itemizing and describing the kind,
type, quality, and quantity of the Inventory, and Borrower's cost therefor.
5.6 RETAIL MERCHANT INVENTORY. Borrower's retail sales of goods for
personal, family, or household purposes for the twelve (12) months preceding the
date of filing of the financing statement perfecting the security interest
granted hereunder, did not exceed twenty-five percent (25%) in dollar volume of
Borrower's total sales of all goods during that period. At all times during
each month of the term of this Agreement, Borrower's retail sales of goods for
personal, family, or household purposes shall not exceed twenty-five percent
(25%) in dollar volume of Borrower's total sales of all goods in each such
month.
5.7 LOCATION OF PRINCIPAL PLACE OF BUSINESS/CHIEF EXECUTIVE
OFFICE/RESIDENCE. The chief executive office, or residence of Borrower is at
the address indicated in the first paragraph of this Agreement and Borrower
covenants and agrees that it will not, without thirty (30) days prior written
notification to PBC, relocate such principal place of business, chief executive
office, or residence.
5.8 DUE ORGANIZATION AND QUALIFICATION. If Borrower is a corporation
it is and shall at all times hereafter be duly organized and existing and in
good standing under the laws of the state of its incorporation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so
qualified; if Borrower is a partnership, it is and shall at all times hereafter
be duly organized and existing and in good standing under the laws of the state
of its organization and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or the ownership of
property requires that its be so qualified.
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5.9 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate, partnership,
trust, or personal powers, as the case may be, have been duly authorized, and
are not in conflict with nor constitute a breach of any provision contained in
Borrower's Articles or Certificate of Incorporation, By-laws, or any partnership
or trust agreement pertaining to Borrower, nor will they constitute an event of
default under any material agreement to which Borrower is now or may hereafter
become a party.
5.10 LITIGATION. Except as disclosed, there are no actions or
proceedings pending by or against Borrower before any court or administrative
agency and Borrower does not have knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving Borrower or any guarantor of the
Obligations, except for ongoing collection matters in which Borrower is the
plaintiff. If any of the forgoing arises during the term of this Agreement,
Borrower shall promptly notify PBC in writing.
5.11 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All financial
statements relating to Borrower or any guarantor of the Obligations which have
been or may hereafter be delivered by Borrower to PBC have been prepared in
accordance with GAAP and fairly present Borrower's financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has been no material adverse change in the financial condition of Borrower
or any guarantor since the date of the most recent of such financial statements
submitted to PBC.
5.12 SOLVENCY. Borrower is now and shall be at all times hereafter
solvent and able to pay its debts (including trade debts) as they mature.
5.13 ERISA. None of Borrower, any ERISA Affiliate, or any plan is or
has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a), or any of the published
interpretations there under. No notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA, nor has any Plan been terminated under
Section 4041(e) of ERISA. The PBGC has not instituted proceedings to terminate,
or appoint a trustee to administer, a plan an no event has occurred or condition
exists which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
Neither Borrower nor any ERISA Affiliate would be liable for any amount pursuant
to Section 4062, 4063, or 4064 of ERISA if all Plans terminated as of the most
recent valuation dates of such Plans. Neither Borrower nor any ERISA Affiliate
have: withdrawn from a "multiple employer plan" during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; or failed
to make a payment to a plan required under Section 302(f)(1) of ERISA such that
security would have to be provided pursuant to Section 307 of ERISA. No lien
upon the assets of Borrower has arisen with respect to any plan. No Prohibited
Transaction or Reportable Event has occurred with respect to Plan. Neither
Borrower nor any ERISA Affiliate has incurred any withdrawal liability with
respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have made
all contributions required to be made by them to any plan or Multiemployer Plan
when due. There is no accumulated funding deficiency in any Plan, whether or
not waived.
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5.14 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance. None
of Borrower's properties or assets has ever been designed or identified in any
manner pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower. Borrower has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.15 RELIANCE BY PBC; CUMULATIVE. Each warranty, representation, and
agreement contained in this Agreement shall be automatically deemed repeated
with each advance and shall be conclusively presumed to have been relied on by
PBC regardless of any investigation made or information possessed by PBC. The
warranties, representation, and agreements set forth herein shall be cumulative
and in addition to any and all other warranties, representations, and agreements
which Borrower shall now or hereafter give, or cause to be given, to PBC.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, and unless PBC
shall otherwise consent in writing, Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall maintain
a standard and modern system of accounting in accordance with GAAP with ledger
and account cards or computer tapes, disks, printouts, and records pertaining to
the Collateral which contain information as may from time to time be requested
by PBC. Borrower shall also keep proper books of Accounts showing all Sales,
claims, and allowances on its inventory.
6.2 COLLATERAL REPORTS. Borrower shall, deliver to PBC, no later than
the tenth (10th) day of each month during the term of this Agreement, a detailed
aging, by total, of the accounts, a reconciliation statement, and a summary
aging, by vendor, of all accounts payable and any book overdraft. Original
sales invoices evidencing daily sales shall be mailed by Borrower to each
account debtor with a copy to PBC, and, at PBC's direction, the invoices shall
indicate on their face that the Account has been assigned to PBC and that all
payments are to be made directly to PBC. Borrower shall deliver to PBC, as PBC
may from time to time require, collection reports, sales journals, invoices,
original delivery receipts, customer's purchase orders, shipping instructions,
bills of lading and other documentation respecting shipment arrangements.
Absent such a request by PBC, copies of all such documentation shall be held by
Borrower as custodian for PBC.
6.3 ASSIGNMENTS OF ACCOUNTS. Borrower shall provide PBC with
schedules describing all Accounts and shall execute and deliver to PBC
assignments of all Accounts. Borrower's failure to execute and deliver such
schedules or assignments shall not affect or limit PBC's security interest or
other rights in and to the Accounts.
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6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees to
deliver to PBC: (a) as soon as available, but in any event within forty-five
(45) days after the end of each fiscal quarter during each of Borrower's fiscal
years, a company prepared balance sheet, income statement and cash flow
statement covering Borrower's operations during such period; and (b) as soon as
available, but in any event within one hundred twenty (120) days after the end
of each of Borrower's fiscal years, financial statements of Borrower for each
such fiscal year, reviewed by independent certified public accountants
acceptable to PBC and certified, by such accountants to have been prepared in
accordance with GAAP, consistently applied, together with a certificate of such
accountants addressed to PBC stating that such accountants do not have knowledge
of the existence of any event or condition constituting an Event of Default.
Such reviewed financial statements shall include a balance sheet, profit and
loss statement, and cash flow statement, and such accountants' letter to
management. Borrower shall have issued written instructions to its independent
certified public accountants, authorizing them to communicate with PBC and to
release to PBC whatever financial information concerning Borrower that PBC may
request. If Borrower is a parent company of one or more subsidiaries, or
affiliates, or is a subsidiary or affiliate of another company, then, in
addition to the financial statement referred to above, Borrower agrees to
deliver financial statements prepared on a consolidating basis so as to present
Borrower and each such related entity separately, and on a consolidated basis.
Together with the above, Borrower shall also deliver to PBC any other
report reasonably requested by PBC relating to the Collateral and the financial
condition of Borrower.
Each month Borrower shall deliver to PBC a certificate signed by its
chief financial officer to the effect that: (a) all reports, statements, or
computer prepared information of any kind or nature delivered or caused to be
delivered to PBC hereunder have been prepared in accordance with GAAP,
consistently applied and fully and fairly present the financial condition of
Borrower; (b) Borrower is in timely compliance with all representations,
warranties, and covenants hereunder; and (c) on the date of delivery of such
certificate to PBC there does not exist any condition or event which constitutes
an Event or Default.
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to PBC, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to PBC any
information they may have regarding Borrower's business affairs and financial
conditions.
6.5 TAX RETURNS, RECEIPTS. Borrower agrees to deliver to PBC copies
of each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
6.6 GUARANTOR REPORTS. Borrower agrees to cause all guarantors of any
of the Obligations to deliver their annual financial statements and copies of
all federal income tax returns as soon as the same are available and in any
event no later than thirty (30) days after the same are required to be filed by
law.
6.7 DESIGNATION OF INVENTORY. Borrower shall now and from time to
time hereafter, but not less frequently than monthly, execute and deliver to PBC
a designation of Inventory specifying Borrower's cost and the wholesale market
value of Borrower's raw materials, work in process, and finished goods, and
further specifying such other information as PBC may reasonably request.
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6.8 RETURNS. Returns and allowances, if any, as between Borrower and
its account debtors, shall be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If at any time prior to the occurrence of an Event
of Default, any account debtor returns any Inventory to Borrower, Borrower shall
promptly determine the reason for such return and, if Borrower accepts such
return, issue a credit memorandum (with a copy to be sent to PBC) in the
appropriate amount to such account debtor. Borrower shall promptly notify PBC
of all returns and recoveries and of all disputes and claims.
6.9 TITLE TO EQUIPMENT. Upon PBC's request, Borrower shall
immediately deliver to PBC, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain the
Equipment in good operating condition and repair, make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any item of
Equipment to become a fixture to real estate or an possession to other property,
and the Equipment is now and shall at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property have been paid, and shall hereafter be paid in full,
before delinquency or before the expiration of any extension period. Borrower
shall make due and timely payment or deposit of all federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to PBC, on demand, appropriate certificates attesting to the payment or
deposit thereof. Borrower will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, including, but
not limited to, those laws concerning F.I.C.A., and F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish PBC
with proof satisfactory to PBC indicating that Borrower has made such payments
or deposits.
6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss of damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses. Borrower shall also maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Collateral.
(b) All such policies of insurance shall be in such form, with
such companies, and on such amounts as satisfactory to PBC. All such policies
of insurance (except those of public liability and property damage) shall
contain a 438BFU lender's loss payable endorsement, or an equivalent endorsement
in a form satisfactory to PBC, showing PBC as sole loss payee thereof, and shall
contain a waiver of warranties, and shall specify that, the insurer must give at
least ten (10) days notice to PBC before canceling its policy for any reason.
Borrower shall deliver to PBC certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall be payable to PBC to be applied on account of the
Obligations.
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6.13 PBC EXPENSES. Borrower shall immediately and without demand
reimburse PBC for all sums expended by PBC which constitute PBC Expenses and
Borrower hereby authorizes and approves all advances and payments by PBC for
items constituting PBC Expenses.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, Borrower will
not do any of the following
without PBC's prior written consent:
7.1 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into any
transaction not in the ordinary and usual course of Borrower's business,
including but not limited to, the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
assets (other than sales of Inventory in the ordinary and usual course of
Borrower's business as presently conducted), the incurrence of any debts outside
the ordinary and usual course of Borrower's business except for renewals or
extensions of existing debts, or the making of any advance or loan except in the
ordinary course of business as presently conducted.
7.2 CHANGE NAME. Change Borrower's name, business structure, or
identity, or add any new fictitious name.
7.3 MERGE, ACQUIRE. Acquire, merge, or consolidate with or into any
other business organization.
7.4 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the account of Borrower of which
are transmitted or turned over to PBC.
7.5 RESTRUCTURE. Make any change in Borrower's financial structure or
in any of its business operations, or change the date of its fiscal year.
7.6 PREPAYMENT. Prepay any existing indebtedness owing to any third
party.
7.7 CHANGE OF OWNERSHIP. Cause, permit, or suffer any change, direct
or indirect, in Borrower's ownership in excess of ten percent (10%) of
outstanding shares.
7.8 CAPITAL EXPENDITURES. Make any plant or fixed capital
expenditure, or any commitment therefor, or purchase or lease any real or
personal property or replacement equipment subject to a purchase money security
interest, trust deed or lease, in excess of ONE HUNDRED AND FIFTY THOUSAND AND
00/100 Dollars ($150,000.00) for any individual transaction or where the
aggregate amount of such transactions, in any fiscal year, is in excess of ONE
HUNDRED AND FIFTY THOUSAND AND 00/100 Dollars ($150,000.00). PBC is aware of,
and consents to, Borrower's use of a portion of advances made under this
Agreement to acquire certain product lines and inventory.
7.9 CONSIGNMENTS. consign any Inventory, sell any goods on bill and
hold, or other unusual terms of sale.
7.10 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire any
of Borrower's capital stock, of any class, whether now or hereafter outstanding.
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7.11 ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement presently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide PBC information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by PBC pursuant to or in accordance with this Agreement, and agrees that PBC may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.12 INVESTMENTS. Directly or indirectly make or any beneficial
interest in (including stock, partnership interest, or other securities of), or
make any loan, advance, or capital contribution to, any corporation,
association, person, or entity, in excess of ONE HUNDRED AND FIFTY THOUSAND AND
00/100 Dollars ($150,000.00).
7.13 TRANSACTIONS WITH AFFILIATES. Borrower will not directly or
indirectly enter into or permit to exist any material transaction with any
person or entity controlling, controlled by, or under common control (whether by
contract, ownership of voting securities, or otherwise) with Borrower except for
transactions which are in the ordinary course of Borrower's business, upon fair
and reasonable terms and which are fully disclosed to PBC and no less favorable
to Borrower than would be obtained in an arm's length transaction with a non-
affiliated person or entity.
7.14 SUSPENSION. Suspend or go out of business.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due
and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the United States
Bankruptcy Code, would have accrued on such accounts), fees and charges due
PBC, taxes, reimbursement of PBC Expenses, or otherwise);
8.2 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and PBC;
8.3 If there is a material impairment of the prospect of repayment of
any portion of the Obligations owing to PBC or a material impairment of the
value or priority of PBC's security interests in the Collateral;
8.4 If any material portion of Borrower's assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any judicial officer or assignee;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower;
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8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of lien, levy, or assessment is filed or recorded with
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or other governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
choate or otherwise, upon any of Borrower's assets and the same is not paid on
the payment date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance upon
any material portion of Borrower's assets;
8.10 If there is default in any material agreement to which Borrower is
a party with third parties resulting in a right by such third parties, whether
or not exercised, to accelerate the maturity of Borrower's indebtedness;
8.11 If Borrower makes any payment on account of indebtedness which has
been subordinated to the Obligations except to the extent such payment is
allowed under any subordination agreement entered into with PBC;
8.12 If any misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or report made to PBC by Borrower or
any officer, employee, agent, or director of Borrower, or if any such warranty
or representation is withdrawn by any officer or director;
8.13 If any guaranty of the Obligations is limited or terminated by
operation of law or by the guarantor thereunder, or any guarantor becomes the
subject of an Insolvency Proceeding;
8.14 If a Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower; if any lien upon the assets of Borrower in connection
with any plan shall arise; if Borrower or any ERISA Affiliate shall completely
or partially withdraw from a Multiemployer Plan or a Multiple Employer Plan of
which Borrower or such ERISA Affiliate was a substantial employer, and such
withdrawal could, in the opinion of PBC, have a material adverse effect on the
financial condition of Borrower; if Borrower or any of its ERISA Affiliates
shall fail to make full payment when due of all amounts which Borrower or any of
its ERISA Affiliates may by required to pay to any Plan or any Multiemployer
plan as one or more contributions thereto; if Borrower or any of its ERISA
Affiliates creates or permits the creation of any accumulated funding
deficiency, whether or not waived; or upon the voluntary or involuntary
termination of any Plan which termination could, in the opinion of PBC, have a
material adverse effect on the financial condition of Borrower, or Borrower
shall fail to notify PBC promptly and in any event within ten (10) days of the
occurrence of any event which constitutes an Event of Default under this clause
or would constitute such an Event of Default upon exercise of PBC's judgment;
or
8.15 If any writing, document, aging, certificate or other evidence of
the Accounts or Inventory shall be materially incomplete, incorrect, or
misleading at the time the same is furnished to PBC.
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9. PBC'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default
PBC may, at its election, without notice of its election and without demand, do
any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and PBC;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or Obligation of PBC, but without affecting PBC's
rights and security interest in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts and upon terms which PBC considers advisable, and in such
cases, PBC will credit Borrower's loan account with only the net amounts
received by PBC in payment of such disputed Accounts, after deducting all PBC
Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
PBC, segregate all returned Inventory from all other property of Borrower or in
Borrower's possession and conspicuously label said returned Inventory as the
property of PBC;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as PBC considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if PBC so requires, and to make the Collateral available to PBC
as PBC may designate. Borrower authorizes PBC to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in PBC's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants PBC a
license to enter into possession of such premises and to occupy the same,
without charge, for up to ninety (90) days in order to exercise any of PBC's
rights or remedies provided herein, at law, in equity, or otherwise;
(g) Set off and apply any and all balances and deposits held by,
or indebtedness at any time owing to or for the credit or the account of
Borrower by PBC without notice to Borrower (such notice being expressly waived);
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. PBC is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of advertising for sale, and selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
PBC's benefit;
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(i) Sell the collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as PBC
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(j) PBC shall give notice of the disposition of the Collateral as
follows:
(1) PBC shall give the Borrower and each holder of a security
interest in the Collateral who has filed with PBC a written request for notice,
a notice in writing of the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public sale is to be made of
the Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12 of this Agreement, at least five
(5) calendar days before the date fixed for the sale, or at least five (5)
calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower claiming and
interest in the Collateral shall be sent to such addresses as they have
furnished to PBC;
(3) If the sale is to be a public sale, PBC shall also give
notice of the time and place by publishing a notice one time at least five (5)
calendar days before the date of the sale in a newspaper of general circulation
in the county in which the sale is to be held;
(k) PBC may credit bid and purchase at any public sale; and
(l) Any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned to Borrower, without interest and subject to the rights of
third parties, by PBC.
9.2 REMEDIES CUMULATIVE. PBC's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
PBC shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by PBC or one right
or remedy shall be deemed an election, and no waiver by PBC of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by PBC
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or otherwise) due to third persons or entities, or fails to
make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that PBC
determines that such failure by Borrower could have a material adverse effect on
PBC's interests in the Collateral, in its discretion and without prior notice to
Borrower, PBC may do any or all of the following: (a) make payment of the same
or any part thereof; (b) set up such reserves in Borrower's loan account as PBC
deems necessary to protect PBC from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.12
of this Agreement, and take any action with respect to such policies as PBC
deems prudent. Any amounts paid or deposited by PBC shall constitute PBC
Expenses, shall be immediately charged to Borrower's loan account and become
additional Obligations, shall bear interest at the then applicable rate herein
above provided, and shall be secured by the Collateral. Any payments made by
PBC shall not constitute an agreement by PBC to make similar
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payments in the future or a waiver by PBC of any Event of Default under this
Agreement. PBC need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance, or lien and the receipt of the
usual official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
11. WAIVERS
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by PBC on which Borrower may in any way be liable.
11.2 PBC'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long as PBC
complies with its obligations, if any, under Section 9207 of the Code, PBC shall
not in any way or manner be liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other person whomsoever. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrower.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegram (with messenger delivery specified) to Borrower or to
PBC, as the case may be, at its addresses set forth below:
If to Borrower: 1444 Santa Anita Avenue
South El Monte, CA 91733
Attn.: Ronald G. Lee President
If to PBC: PREFERRED BUSINESS CREDIT, INC.
300 N. Lake Avenue, Suite 1115
Pasadena, California 91101
Attn.: Farhad Motia, President
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by PBC in connection with Section 9504 or 9505 of the Code, shall
be deemed received on the earlier of the date of actual receipt or three (3)
calendar days after the deposit thereof in the mail. Borrower acknowledges and
agrees that notices sent by PBC in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
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13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES AGREE
THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL
BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR AT THE SOLE OPTION OF PBC, IN ANY
OTHER COURT IN WHICH PBC SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND PBC WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND PBC HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS. BORROWER AND PBC REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers
delivered to PBC may be destroyed or otherwise disposed of by PBC three (3)
months after they are delivered to or received by PBC, unless Borrower requests,
in writing, the return of the said documents, schedules, invoices or other
papers and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and accepted and executed by PBC.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights
hereunder without PBC's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by PBC shall release
Borrower from its Obligations. PBC may assign this Agreement and its rights and
duties hereunder. PBC reserves the right to sell, assign, transfer, negotiate,
or grant participations in all or any part of, or any interest in PBC's rights
and benefits hereunder. In connection therewith, PBC may disclose all documents
and information which PBC now or hereafter may have relating to Borrower or
Borrower's business.
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15.3 SECTION HEADINGS. Heading and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against PBC or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
15.7 COUNTERPARTS. This agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
Borrower and PBC have executed this Agreement at PBC's place of
business in Pasadena, California.
LEE PHARMACEUTICALS
a California corporation
------------------------------------
By: /s/ Ronald G. Lee
------------------------------------
Ronald G. Lee, President
PREFERRED BUSINESS CREDIT, INC.,
a California corporation
------------------------------------
By: /s/ Farhad Motia
------------------------------------
Farhad Motia, President
22
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